There is no better way to expand and grow your current business, than by purchasing another existing business to merge with your own. We will outline the top 5 reasons why growing via acquisition is one of the smartest decisions you could make to push your business forward.
1. Fastest way to grow your business.
Instead of adding new customers the old-fashioned way, 1 by 1, transaction by transaction or visit by visit, if you purchase a business that has a large existing customer base, then you will be able to grow your business (and hopefully your sales too) by a much higher multiple and much more rapidly, than by just working on gaining a few customers at a time. When you buy an existing business, not only do you get their customer database, you are also buying the goodwill and reputation of that business, as well as all of its assets. You should be able to take what that other business has already started, add it into your business, and launch yourself to the next level.
2. Immediately increase your bottom line.
Rather than spending thousands of dollars on an upgraded advertising or marketing budget, in the hopes of capturing some new customers, acquiring an existing business that has a consistent history of positive cash flow will add to your profit on day one. If a hypothetical business is making $100,000 per year in owner benefit or seller’s discretionary earnings, then you should be able to easily add that onto your own owner benefit. Also, to take that owner benefit to the max, you could possibly absorb or erase some of the expenses that business has, and increase your bottom line even more. For example, if you already have an existing office with staff to run it, then you can just absorb the business operations into your existing structure, and eliminate those expenses entirely, adding even more profit to your numbers. So, in the end, the $100,000 in owner benefit per year in our hypothetical example could actually become $170,000 per year once those rent and payroll expenses are added back in. Also, you can even use leverage to purchase this new business. SBA backed loans for business acquisitions tend to be easier to get approved for, when the applicant is a business owner who already has a successful business in the same industry. In the right situation, acquiring a business to grow your own could make perfect financial sense.
3. Add complementary businesses and diversify your offerings.
We see this happen a lot in the construction industry. A general contracting company ends up subbing out a lot of their work to specialty companies, like roofing, plumbing, and electrical contractors. Many smart business owners have figured out that if their parent company could offer all of these contractor services, and keep all of the work “in house,” that they can get an even bigger piece of the profit. This also works for other small businesses too. Let’s say you have a lawncare company. If you are already going to houses once a week to cut their grass, do they have a pool you could clean as well? In one trip to the same customer’s home, you could double your sales by offering both services. Or you might own a pet shop, that is a retail outlet, but you wanted to add more services. You could purchase a grooming salon or mobile groomer and cross promote through both avenues of revenue. The options and examples here for business owners to diversity are truly endless, and in most cases, it just makes sense to sell more items or services to the customers you already have.
4. Add locations to cover a bigger geographical area.
Your business might be dominating in your specific location or area, and you are serving as many customers as you possibly can. Business is booming, and you’d like to grow, but are limited, due to geography. This is an ideal situation to have, because all you need is another location in a different area, so you can cover more ground and capture a whole new population of customers. Buying an existing business that is in your industry, in your new target location is the fastest and easiest way to hit the ground running, and instead of starting from scratch, waiting for the profits to outweigh the expense of adding a new location, you can continue running the business you purchase, taking in profit as you transition that business into the successful brand that you’d like to replicate. You already have the blueprints from your first location, you just need to tailor this existing business to your design.
5. Take out your competition.
Competition in the marketplace is a struggle for most businesses. However, what if you could not only grow your business quickly, but eliminate the competition in the process? If you bought out a competitor, you would essentially be killing two birds with one stone. You’d have the benefits of acquiring an existing business: getting their customer list, buying their tangible and intangible assets, and reducing their operating expenses by absorbing some parts of their operation into your current business, but you would also eliminate that business as a competitor, which would hopefully work to increase your sales exponentially.
If you are thinking about possibly growing your business via acquisition, we have buyer specialists on our team who are dedicated to working exclusively with our clients who are looking to purchase a business. As a business buyer, you would pay zero commission to us for our brokerage services, which is a great perk for you. Give us a call today…we’d be happy to help!