While the term “acquisition” in a business context generally conjures up images of huge, multibillion dollar deals involving mega-corporations, stock options, and plenty of other features the average small business owner is unlikely to be able to offer, the reality is that business acquisition — in its basic form — has long been a viable and effective strategy for small business growth.
Let’s dive a little deeper into what acquisition means for small businesses and how it can be used to fuel growth, even on a smaller scale.
What is small business acquisition?
To acquire a business simply means buying a business for the purpose of growing the business you currently own.
That can mean purchasing one or more of your competitors so you can gain access to their customers, products, or services. Or, it can mean purchasing an unrelated business so you can take advantage of their prime location and convert it into an extension of your own business. Acquiring businesses can also be a form of investment, even if you have no interest in changing or rebranding anything about them.
In all these cases, the acquisition is generally a fairly small transaction (usually in the 5- or 6-figure realm) as compared to the multibillion dollar acquisitions that make international headlines. Still, buying a business — no matter the size — is still a significant undertaking that needs to be taken seriously and planned out strategically if it’s going to succeed and lead to the growth the owner is striving for.
When does acquisition make sense?
As a business owner, you’ll will want to consider the possibility of acquiring another company if and when at least one of the following conditions exist:
1. You are currently succeeding in a highly competitive marketplace and purchasing one or more of your competitors would both increase your market share and decrease your competition.
2. You’ve established a wildly successful take on a common business (such as a themed restaurant or bar that resonates well in the local area) and other similar businesses — either locally or farther away — could duplicate that success with access to your company’s unique brand. (Important Note: in this case, licensing and franchising are also viable strategies that may be even better than acquisition, based on circumstances. Consult with experts familiar with the industry if you’re unsure which option is best.)
3. Your company is currently outgrowing its physical location and/or local market and has capacity to grow further if an optimal second location became available. (While franchising may be an option in this case as well, this situation more often occurs in a manufacturing and industrial context, so the focus is usually on obtaining additional space to work in as opposed to duplicating the current operation in a different location.)
What these three situations have in common is the fact that your current business is succeeding and realistically has room to grow. That’s an important point that needs to be stressed.
When does acquisition not make sense?
Acquisition is NOT a strategy to employ based on good intentions and high hopes.
If you’re currently running at full capacity, money is tight, or you’re struggling to keep up with current demand, changes are definitely in order. But buying another entire company is likely not the answer.
Acquiring a business involves a huge investment, and not just monetarily. It’s going to involve a lot of additional time and energy, especially in the initial adjustment phase as the newly acquired company’s employees and customers learn how to function under whatever new culture, procedures, and expectations your company brings with it. It can be a rocky road, and instant profitability is far from guaranteed.
So, if you have some exciting plans in mind where you think your current business can make some positive strides, exploit a new market, or grow in some other way, but you haven’t yet proved the efficacy of those plans, you should look for other ways to accomplish that besides sinking a large amount of time, energy, and money into buying another company.
In many cases, investing in new marketing options, bringing on one or more skilled employees, or focusing on research and development can be far less expensive and more effective in accomplishing growth goals. Then, in the future, after growth through those means has proven to be sustainable, you can explore acquisition as a growth strategy at that point.
If you’ve decided to grow via acquisition, what’s next?
If you’ve analyzed the situation and you’re confident that buying one or more companies is the best option for growing your business, the next steps are fairly simple.
It’s recommended that you bring together a team of experienced advisors to help you as you begin searching out the right business to buy, negotiating the deal, and then successfully managing the transition. This team should probably include a lawyer, accountant, business broker, and (in most cases) a commercial real estate agent, all of whom are familiar with your industry and the local business climate where you’re looking to buy.
With the help of this team of advisors, you can begin scouring both online and offline listings of businesses for sale, narrowing down the selections based on the optimal criteria (i.e. location, industry, revenue) based on your current business situation. If your acquisition strategy depends on buying out one or more of your competitors or a specific business location you have your eye on, you may need to contact the current business owner and propose the deal at a point where they’re not even thinking about selling, which has its own complications and nuances.
Your goal at this point is to take your time, do your due diligence, and make sure you’re not rushing into a subpar deal just to get the job done. Even if your current company is primed for growth via acquisition, acquiring another business that doesn’t fit well, or doesn’t offer enough positive return on your investment, can shatter those dreams of growth.
Take full advantage of powerful tools like the Advanced Search functions on BusinessesForSale.com and the encyclopaedic knowledge an experienced business broker can bring to the table. Set your minimum and preferred criteria, and don’t settle until you find what you’re looking for.
By handling the situation carefully, strategically, and patiently, you too can join the long list of small business owners who have enjoyed sustainable growth through acquisition.