What do I need to consider when buying a business?

Buying another business, an aquisition, is a positive way to grow a business. ‘Buy and build strategies' are often adopted to purchase a smaller business, often within the same sector to enable the primary business to grow quicker and scale faster.

Mark Gibbons, lead adviser for Lancashire County Council’s Access to Finance service, explains the key consideration behind buying a business and outlines the finance options to purchase it.

What is a buy and build strategy?

A buy and build strategy is a strategy for business growth that involves acquiring other companies to expand and develop a much stronger company by consolidating their strengths and exploiting synergies.

What is does synergy mean in a buy and build strategy?

When a small business deliberates over acquiring another business, it’s essential to evaluate various factors, especially synergies and how the purchase will be funded. 

Synergies are the added value created by the transaction, where the combined entity’s value exceeds that of the separate individual parts. 

Here are some key considerations:

• Strategic alignment: Assess whether the target business aligns with your strategic goals. Look for complementary products, services, or customer bases that can enhance your market position.
• Financial health: Analyse the financial health of the target company. Consider its revenue, profitability, debt, and cash flow. Ensure that the acquisition won’t strain your finances.
• Operational synergies:
  • Cost synergies: Identify potential cost savings. For instance, shared administrative functions, streamlined operations, or reduced overhead costs.
  • Revenue synergies: Look for opportunities to increase sales. Examples include cross-selling products, accessing new markets, or leveraging the target’s customer base.
• Cultural fit: Evaluate the cultural compatibility. Merging two organisations can be challenging if their values, work styles, or management approaches significantly differ.
• Talent and leadership: Consider the expertise and skills of the target company’s employees. Retaining key talent is crucial for successful integration.
• Legal and regulatory compliance: Ensure the business is compliant with legal requirements, licenses, permits, and industry regulations.
• Due diligence: Thoroughly investigate the target company’s financials, contracts, intellectual property, and any potential liabilities.
• Integration planning: Develop a detailed integration plan. Address technology, processes, systems, and organisational structure.

How can I finance an acquisition?

Thinking around how to fund the transaction, is the primary focus either by taking on external debt, private equity and leveraging the assets of the target company (often a combination of these methods).

A successful acquisition goes beyond financial calculations and the ability to fund the transaction, they require effective execution, communication, and alignment with your overall business strategy. If you are considering purchasing a business, contact Access to Finance to discuss your aquisition plans.

About the author

Mark has over 15 years' of commercial lending experience supporting SMEs ranging from startup funding to asset-based working capital facilities and equity investment.

As the senior adviser of the Access to Finance service in Lancashire, Mark provides business support to businesses in Lancashire seeking to grow and raise finance. The fully funded service offers free and impartial advice on a range of funding options across the finance landscape.

If you’re looking to grow, scale or start your business, use Boost; Lancashire’s Business Growth Hub. We offer a range of funded business support services. Call our Business Support Helpdesk on 0800 488 0057 to find out more or complete our enquiry form.