Deciding whether to buy or build a business is tricky as it puts the entire business and its employees on the line. Here are some of the pros and cons of acquiring and growing a business.
Knowing how to acquire a company is just the first of the many steps in a possible business expansion. Out of all these, however, knowing whether to grow a business or acquire an entirely new one is probably the most important step.
Consider these points of discussion when deciding between buying and growing a business:
- Evaluate cost projections
- A well-researched market is essential
- Get to know the potential acquisition/your own business
Evaluate cost projections
At the surface level, it’s easy to see why a lot of businesses opt to acquire a business. Choosing to buy out or merge with an established company is ideal for business owners who don’t want to start from scratch, while potentially enabling them to enter a new industry or capture greater market share—provided that the business owner has a lot of money to spare.
Of these two options, growing a business from scratch is generally (though not always!) the much cheaper option for individuals who don’t have the money to spare to buy out an existing business. Of course, growing a business entails much more hard work, including building a customer base, product development and overall management.
Cost projections must always be taken into account when deciding whether to build or buy a business. Acquisition might be the easier option, but it involves a lot of money. Also, integrating a whole new business system into your established business may be difficult for all stakeholders, internal and external, to become accustomed to, as well as a whole new plethora of investors and customers to deal with.
On the other hand, business-building doesn’t usually involve shelling out significant amounts of cash, at least initially. But it would definitely involve hard work from day one, as the business owners would have to start from scratch.
A well-researched market is essential
Another important factor that needs to be taken into account when deciding whether to build or buy a business is the business’ industry and market. Business owners should evaluate whether or not market growth can actually be supported by either of these two growth options.
Generally speaking, fast-growing industries can see lots of competitors emerging from the woodwork, meaning acquisition may be a better option than trying to launch yet another one into the mix.
Conversely, mature markets can be ripe for disruption, plus the established size and clout of market players makes them more expensive to purchase. Hence it may be more conducive to build a new business in such a situation.
Taking the time to research the business’ current market allows business owners to see whether or not growing or acquiring a business would be a good long-term decision.
Get to know the potential acquisition/your own business
Before finally deciding between acquiring and growing a business, first make sure that the business is stable enough to withstand the changes brought about by inevitable expansion or acquisition.
Determining commercial stability involves a lot of research, study and background checks. Start by examining the current business’ internal strategy, its current employee roster, customer feedback, products and services and current finances.
If anything in those areas is amiss, it may be wise to strengthen the existing balance sheet and internal processes before complicating things further by adding size or scale.
When acquiring and expanding a business, it’s best to not take any chances. Making sure that a business is ready for this kind of development will ensure that the business flourishes while allowing business owners to gain maximum returns.