Buying the competition – a fast track to business growth
It’s not every day that you think about buying your competitor instead of trying to fight them, but it’s worth considering, especially if expansion is on your mind, your systems are humming along and you’ve got extra cash to re-invest. Purchasing an established competitor enables you to grow your business overnight – while eliminating a rival that was eating into your market share.
If a competitor next door is a little too close for comfort (i.e., because of your competitiveness you wouldn’t be able to talk to them about a business deal), then perhaps a rival further away might consider selling.
What to look for
Not all competitors are worth your time. Even the best-looking competitor could have some significant flaws under the surface, including bad debts, staff problems, or bad systems and processes. Consider the following:
- Contracts – do they have large contracts that will keep their business profitable for the immediate future? For example, an IT firm might have a large government contract that provides a significant chunk of their revenue. This is a huge risk to any company as the revenue stream will be drained should the contract be cancelled / changed. This is a detriment that all FI’s consider when looking at financing any potential purchases.
- Assets – does it come with some valuable assets that you can leverage to grow your operation? For example, a transport and logistics company might be able to pick up another five trucks and a warehouse by buying a competitor.
- Staff – they can be a competitor’s biggest asset, so it’s up to you to retain the cream of the crop. When buying another business, you don’t usually need to take on all their staff.
- Intellectual property (IP) – often they’ll have some protected IP. Some business owners will look to retain their own unique IP when they hand their business over to the next owner. If this is the case, you’ll need to be ready to adjust your offer accordingly. If your competitor doesn’t have any protected IP, it’s a smart idea to document their IP as both tangible and intangible asset.
Once you’ve the decision that a competitor’s worth purchasing, it’s important to talk to your accountant to gain a full understanding of the overall business financial performance. They’ll have a greater knowledge of how best to proceed, especially if the competitor agrees to sell.
Keep your ear to the ground for purchase opportunities in your industry. Talk to colleagues who are in businesses similar to yours to find out if a competitor is thinking of selling, so that you don’t miss out on what can be a great growth opportunity.
While buying a new business is exciting and will provide many growth opportunities, don’t get so distracted that you neglect your primary business. A good way around this is to appoint a key employee to manage your existing business while you focus on the purchase. It’s also important to navigate the process with the advice and guidance of your accountant, lawyer and any business advisors.