Tag Archives: how to buy a business

How to Fuel Your Business Sales Growth – Organic vs. Acquisition

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Sales Growth. Every business needs sales growth. When the company bottom line is lacking and cash flow is deficient a business owner may pour thru his/hers monthly financials or spreadsheets reviewing line entries to find out where the business is and to find any glaring problems. Most often this analysis results with the same outcome. INCREASE SALES or DECREASE EXPENSES.

I, and many other business owners, recognize that reducing expenses is always a good thing, and during an economic downturn such as the one we are presently experiencing it is more than necessary. But my experience is that you can only reduce expenses so much. It helps your situation month after month to attempt to reduce your expenses to improve your bottom line, (and is a great business discipline), yet at some point you get to the place that you cant really reduce expenses much more, YOU NEED TO GROW SALES.

Types Of Business Grow

Sales growth also occurs across many different efforts, but these different efforts can be simplified to categorize sales growth as:

  1. Internal Sales Growth (or referred to as organic growth)
  2. Growth thru Acquisition

Companies may tend to use just one of the above means, or both of them. In my last business our sales growth came thru a combination of both internal growth and growth thru acquisition. Both means have advantages and potential disadvantages. But both should be considered. The longevity of the business may also dictate what means to utilize for sales growth. Speaking from personal experience of growing and running a business for 20 years here are a few of my findings.

In the early years annualized sales growth of high double digits and or low triple digits was very attainable thru internal growth. But as your sales grows and your year over year comparisons are based on higher sales numbers attaining the higher sales growth figures became more difficult. So acquisitions helped support our internal growth efforts. Efforts for internal growth never stopped, they just got supplemented with strategic acquisitions. Recognize that acquisitions that are synergistic in nature can have some tremendous results on your bottom line.

A poorly performed acquisition can also have the opposite result and can be very costly to the business. Where do you look for potential acquisitions? Competitors are always the first best place to keep your eyes open to. Below are some of the pros, cons associated with growth thru acquisition and thru organic efforts.

Business Growth

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Sales Growth Thru Acquisition and Organic Efforts

Pros/Cons – When acquisitions are truely synergistic the effect on your bottom line can be significant. Even when considering the acquisition cost of money consider the following. If you sell Yellow Widgets and your sales are $10,000 a month – you may have the monthly cost of business to sell those widgets including a building, a telephone, insurance, advertising, company car, receptionist, etc -cost totalling $6,000 per month. You decide to buy a local competitor that sells Red Widgets and his sales are $7,000 per month. He also has similar cost of business- you may find that you may increase your sales now to $17,000 and you no longer need his building, phone, company car, and receptionist. Even considering the cost of money for acquisition- you probably have increased your bottom line virtually overnight. So immediate sales increase is a plus – But consider:

  • Handling/managing a big bump in sales “overnight” can be a daunting task and business can be lost in transition and may need to be factored into the acquisition decision analysis.
  • The customers of the “other” company are used to doing things in a different way. Your way may be an improved way, but the difference may be detrimental in the eyes of some acquired customers.
  • Financing the acquisition can be difficult- Financing thru the Seller is usually easiest, and being they are in the business- they can better understand and see where the money is coming from and the likelihood of payment.
  • Acquisition can grow sales at a much higher more immediate rate. You gain the benefit to the bottom line “today”.
  • In current economic times Acquisitions may be had at more favorable multiples of earnings.
  • Organic growth – the customer is “brought along” with your company philosophy, approach ,and methods and have a certain “comfort factor” with this approach.
  • Organic growth rates may decline as the maturity of the business grows.
  • Organic growth adds to the stability of the company. If acquisitions are not available the company can rely on own internal efforts and have control of those efforts.

Acquisitions for most businesses should be considered. Organic growth can be more “slow and steady”, but “slow and steady” with a surge here and there can be a beneficial company business model towards fueling business Sales Growth.

Profits are Up 90% – Sell My Business?

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I contribute a weekly blog post for a website called Noobpreneur that reaches and provides valuable information to entrepreneurs. New entrepreneurs or “newbies” are the focus. My current business activities focus on the buying and selling of businesses. Most /many “new” entrepreneurs are in the exploration, startup or newly started stage of their business venture.

Business Cycle – Start, Run and Sell

Where does selling a business enter into this paradigm? Everything seems to run in cycles. There is a start, a middle and an end. Much of the focus of a new entrepreneur is full of excitement and somewhat shorter term perspective of “starting, building, growing something.” Some entrepreneurs start a business with the specific goal of selling that business.

Some entrepreneurs goal is to buy a business with no goal of selling that business. But it is very easy to start a new venture without clearly outlining an end. Again most every business will have a start, something you may refer as to “the middle”, and an end. It is so much more desirable to sell your business when you plan to in lieu of being “forced” to sell your business.

Business Planning

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The Importance Of Business Planning

Starting a business is an exciting time, and it takes a lot of work and effort to build a successful business. Afford yourself the time to consider your exit strategy. Too often one is “too busy running their business”, to fully consider where they are going. Planning to sell instead of “needing to sell” is so much more rewarding for the hard working entrepreneur.

You pick the time – Don’t let the time pick you. I know things may be looking good and everything is lined up, but what if General Motors 20 years ago targeted the sale of their business and provided all that value to their shareholders in lieu of the need for government assistance and bankruptcy?

Again, your business may be going gang busters, but I’m kind of thinking that if a Generals Motors can have an exit (or almost) exerted on them, maybe your exit of your business may not be what you planned on or didn’t plan on.

“I have Not Failed I’ve just found 10,000 ways that won’t work” – Thomas Edison

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My family and I lived near Fort Myers Florida for 11 years – Thomas Edison and Henry Ford had vacation homes right next to each other  in the  Fort Myers Florida.

Thomas Edison Business Mindset

Many stories and quotes are attributed to these successful men. The above quote – “I have not failed. Ive found 10,000 ways that wont work” – To me addresses the trials and tribulations of a small business owner or entrepreneur. Failure in start ups happens. It can happen again and again, and will happen. Failure doesn’t get dealt with as a defeat, rather is viewed as a setback. Many failures turn into policy and/or procedure to avoid similar future problems. If you buy a business you can have a pretty good feel on what to expect assuming you’ve performed adequate due diligence.

Thomas EdisonIve been part of many discussion revolving around starting up a company and how many years to either break even or make a profit. Some people say it is one year others say 2 years, others 3-5 years. For every business reaching this milestone of “break even” or “profit” is different. The measuring stick used and the timeline expected should be considered. Arbitrary goals and time frames should not be set. There are many unknowns in a start up. You can only do so much due diligence on something that has yet to happen – “You dont know what you dont know”- this quote may or may not be from Thomas Edison,- but applies.

I think that many people have a certain entrepreneur spirit within. Only a certain percentage act on that spirit. And the successful ones I believe are the ones that are successful at understanding failures will happen, and are resilient enough to accept the many failures that will come your way. Failing 100’s and or 1000’s of times and then coming up with the light bulb is a prophecy most any small business owner / entrepreneur would accept.


Starting a Business or Buying Business with Family or Friend – STOP

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What is the 1st step one must take when thinking about buying a business or going into business with family or friends? STOP – and allow yourself careful consideration.

Is Starting A Business With An Acquaintant A Good Idea?

I think the concept of going into business with a life long friend, or a good buddy from college, or your brother, dad, sister is a fairly common thought process. Family run businesses are prevalent throughout the business communities. There are many successful family businesses, so they must be a good idea – right?

My short answer is I’m not so sure.

Businesses that have the ability to sustain over long periods of time- 10 years, 20 years or more to me are classified as successful businesses. But do the businesses sustain at the expense of breaking apart family values, feelings, or structure? Are holidays at the dinner table among the “family business associates” enjoyed as a family or another business meal, or worse?

I think there are many success stories of family businesses or buddies that go in together to buy a business. But, I also think the number of family/”friend partnership” businesses that fail are large, and the number of businesses that are bought, started, or run by buddies or family members that adversely affect those important relationship may even be larger.Why is it so easy to come up with the idea of asking your buddy to go into xyz business with you? I think a big part is the feeling that you know your buddy or your brother/sister. But the missing link here may be that you know a certain part of that person real well, and the other part- the business part, – you may not get to know until it is too late.

Family Business

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I can speak of this matter from experience as I have been in business with both family and friends. For me it has worked out. I certainly experienced some bumpy roads along the way, but overall I have been happy with the end result of those business/personal relationships.

But I have always felt that my experience may have been more the exception rather than the rule. Stories of friends that went into business together and it didn’t work out surround me. I currently am evaluating a new venture that involves this same subject matter.

Friend Offering A Good Business Opportunity?

So what do you do when a friend offers you a very interesting business opportunity? I say STOP, and move beyond the idea, and analyze the business deal.

I’ve heard someone say STOP and get an MRI on your brain, but I prefer the non-medical approach. There are steps that can be taken to mitigate some of the pitfalls of such an arrangement and these may vary with the type of venture whether buying a business with family of friends or starting a business with family or friends.

Below are a few step that can be taken and I will take when evaluating the opportunity of buying a business with a friend.

  1. Does the concept make sense? It must be a well thought out concept, and numbers must support the concept.
  2. The business plan needs to spell out everything, and then it must be followed. Moving forward without a plan is a bad plan.
  3. Draft the terms of the agreement between the parties involved. Expectations, Roles, compensations, exit strategy, are among the items to lay out in such an agreement.
  4. The agreement has to be a win/win for those involved . The more situations that can be addressed going in can only help to mitigate problems that may occur later on.
  5. Plan on X% more time and X% more money than you planned to open the doors.
  6. Have a long term plan. Success can be surprising sometimes, and possible success and benefits to those involved may be best addressed upfront

Part of me says Ive had a fair amount of good long term business relationships which are valuable, but I value the long term friendships I have more. Good friends seem farther and fewer between than good business partners.

What do you do when your buddy approaches you with this idea to buy this great business?

Due Diligence – How’s that Going to Make Me any Money?

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“Make sure you perform your due diligence.” A simple statement that can have tremendously far reaching consequences. I work with people interested in buying a business or selling a business, and this statement can almost appears like “boiler plate” language and get glossed over by the parties involved. What does due diligence have to do with running my business or starting my business? – due diligence is just for buying a business .

Due Diligence – Definition

Due Diligence is a term used for a number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.

Originally the term was limited to public offerings of equity investments, but over time it has come to be associated with investigations of private mergers and acquisitions as well. The term has slowly been adapted for use in other situations (per Wikipedia)

Due diligence is essentially a way of preventing unnecessary harm to either party involved in a transaction. This is a definition when read carefully, can be seen as affecting so many aspects of a business owners life that it can almost become a mantra rather than an after thought.

I’ m ready to get that new office space – Upon completion my due diligence.

I am looking at partnering with my largest customer on a project – After I perform my due diligence.

My business has grown such that I need to select a new accountant and attorney – After I complete necessary due diligence.

I am trying to find a new bank willing to provide the needed Line of Credit and need to perform my due diligence on area banks.

Due Diligence In Business

In business transactions, the due diligence process varies for different types of

Due Diligence

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companies. The relevant areas of concern may include the financial, legal, labor, tax, IT, environment and market/commercial situation of the company. Other areas include intellectual property, real and personal property, insurance and liability coverage, debt instrument review, employee benefits and labor matters, immigration, and international transactions

In Giving: I have used due diligence in investigating charities and organizations I am interested in sharing my hard earned money with. I am a fan of the KIVA organization which provides micro-financing to entrepreneurs in third world countries and allows them to expand their business and or start a new business. I performed my process of due diligence on KIVA www.kiva.org and like the way my money helps others help themselves, like the fact that little of my donations go toward administration fees, and most of the money gets towards the intended recipient. And my daughter and I can research these financially less fortunate entrepreneurs on their website and choose where, and to who our money goes.

You can call it “doing your homework”, “doing my research”, ” checking out the facts surrounding the matter”, or “fact finding”. Whatever you refer to it as, it is most important that the function is performed before most every important decision. And yes, when looking to buy a business or sell a business you must do your due diligence. How much is enough and how much is too much?- That will be dependent upon what you are performing the due diligence on. I have 2 teenage boys (great kids) that tend “jump first look second”. If you are able to reflect on some of your business decisions and find that you have jumped first/looked second- you will know that you have not performed adequate due diligence. Very often the line for enough/not enough is not so clear. For me my gut will tell me if I “feel” I have performed adequate due diligence to make a good decision. Sometimes the result of performing due diligences will result in you not moving ahead with a deal and or transaction. And sometimes the best deal is the deal we did not do.

Legal Disclaimer – Legally, I assume Due Diligence can take on interpretation and meaning that can be thoroughly debated and defined among lawyers. Do you need legal determination of this term? – for that you will need to perform your own due diligence to determine.