Blog>Trade>Growing your trade business>Company acquisition – what you need to know about buying another business
Last updated: 7 July 2023
Company acquisition – what you need to know about buying another business
When you’ve grown your trade business, you could find yourself in a position to buy another business. Here we look at all you need to know about the process known as company acquisition.
Company acquisition is one of several ways to grow. Simply put it means buying someone’s existing business. The concept of a ‘buy out’ will not be new to you, but here we’ll talk about some of the things to consider.
First off, you’ll need a good knowledge of the company you’re buying. You’ll need to do your research and have a strong case why you want to acquire a business.
If you are in a good position to buy someone out, you’ll need to think about all of the facts. This will be a very big investment, and you want to limit the risks as much as possible.
What does company acquisition mean?
Rather than merging or forming a partnership, buying another business is a choice that you might consider. The official name is company acquisition, although it may not be an actual company that you buy.
How an acquisition looks will vary from business to business. For example, if you’re a plumber or electrician with a few vans, there will be less to think about than Facebook’s acquisition of WhatsApp for over $19.3 billion.
Businesses that are already established have relationships with vendors and other partners to keep their workflow going. Buying another business can tap into that supply chain too.
It is factors like this that make company acquisition a natural step for many to explore.
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What are the reasons for buying another business?
When you start to grow your business, you will want to keep that going. With more customer interest comes greater incomes, and you’ll want to maintain that growth.
Below, we’ve covered four of the main reasons that you might want to acquire a business.
You want to widen your reach
When you see opportunity but can’t expand with your current setup. If you want to reach more customers, it is natural to look to neighbouring areas. Adding another business to your own means a broader reach all round.
An acquisition means you’ll get access to more customers, as well as a network of new business contacts. It is those relationships that can then feed into your longer-term plans.
There will also be more people resource to also improve and sustain what you have already built.
You want to beat a competitor
When you know that you could do more with opportunities nearby, it is natural to think about taking over your competitors.
At the end of the day, all people that go into business ownership do it because they want to make money. You may be competing for jobs, but a tradesperson will still be tempted by a generous offer when it comes to selling their business.
If you successfully acquire a competitor, it gets rid of any competition. It will make it easier to win work and with a larger organisation, help build more trust for customers.
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You want to acquire new skills
If you’ve been succeeding in one particular trade area such as a kitchen installation or new bathroom, you may want to diversify. On larger projects, if you have needed to collaborate or use subcontractors, buying another business could be a solution.
You could be finding that your customers need extra services that you don’t offer. Acquiring another business could be a way to bring those skills in-house.
You want to make more money
However you grow a business, the purpose for doing so is to increase both revenue and profit.
Once you’ve looked at the financial information and assets of another business, you’ll need to make a business case. You will find it easier to secure funding if your projections show good increases in profit.
No one wants to be out of pocket in the long run. That is why the company acquisition needs to work financially for everyone involved.
What is the company acquisition process?
There are pieces of information you will need before approaching a prospect. After that there is no formal process as such, although there are steps to follow.
By and large this is what you need to do to acquire a business:
Work out why you want to buy another company
Look for prospects
Check their financial status
Check what assets they own
Write out a business case
Reach out
Meet with prospects
Make an offer
Carry out due diligence checks
Formalise the purchase with a legal agreement
As a significant investment, it is best to consult with legal professionals and a financial advisor through all steps you follow. When you are thinking of buying another business, you want to make sure you don’t end up losing out.
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How do you fund a company acquisition?
Let’s be clear from the outset, buying another business is not cheap. If you’re thinking about this process, you will have already started to think about how you’re going to pay for it.
A good place to start is using funds from your existing profits, but you may also want to consider a business loan. There is always a stronger case for finance when it comes to buying an established business.
Banks and other lenders will be able to see the financial benefits if you present a good business case. You will then hopefully be able to discuss more favourable terms.
Existing companies are already generating revenue to cover their costs. Even if the company you’re looking to buy is struggling, there will still be an established customer base.
Are there any things to avoid when buying another business?
If you acquire a business it will be one of the biggest investments in your career. That means you need it to go well.
You need to be cautious in every step of your process. It is also essential to seek advice from a solicitor and your account to make sure all bases are covered.
Here are some of the warning signs to avoid with a company acquisition:
The prospect business is in significant debt
There is a potential of bankruptcy
A person seems unusually keen to sell
The cost of the business outweighs its growth potential
A bank will not consider a loan for the acquisition
While the benefits of an acquisition could be very significant for your trade business, you need to be careful.
With such a significant investment, you want it to work financially for all involved. You want it to grow your business, bring in more revenue, and leave the person happy with their decision to sell.
Key takeaways
Company acquisition can help your business grow
It is a significant investment
It can reduce competition from other tradespeople
Make sure that you won’t end up out of pocket
Due diligence checks need to be carried out
You need to present a good business case
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