You want to grow your company, and what comes to mind is all the usual things--increase sales, invest in technology, hire staff, scale operations, and so forth. These are all great ways to grow a business, but organic growth is not the only way.
The opportunity most entrepreneurs miss--buy a company.
There are lots of strategies for buying a company, and many focus on cash flow and return on investment, but today we look at an example that deals with overcoming everyday business problems.
We'll use the following example, but keep in mind that these numbers can scale up or down--so just mentally add or subtract zeros to make it relevant to you. After all, it's not the numbers that are important, but the strategy.
Let's say your company is producing $10 million in revenue per year, and your strategy includes these three things:
- You want to grow revenue and profits.
- You need qualified staff.
- You want an additional office in another geographic market.
You have a classic business problem:
- You want new customers
- You can't get new customers without investing in sales and marketing
- You can't deliver for new customers without new staff
- You can't pay for sales, marketing and new staff until you have new customers
You're stuck in the vicious circle that so many businesses are in.
Here's another way it could play out:
You find a company with 30 employees, $4 million in revenue, and a location that is close enough to manage, but far enough to open new opportunities. You structure the deal so that you put in less than $300,000 and finance the rest.
You now have 25 more employees (assume you release a few), almost $4 million more in customer billings (assume you lose a little) and a new location. You just grew by 40 percent and created new opportunities for more growth.
In the organic growth model, you are paying for sales and marketing, paying to hire staff, and burning cash while you struggle to bring on customers to cover the cost.
In our example of growth through acquisition, after covering costs, and after paying the debt you used to buy the business, you add cash flow to the bottom line.
Again, scale the numbers to the size of your business--the important thing is, you can break out of that vicious circle.
It's not easy. It's not free. There is investment and there is risk. But, the opportunity can be huge, and when done right, it's worth it.