Are you a business owner looking to diversify your portfolio or expand by acquiring a second or third business? There are many ways you can leverage your existing business to finance and facilitate this expansion, including:
- Leveraging assets in the balance sheet to improve alender’ss security position,
- Utilising substantial existing profit to assist with serviceability and
- Showcasing your previous history to demonstrate your business management skills.
Here are the steps to acquire another business using your current business as a platform.
Conduct an Assessment
Before acquiring another business, it’s essential to assess its functionality and performance, as well as your and your team’s capacity to take on additional responsibilities.
Review your financials, understand your stability and opportunities in your existing market, and current operational efficiency.
Understanding your current business’s strengths and weaknesses will help you determine the additional business type that complements your existing one without creating an unmanageable workload or excessive risk.
Identify Synergies
Look for synergies between your existing business and the new business.
Synergies could take the form of shared customer bases, complementary products or services, or operational efficiencies such as staff and costs that can be amalgamated across the two businesses.
Identifying synergies enhances the strategic fit of the acquisition and increases the potential for cost savings and revenue growth.
Consider Your Financing Strategy
Typically, acquiring an additional business will require a significant capital outlay.
In this ever-changing market, there are several options you may be able to consider to assist with financing your new venture. These can leverage the assets and resources of your existing business. You may consider options such as:
- Debt Financing: Term loan facilities or overdrafts secured by your current business’s assets or personal property.
- Equity Financing: Offer equity in your existing business to investors or partners to raise capital for the acquisition. You may seek this from an investor known to you, crowdfunding platforms, angel investors, or private equity firms. If you are considering this option and know you will also require bank-based funding now or in the future, be sure to speak to us about potential future impacts on your borrowing ability.
- Cash Flow Financing: Use the cash flow generated by your current business to fund the acquisition over a set period.
- Vendor Financing: This involves negotiating payments over time with the seller, just as you would under a traditional loan agreement, as opposed to a one-off upfront payment in full.
When you seek bank finance, speaking to us first to understand the various lenders ‘ appetites for business finance is essential. Some lenders may have particular niches or offer special loan terms for specific business types.
Due Diligence
Thorough due diligence is critical before proceeding with any acquisition. Some things you may like to consider are:
- Assess the last 3- 5 years’ financials and look for patterns indicating risk or needing further investigation. We also recommend that you obtain year-to-date trading figures, work in progress data, any existing forecasts/cash flow budgets used by the business, and their aged payables/receivables ledgers.
- Understand the operational structure, including staff and processes. This will assist you in understanding any risk of staff loss, significant future entitlements that need to be provisioned for, the management requirements, and how the business functions on a day-to-day basis. It will also give you clues as to what operational improvements you may need to make upon handover.
- Confirm whether you require any special licensing or qualifications to run the business. Where key staff members hold special skills or qualifications, consider how you will retain them and build upon them.
- Review the target business’s market position. Consider asking who the key clients are, how long they have been using the business’s services, and how those relationships are managed. Additionally, who are the competitors and what is each’s market share? How critical is it to be in a particular location, and do you have the opportunity to secure a long-term lease or purchase a commercial property in that area?
Once you have conducted thorough due diligence and verified the seller’s information with documented evidence, you will have a clear understanding of potential risks and opportunities associated with the acquisition. You may then assess how they align with your strategic objectives.
Negotiate & Finalise
Once you’ve completed due diligence and determined that the acquisition aligns with your goals, it’s time to negotiate the deal terms, structure the agreement, and finalize your financing plan.
Work with your solicitor and accountant to draft a purchase agreement that protects your interests and outlines the terms of the acquisition, including price, payment terms, and post-acquisition integration plans.
As your trusted commercial finance brokers, we will work to meet all critical deadlines, align you with a suitable lender that understands your strateg,y and obtain the finance you need to expand your business portfolio.
Conclusion
Leveraging your existing business to acquire another can strategically expand your portfolio and unlock growth opportunities.
By carefully assessing your current business, identifying synergies, developing a financing strategy, conducting due diligence, and executing the acquisition effectively, you can position yourself for success in the competitive landscape of business ownership.
Ready to take the next step? Get in touch with our team to explore how we can help you navigate the process of acquiring a second business and achieve your expansion goals.
