Tuesday, August 2, 2011

Buy a Business to Grow or Get Started

I'm a huge advocate of buying companies to get started or to rapidly or strategically grow your business. Of course, I'm biased. I started my career as an Industrial & Systems Engineer. Like BASF, we take things and make them better. Products, services...why not companies? And while still in college I was awed by Reginald Lewis. I read about him in the Wall Street Journal and was very upset when he died in his 50s. I figured he could be a mentor when I finally got on his path. C'est la vie!

Here's an excerpt from a Wall Street Journal article on the subject that piqued my interest:

"If you're interested in entrepreneurship, but lack ideas or time to create a new business, buying an established company may be a wise alternative. You'll inherit a working infrastructure complete with resources you'd otherwise have to secure on your own, such as equipment and employees. You'll also ideally be taking over a known brand built on a positive reputation over many years' time.


Buying a business typically does require more capital upfront than if you were to build one anew. But asking prices have been on the decline in recent years due to the weak economy. And sellers are increasingly offering to finance a portion of the price for buyers who are unable to obtain bank loans."

 

I agree with what the WSJ writer says but I differ somewhat on the premise. It is so much easier to obtain financing for a proven entity. So if you have great management experience and can find a company in an area that you want to expand into, whether it's to start or to grow, it's relatively easy to obtain the financing to buy that entity. Of course, if you have a strategic investor, venture capital firm, or other large investor backing you, financing isn't a concern. But acquisitions can still be a great idea when you are looking to get into a market or market niche but don't have the personnel or expertise in-house. You can acquire it. (Strategic partnering or joint venturing is another option but that's another discussion.)

 

Anyway, if you haven't considered acquisitions as a strategy, I recommend you do. It may not be right for you, but I don't suggest ruling it out by default (i.e., ignoring it).



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