Six good reasons to buy a business this year
Alongside launching a company, buying an existing business usually ranks as one of the most exciting times of an entrepreneur’s career. It’s worth remembering that a successful acquisition takes patience, effort and plenty of homework before the deal is agreed.
When our entrepreneurial clients acquire a business, we take great care to make sure that the deal makes sense financially, practically and culturally. After all, it’s not for the faint hearted.
Buying a business
In our experience there are usually some common reasons why it makes sense for business owners to make an acquisition.
- Geographical expansion. Rather than creating a new physical infrastructure to sell your services or goods and hiring new staff in a new location, it may be less risky and more profitable to acquire an existing business in your target location.
- ‘Bolting on’ new services, skills or technology. Creating new products and services to add to your business can often be done more efficiently through acquisition than trying to build them in-house. If another company has expertise in an area you want to operate it can make sense to ‘bolt’ them on to your existing business.
- Growth and exit. It could be that you and your boardroom colleagues are on a growth mission for your business and a strategic acquisition can add value to your position. If you have one eye on an exit (i.e. selling your business) you may be able to create more value in your business by growing it with a suitable acquisition.
- Buying a competitor. It may be that you feel that your business and a rival business are in the same marketplace, fishing in the same pond for the same type of business and that you come up against each other all the time in pitches and tenders. By teaming up together you may be able to create a more successful business.
- Getting presented with an opportunity too good to miss is common. Sometimes, you will see an opportunity to radically reduce costs, improve margins and cashflows in a target business. Good professional advisers will present opportunities to you where you might not ordinarily come across them. This strategy is where private equity firms excel.
- Succession planning. Retirement, handing a family firm into new hands or undergoing a management buyout (MBO) are popular routes to acquiring a company.
If you are thinking of acquiring a business you need to make sure that you finance the deal appropriately, structure the deal correctly legally and ensure that a thorough due diligence process takes place. That’s where lawyers and accountants will be able to help you and add tremendous value.
