A lot of businesses think that they can grow their operations by making acquisitions. It is certainly true that this is an option that is not reserved solely to larger companies. In fact, small businesses that apply proper acquisitions strategies can see exponential growth, no longer having to focus on finding each individual customer. This, in turn, can lead to increased sales and greater profits as well.
However, it is absolutely vital that an acquisition is done properly. Small businesses in particular generally do not have the strength to recover from a failed acquisition. This is why it is important to seek professional economic and legal advice from companies such as http://www.genequityco.com first.
Points for Acquisitions
A few things are of particular importance when considering an acquisition. These are:
- Getting the timing right. Timing your acquisition so that it comes at a time when consumers are waiting for it, is vital to the success of this operation.
- Thinking about demographics. If your business isn’t running properly and you feel an acquisition may improve it, you must first ask yourself why your business is struggling. You are clearly not hitting your target demographics, so will this improve through the acquisition and, if so, how?
- Financing. Acquisitions are expensive. If you are a small business, you will only have limited funds available to you. While you may be able to take out a loan to pay for it, you must remember that the loan also has to be paid back. If the acquisition fails or doesn’t have the desired effects, you could lose your business.
- Will you make profit? At the end of the day, you should never make a financial decision that doesn’t lead to profit in the long run. Sometimes, you have to spend money in order to make money, but only if you know for sure that you will earn that back. Naturally, there are always risks within finances, but you should only engage in an acquisition if the risks are very low.
- Share values matter. Too many small businesses think their value is expressed in earnings for each share. This is not true. The value of your business is expressed in the value of each individual share. Hence, you have to think about your stakeholders as well. Will your acquisition increase the value of your share? Sometimes, you will see earnings per share go up significantly, but individual value drop. This means the value of your company also drops.
Mergers and acquisitions are extremely risky business strategies. When they pay off, they tend to have a huge positive effect on a business, its employees and the communities it serves, which could potentially be an entire country. But when they go wrong, they go wrong very badly leading to lost jobs, a drop in the overall economy, damaged reputations and more. As a small business, you must be extra careful and know for sure that your business decision will pay off positively not just for your personal bank balance, but the livelihood of everyone who depends on your business as well.