Key Factors to Consider Before Buying Out a Competitor

Scaling a business takes time, but there is one way to quickly grow and potentially double (or more) your book of business essentially overnight – and that’s to acquire another company. 

Before you start eating up your competition, however, you want to really think things through. A good investment, if not executed well, could end up sinking your entire operation. 

Here are a few key factors you should consider before buying another company:

  • Evaluate the risks and rewards – Investing in a competitor’s business will strip away one more competitor in the marketplace and could position you advantageously from a sales perspective. But these rewards will require a gamble. There are a lot of unknowns with a merger, even when you plan meticulously well. For one, you will be taking on increased debt to fund the acquisition. Moreover, you’ll also take on the challenge of merging two companies. This can be difficult not only from a product perspective and integrating the two business lines. It can also cause tension among employees and lead to the potential loss of valued team members.
  • Crunch the numbers (and then crunch them again) – Buying a competitor means you’ll be taking on their assets and their debt. You need to make sure you have done a deep, deep dive into the numbers and understand how things have been trending for the past several years before you commit to anything. Hire a third party to conduct an audit, and audit it yourself as well. Evaluating a company’s financials allows you to see an objective picture of the purchase without letting emotions skew your perspective.
  • Understand why the competitor is willing to sell – If acquiring your competition is even an option, make sure you understand why the deal is on the table in the first place. While it is likely for very good reasons, it’s important to keep in mind that it could be for the wrong reasons too – and that’s a road you don’t want to go down.
  • Evaluate market overlap – A good acquisition is one in which there is as little overlap as possible between your competitor’s clients and yours. This allows you to expand and grow into a nearby market rather than force your product on customers who already chose someone else.
  • Consider the fit in terms of culture and values – While it’s a business transaction, there’s more to an acquisition than money. The company’s culture and values must also align with yours, and culture or fit is not something you can force. During an acquisition, it’s important to think about the people behind the business and ensure that the two companies’ missions and values are in relative alignment.

Successfully acquiring a competitor’s business will take time and money, but it’s worth doing the hard work upfront to avoid potential pitfalls down the road. If you’re considering a small business acquisition in Florida, get in touch with our commercial law team at Silverberg|Brito, PLLC right away.

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