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Buying a business, the quick and easy guide for MSPs. Why buy a business anyway? Reasons to grow your business by acquiring another business. Faster growth. By buying another business in the same industry, you can increase growth of your business much faster than could be achieved by organic growth and/or marketing alone.

Opportunity for attractive ROI. If you purchase a business that has great potential but is struggling and/or undervalued, You can pick up a bargain, thereby acquiring clients at a fraction of the usual acquisition costs. Access to motivated sellers. Baby boomers looking to retire are now proving to be a good source of motivated sellers, and the sheer amount of them can provide attractive oversupply prices.

Financial leverage. You can leverage assets in the target business to acquire commercial finance to purchase the company, and therefore acquire significantly more customers than you could otherwise afford. Vendor finance. If the business owner is prepared to sell their business to you, this means it will not affect your credit rating. Plus, you can likely get better terms and ultimately better ROI.

Economies of scale, purchasing power. A larger company with more turnover of supplies can very often command better prices and terms, thereby rationalising overhead. Access to clients. You can have access to their clients and dispense with a lot of their fixed costs. By de-duplicating cost centres, such as marketing, admin, office rent, and rates, you can essentially have access to the good stuff and simply cut out the expensive stuff by leveraging existing resources and de-duplication of cost centres. Access to different or better products. Access to different or better products, services, and skills.

Your target business may have some key resources that your business lacks. You can diversify and potentially have access to products and services more cheaply than developing them yourself. Access to better, high-profile clients. Your target business may have some clients which may provide a large revenue or which would be strategically important for you, not least of which may simply be leveraging their name-dropping value. Access to a broader client base. The business you’re considering purchasing may have clients in areas where you need to expand or have access to distribution channels you may not currently exploit. In turn, this can increase your market share, penetration and visibility.

Reduced competition. When you literally buy out your competition, you may be able to increase prices and profits directly. Personal development and satisfaction. Buying another business elevates you above the vast majority of SMEs that never acquire another one and means you’ll be operating at a different level to the typical owner-operator. You now have a business owner mentality, i.e. working on the business, rather than an employee mentality, i.e. working in the business.

Public relations. Half of a business is about trust and confidence. Demonstrating to the world that you’ve acquired another business radiates confidence, ambition and acumen. Reduced risk. Owning more than one business means that if one business fails for some reason, you can still have income from another. Creating a startup has a greater than average chance of failing within five years, whilst a business acquired has a greater than average chance of still trading after five years. All of the above benefits assume that you’re looking to buy another company in the same industry as the one you currently operate in, i.e. a company that is similar to yours, primarily to expand your client base.

Whilst it’s outside of the scope of this book, there are other strategic reasons that businesses buy other businesses, which happen to be outside their core operations. It’s a well-known fact that a frightening proportion of startups fail before their first birthday, and if they’ve made it to their 5th birthday, they can consider themselves lucky. So, if a start-up survives the first few years, it’s significantly more likely to succeed by virtue of having overcome the particularly taxing challenges at inception.

A bit like born in the Middle Ages, you’re a lot more likely to survive to adulthood if you survived past being a toddler. For this reason, if you’re looking to grow your business by investing into untested new technologies or disruptive procedures, for example, which are currently outside your core competency or areas of activity, it can make sense to avoid many of the pitfalls of in-house development or acquisition of a risky startup by acquiring a bolt-on new-ish business that has survived the first two or three years. So, if you’re looking to acquire another complementary business, but not all start-up, for those reasons, then the main benefits can be: Instant income. As well as increased security through diversification, your business can enjoy immediate increased cash flow as well, depending on how the upfront purchase costs are structured and whether that business is profitable or distressed.

Established brand. Customers, suppliers, investors, and even staff can be wary about dealing with new, unknown business propositions. Acquiring an established brand and goodwill can help overcome this and also provides an established network of contacts, that little black book that’s worth its weight in gold. Diversification. It can pay to have a mixed portfolio of products or service offerings in your area of operations. Vertical integration. For example, buying yourself out of a supplier lock-in. If you have a few suppliers for an essential part of your business, it can be more profitable to bring them in in-house. Tried and tested systems and procedures.

Rather than having to reinvent the wheel for developing a new product or services, purchasing an established business can eliminate these obstacles and train staff in place. A good deal of overhead in terms of time, training costs, mistakes and general sweat and tears can be avoided when trained staff are already in place who can run the business smoothly, ideally without you, and be enlisted to grow the business as well, when they’re suitably re-energised and motivated by new leadership.

MSP Marketing in bite-sized bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www..mklink.org.