Grow your business by buying one
Whether you already own a business and want to grow, or you want to break into the business world with the acquisition of an established company, there are many things to consider before you begin the process.
One of the primary benefits of purchasing an established company is that you won’t have the struggle of building a business from the ground up and can work with the current established foundation. However, keep in mind that you could inherit the negatives as well, such as a questionable reputation or deeply entrenched operations that will be more difficult to optimize and clash with the way your business runs.
Here are 11 things to consider if you want to buy a business and grow:
1. Timing Is Everything
When planning to acquire a business, consider whether the timing and fit are right for your company and if it will help it grow beyond what it could on its own.
There are many points to consider when deciding if the time is right to acquire a business. You will need to check your readiness on a financial and personal level and conduct market research on the industry.
2. Familiarity with the industry
One of the things I’ve learned in business is to do things from a position of strength. You don’t start a marathon without training for many months before the event if you want to finish. That’s equally true if you want to win a sprint. Without training you will strain a muscle and never finish.
If you plan to buy a business, make sure you have a genuine interest in the industry and how it works and equally important, that industry has a long-term future and it relates to your current business or area of expertise.
3. Potential ROI
The magic of a business is in its numbers which are only available through their financial statements. In a privately held company, financial statements are closely guarded. Once you get hold of the financial statements, test their quality as you need to know when you calculate your potential Return On Investment if the numbers make sense.
4. Reputation of the Business
Hopefully your business has a stellar reputation. A reputation requires protecting and making an investment. If you plan to buy a business, talk to existing customers, suppliers, landlord and those in the same industry to see if there are good relationships. A business with a strong reputation can easily be dragged down by a business with a bad or poor reputation. Also go online and see what reviews and comments are available and contact the Better Business Bureau. If the reputation of a business is too tarnished, and relationships are not in good shape, they may be too hard to turn around.
5. Does the acquisition bring synergies
A basic reason to buy another business is to generate synergies, that is, organic and non-organic growth plus lower costs because of an increase in buying power all flowing to the bottom line. Make sure you know your industry and where your business currently sits and will it make your business stronger. Here is more information about buying a business.
6. Will buying the business strengthen Daily Operations
The strength of a business is how it executes on a daily basis. A business has a culture or “way of doing things” that many times is subtle. Buying a business to blend with the existing business may create a clash of cultures. In 2001 and 2002 I worked at Hewlett-Packard which acquired Compact. To make the merger as positive as possible, HP was the blue team and Compact was the red team with the goal to blend all processes and procedures into a new standard called purple. There was so much animosity between the blue and red teams that the merger was hopelessly drawn out while costs and benefits took much longer than necessary.
Prior to announcing any new acquisition, put strategies and tactics together that complement the current philosophy and culture of the business. Even consider hiring a professional team to help with bringing both businesses together.
7. Weaknesses or Struggles of the Business
Through exploring the reputation of a business to buy, it can also show the strengths and weaknesses of the business. To help define and analyze what you find, consider putting together your advisory team with legal, finance, accounting, tax and marketing skills. What may look like a weakness to you could be a strength in another context or through the eyes of your trusted advisors. Equally, what may be a strength could be a weakness.
8. Are all decision makers on board
You may or may not have a team of trusted advisors but at a minimum you should have other perspectives be they from your senior managers, family or trusted professionals. Making the right acquisition is not a quick or simple process and it is also not for the faint of heart as it comes with risk. Be aware that your closest advisors may be more than happy for you to say “No” to the acquisition as say yes as they may consider you don’t have enough time, already work too hard or simple don’t need to take the risk.
9. Can you handle the financial risk?
At the end of the day, one of the biggest risks will be a financial risk. If your buy the right business the benefit will flow to the bottom line. If you buy the wrong business, it will hurt the bottom line. Before you find out if your acquisition benefits or hurts the bottom line, make sure your business is financially strong enough to make the purchase including the costs of sustaining the business purchase until the bottom line turns very positive.
10. Making the Choice
Ensuring that the company you are acquiring is a good choice for you and your business requires a lot of planning and research. At the end of the day it’s as complicated as a Yes or No.
Before you make that final decision make sure you have the time. Buying a business requires overseeing the current operations and blending them with your business. Once again, it will require sacrificing many hours of time and taking away from your current focus.
In your journey to find a business for sale, you may come across a business that is a better fit but not for sale. It’s very unusual for any business to not be for sale as a good business should always be run as if it’s for sale. Finding out is only a matter of making a phone call whether you do it yourself or hiring a professional like me to help you.
11. Alternatives to Acquisition
If you are not ready to acquire, or if the timing is not right, you may consider alternatives to acquiring a business. These include:
- Merge: Rather than an outright acquisition, a merger combines your business with another existing business to fuse current business activities. Mergers usually occur to diversify or grow a company’s current market and activities.
- Alliance: Similar to a merger, an alliance is an agreement between two parties where they agree to work together for a mutual benefit by sharing goals and actions. It’s also called a Joint Venture. This is usually done to draw more business by sharing marketing strategies and if after a while everything is working, the next natural step is to merge; if both parties can agree on the purchase price, terms and conditions.
- New location: Perhaps your strategy can be no more complicated than opening a new location for your current business. This reduces your risk by allowing you to expand your market and find new customers without the hassle or risk of purchasing a separate company.
For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.