Functional Foundations: When Someone Else’s Business Becomes Yours
What Happens When You Buy a Business?
For entrepreneurs, the path toward success is often a complex and emotional journey that is not for the faint of heart. From Main Street to Wall Street, businesses of all sizes experience everything from the frustrations of start-up mode, to the marathon sprint of building a profitable business and thriving company culture.
Often, the pangs of organic growth can last much longer than most businesses owners would expect. Besides being slow, organic growth can be risky and inefficient. When a company desires growth, a well-planned M&A strategy creates the opportunity to amplify earnings potential and operational capabilities.
Knowing the right time to buy a business is as important as knowing the right time to sell a business. Savvy entrepreneurs and Private Equity firms use M&A as a way to skip the foundational groundwork of building a business, allowing them to leapfrog the competition.
M&A offers both aspiring and seasoned entrepreneurs the ability to take ownership of a successful business without years of fledgling trial and error. The competitive advantage of making someone else’s business your own – through M&A – allows entrepreneurs to bypass the common obstacles of building a business from the ground up. These obstacles include:
- Capital Fundraising & Debt Financing
- Cash Flow
- Attracting & Retaining Talent
- Operational Refinement
For entrepreneurs and Private Equity Firms that acquire businesses through M&A, these transactions represent not only the opportunity to purchase a wealth-generating business but its corporate culture as well. When someone else’s business becomes yours, you gain access to the operational backbone of success, including:4
- Intellectual property and off-market talent
- Enhanced economies of scale
- Stronger balance sheets
Is This a Good Deal? New & Additional Capabilities Through M&A
Executives see M&A as an opportunity to increase operational capabilities without the foundational costs associated with research, development, and years spent building brand recognition. A significant challenge when starting a business is in proving the unproven concept. Yes, your idea seems great on paper but how will the market react? Is it scalable? Do you have a customer base? Identifying an established company with consistent revenue and profitability might just be the easiest way to go into business for yourself.
With the support of a seasoned deal team to evaluate the foundational aspects of the business in question, buyers gain a better understanding of:
- Current Operations Plans
- High Level Financial Model forecasting next 3-5 years
- Organizational & Hiring Strategies
- Is the current IT Infrastructure ready and capable of successful integration
The advantages and disadvantages of buying an existing business will vary depending on your existing skill set as an entrepreneur and the business under consideration. Success is not guaranteed but the odds can be in your favor with the right deal team to shape the best deal.
And while acquiring another business can last anywhere from 12-18 months, it is essential to have a strong team that understands your business, your career goals, and your financial expectations.
When another business buys your business, it’s important to know how you’ll be evaluated by this potential buyer. Often specific criteria beyond deal terms will identify whether or not competitive gaps are filled, cultural needs are met, the cost benefit and ultimately, how difficult the purchase and integration process will be. Every deal is different and whether you are on the buy side or the sell side, the success of the deal depends on clear, consistent and strategic communication to ensure earning the highest multiples and that post merger integration is a success.
Want to learn more about how the M&A process can help your business? At Strategic Exit Advisors, we look forward to continuing to be your trusted partner.
Call us anytime (215) 489-8881 or schedule a conversation here.
