Most business owners who have owned their own business for more than seven years are slightly cynical of anything that is a ‘quick fix’. The old saying “It’s too good to be true” is usually just that. I tend to agree with this statement but I’m also impatient. As much as I value money I value my time a lot more. If there are faster ways of doing something then I usually go for it. This could be something as simple as paying an extra toll when driving somewhere.
Owning a business is like running a marathon, especially if you are small business owner. Organic business growth is like a steady stream; it gets results and allows year to year growth. The problem is that the results can take a while. Growth rates of 20–50% for small business owner are usually considered very good going. But if your turnover is $2M and your growth rate is 30%,gr then it’s going to take you 3.5 years to double your business.
What if there was a faster option available?
Growth-through-acquisition for the small business market is set to become the new model for business growth.
If you had the option of organic growth or of buying another business that already has the same level of sales as you do – which would you prefer? This strategy is by far the most efficient path to success, providing you have what I like to call “a digestion team” in place to help merge the businesses together.
You can invest in property or the share market and on average will have a nice 8-10% return over the next few years.
If you invest in yourself and your business, then returns and possible ROI will exceed any of the traditional asset classes available.
Here are six things to consider if you wanted to implement growth-through-acquisition into your business plan:
1. How big do you want to get to?
What’s the end game? IPO? $15M business? What kind of money do you need to be financially independent? Stopping short of this figure is just short-changing yourself.
2. How much can you handle at once?
If you are a $2M business and you want to buy a $12M business as your first purchase then there is chance you could be biting off more than you can chew. Ensure your current team or the leadership team that is in place in the new entity is up to the task.
3. What type of business would make the best purchase from a strategic stand point?
Buying competitors can obviously have advantages from back office savings in efficiency. You should be looking for a business that is not just a going concern. What business compliments your current model and could therefore provide an entire list of new customers for your current offering. Being strategic about your purchase means you will end up with current revenue from the business, plus be in a situation to add to your existing revenue from their customers or suppliers.
4. If you need investors or funds, how much equity are you prepared to part with?
I’ve seen great deals get left on the table over this one. It can be hard to part with your hard-earned equity however, remember the golden rule: it is far better to own 50% of something massive then 100% of something small.
5. How much time do you have to dedicate to finding the right business?
To get agreeable terms, find off-market businesses and really ensure that you are getting a good value, you probably need to consider a strategy that isn’t just looking for what is currently being advertised.
6. Who do you need in your corner to help make this a reality in the next year?
A strong accountant, a strong commercial lawyer, an advisory firm that has handled these types of transactions before.
If you are interested in exploring acquisition as a growth model for your business then please contact firstname.lastname@example.org for a confidential chat.