Does your company really need to expand?

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Buy-side M&A – Does your company really need to expand?

It could’ve started as a hobby. It could’ve been born from wanting to break away and experience the freedom of self-employment. Or it could’ve been in the cards from the start of your working life. Whatever the journey was that got you here – the proud owner of a business that you’ve grown from nothing, to become your very livelihood – you can give yourself a very elite title: entrepreneur.

In most of our entrepreneurial souls, the twinge of excitement that comes from seeing our businesses grow, is the main reason we do this. And if you’re reading this, you know the thrill that comes with entrepreneurship. And so, you may be looking to expand.

Acquiring another business is an excellent way to facilitate the next step in the growth of your company. It’s a way to absorb new capabilities in the market or expand in other areas. It’s a way to garner a top spot when it comes to your standing in the space you occupy in your industry.

But are you ready?

The reason we ask, is because expansion can be a disruptive time. And if it’s not precisely the right time for your business, expansion can have a negative effect on all facets of what you’ve built: staff, resources and finances.

But, growth is great – don’t get us wrong. Let’s just take a moment to talk here around expansion – when achieved through buy-side acquisition – and some disadvantages, to rule out any inkling of prematureness, where your business’s future is concerned.

Buy-side expansion – Is it time?

There may be a few reasons why you’d be looking to spark growth through buy-side acquisition. It may be because you’re experiencing business success and have the profits to acquire. It may be because you’re ready to move to similar or other markets within your industry, in an attempt to garner a bigger share of the pie. It may be in response to growing competition, and absorbing said competition is simpler and cheaper than developing new products or services to help you stand out. Whatever the reason, you’re basically looking to increase revenue and profit – and that’s the very point to any kind of growth.

But when determining to go ahead with an acquisition, the greatest confirmation is in the data that your business is generating right now. It should tell you a story – and that storyline arc should look similar to the following, if a buy-side acquisition is to be the happy ending:

  • You have the finances, people and resources or an acquisition
  • Your leadership team are backing a possible acquisition
  • Your profits have grown consistently over several years
  • Your costs and overhead are under control, and expansion here is possible
  • You have products and services that are in demand, and acquiring the knowledge and capability of a similar business, for absorption into your own capabilities, and the augmenting of them, looks to be beneficial and seamless

Know the downsides – Disadvantages of business expansion

To reiterate, growth is great – it’s an exciting time for you and your business, and if you align with most of the points above, it is indeed, time to buy to grow. But if there’s an inkling of a doubt, maybe erring on the side of hesitation is the better step, if only just for now. Here are some disadvantages of business expansion when it happens too soon, or when a business isn’t quite ready to handle the disruptive influence of such a monumental event.

  • Loss of control – hasty expansion can demand more delegation across more managers and locations, affecting morale, causing higher staff turnover, and instilling doubt among customers
  • More growth, more capital requirements – acquiring to grow could mean the need for bigger facilities, a bigger staff contingent and more capital injected into infrastructure
  • Third-party involvement – the need for more capital could demand more borrowing, and so, increased debt or perhaps outside investors that want to create a formal board of directors
  • Excess workload – an underestimation of just how much workload there will be after acquiring to expand, could mean burnout for management, staff, and even the equipment you use across the business

If you’re still not sure about acquiring to expand your business, talk to Destined today. In our collective and personal capacity, we’ve bought, sold and merged our own businesses, so we know firsthand what it takes. We’ll help you make the decision that’s going to be beneficial to your growth, M&A strategy, and the future of your business.

Click here, and let’s connect.

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We hope you enjoyed reading this blog post.

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