Business owners are constantly struggling to find ways to grow their business. Organic growth, or growth of the existing business, typically requires increasing a company’s output and enhancing sales. Unfortunately, organic growth can be a long process; it may take years for the market to evolve enough – and for the business to be able to afford – to justify a second location or expansion into a new geographic area. Unlike slow and steady organic growth, growth through acquisition or merger is generally much faster and – if done right – can yield a number of other almost instant benefits that can help make that rapid growth sustainable. Business owners often tend to be more sophisticated, less inclined to be patient and wait for organic or geographic opportunities for growth and are therefore looking for both competitor and complementary business opportunities where they can take advantage of fixed operation costs and synergies to grow their business.
It is typically significantly better to buy due to synergy. Synergy is probably the most-often used (and least understood) word when talking about buying another company, but it is important to understand.
The concept of synergy is simply that the sum of the parts is greater than the individual. Synergy typically arises in two broad areas:
Two products are sold to similar clients, or through similar distribution channels, so it makes sense to market them together. Take the financial sector as an example. Canadian banks have bought up insurance companies in order to market insurance through their networks (although legislation prevents them from doing as much as they would like.) Or think of Microsoft – the more things it can bundle with its software, the more prominent it appears in the market and more attractive it is to consumers.
There are cost overlaps that can be reduced by joining forces, head offices, etc. There are typically a lot of synergies in accounting, HR, finance and management, and as you go into a purchase, you’re likely to find that there are aspects of the business you are buying that would be doubled up. The savings, as you’ll learn, will add up quickly.
While these synergies may seem like something that happens in large-scale corporations, they can – and do – happen for businesses of all sizes. Companies buying competitors or associated businesses happen at all size levels and do so on a regular basis.
Because of our experience working with businesses for sale, Beal Business Brokers and Advisors is well positioned to help you as you purchase a company and grow your operations. Through our strategic planning, we are able to help you realize synergies between your two businesses, evaluate where there is overlap and direct you to opportunities for promotion of your current and gained products, services and assets.