Should You Buy A Similar Business To Help Expand Your Own?
Posted on: 6 October 2022
As a successful small business owner, you undoubtedly know how difficult it is to grow without investing in new equipment or staff and the associated onboarding costs. It's little wonder that many companies take a long time to see the fruits of their investments when they try to expand in this way. Yet there may be an easier path to success, and some people will decide to buy another business as a "bolt-on", leading to quick results. If you're thinking about this, you may be wondering how to proceed and whether you should seek help from outside advisers. What's the best course of action?
Bolting On
In situations like this, you should look for organisations that are either in the same line of business or perhaps in a support industry where it would make sense for you to offer tangential services or products. You might find a company that is already successful and where the owner wants to sell. They'll be motivated to transfer their organisation into good hands.
Finding Businesses
Certainly, business brokers could help identify such companies, but you must do your due diligence before making an offer. You need to do extensive research and be confident that such a business is a viable ongoing concern and that you won't be wasting your time or money.
Analysing A Prospect
It's not a good idea to go it alone if you do not have any relevant experience. You need to bring in an accountant with knowledge of mergers and acquisitions and who can provide you with business development advice. They'll help you ask the right questions of the seller and gather a detailed history of the business. You'll want to look at at least three years of accounting records, including profit and loss statements, balance sheets and asset registers. A good accountant can look between the lines and tell you whether the business is worth its asking price.
Determining Reputation
Don't forget that the reputation of the business is also important. You want to transfer goodwill to your organisation but avoid the opposite outcome. So you also need to do some research in the marketplace and check review sites to give you peace of mind before you proceed.
Taking On The Risk
Remember, this may be a fast track to greater profits, but it doesn't come without its risks. When you bring in a business management accountant, they'll help you analyse a potential purchase and ensure you don't make any mistakes.
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