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How to Grow Your Small Business Through Mergers and Acquisitions

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As part of our continuing series on how to grow your small business the right way, today we look at mergers and acquisitions. Acquisitions can be a great way to grow your small business – but there’s a big caveat: you need to find the right-fit business, create a game plan, and execute it along with your team. Any less than that, and it’s going to become a headache, really fast. 

Why do business acquisitions fail?

According to a recent report from the Harvard Business Review, mergers and acquisitions fail at an astonishing rate – between 70-90% of the time. The reasons are myriad: from failing to integrate to not creating a realistic plan. There are many more ways for your acquisition to fail than to succeed. That’s a scary thought, and it can prevent you from action. Here’s the thing: there’s no reason to be scared if you have a great team, plan correctly, and understand what kind of acquisition will help your business, both in the short AND long term. 

When should you look to grow your business by acquisition?

Every business’s acquisition strategy is going to look different, but there are some commonalities we can talk about. The number one reason for an acquisition is you want to grow your business quickly. That growth can manifest in several ways:

  • Geographically: the new business you’re acquiring covers a different territory than the one you currently serve.
  • Demographically: the new business you’re acquiring covers a different segment of the population than the one you currently serve.
  • Complementary: the new business you’re acquiring offers a complementary product or service so you can expand into a new realm of business. 

The good news? Most acquisition growth is fairly predictable compared to other types of organic growth. With organic growth, you may not know the ebbs and flows of the business – but by virtue of how an acquisition works you should have a pretty good idea of what to look for. More on that later. 

Who should be on your acquisition team?

Acquisitions don’t happen by accident, and they also don’t happen because one person wills it into existence. You need a team of folks in your corner that you can trust to get the job done. What does that entail? We’re glad you asked. Here’s your version of The Avengers that you’ll need to assemble before you start an acquisition:

Lawyer 

An obvious choice, your lawyer will help you navigate the legal waters and understand agreements. If you don’t have a lawyer now, find one you trust well before this process starts. It’s that simple. 

CPA

You need a CPA because they're going to help with tax planning, business valuation, and due diligence on any potential business acquisition. They’ll also help by looking at some forecasting of the post-acquisition financials and help you come up with a plan for attrition on the new revenue that you just acquired. 

Lender

We sometimes don’t think of lenders as part of your team – but they are. They’re loaning you a large sum of money to make this happen. As part of that, they will do their due diligence to make sure that your investment is appropriate for the risk they’re taking when they finance your loan. 

Business broker

This one is optional but can be a big help depending on your need. A business broker can pound the pavement looking for the right fit. Often, these folks are industry-specific, doing work for CPAs, dental practices, auto shops, etc. They’ll have institutional knowledge and regional expertise to help you find a best-fit for your acquisition. 

What to look for in a potential acquisition partner

Every acquisition looks a little different. That said, some commonalities will be important to look for when planning an acquisition. In general, you’ll want to see PNL statements, any other documents your CPA or lawyer provide, and a good understanding of how their work culture will integrate into yours. Don’t take that last one for granted. Everyone’s workplace is a little different and acquisitions can cause cognitive dissonance, especially at the beginning. Figuring some of that out beforehand will lead to fewer headaches later. 

How long does the average acquisition take?

Typically, we see 4-6 months as the absolute quickest time an acquisition might take from start to finish. That said, some acquisitions have a lot of moving parts, which can make the process take years. It’s important to have a realistic view of your time frame, as you’ll essentially be adding an extra full-time job to your schedule until the process is complete. If you can’t dedicate the time and energy it will take over the length of the acquisition process, you’ll need to find someone who can – or simply wait until that’s a possibility for you and your business. 

Let’s talk

Are you thinking about an acquisition? You’ll need a team with the right experience to guide you through the process. We have years of experience helping businesses of all sizes create meaningful, sustained growth through acquisitions. 

Curious as to how we can help? Contact us for a no-strings-attached call. 

 

For more on managing growth for your small business, read Part 1 in our Managing Growth series:
Managing Your Business Growth Organically   

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