Here’s the advice you never would expect from a business broker: you shouldn’t buy another business. I put it under the category of “do no harm;” if you don’t have a handle on your current business, buying another one simply multiplies your problems. Here are some considerations.
If your current business isn’t running at peak efficiency, you’ll never be able to run a larger company well. Growing through acquisition requires enormous amounts of time, focus, and attention. You need to make sure you don’t lose ground while you’re getting up to speed on your new staff and new customers.
Fix your problems before you buy another company. Update your systems. Fire the problem employees. Clean up your books and records. Make certain you’ve got the right people in place and that you’ve given them the power to make decisions. When you have everything firing on all cylinders, you’ll be ready to take on more.
If your techs aren’t providing good service, getting more service calls is a recipe for disaster. It’s critical to have the right talent in place and that they’re trained to do the job right. You’ll need to invest time and resources to ensure the new staff is doing things the way you want them to, so you’ll have much less time to manage your existing crews and solve problems. You also run the risk of bad habits and sloppy work migrating from one company to another. If you don’t have a clear set of standard operating procedures and quality checks in place, you’re not ready to take on new customers.
If you don’t understand how to price your services, you’ll be digging a hole at two companies instead of just one. If you haven’t done a detailed analysis of your costs within the past year, chances are you’re not charging enough for your service. Most owners are reluctant to raise prices, fearing they’ll lose long-time customers and become less competitive in the market. But your profitability and long-term viability are dependent on getting your pricing right. You’d have to do a detailed analysis (and maybe raise prices anyway) if you buy another company. Make sure you’ve got it right at your current company so you can get it right at a new company.
You’re buying the wrong size company. If you’re buying a bigger company than the one you own, you may wind up becoming a part of its culture, rather than bringing it into yours. If the other company has a larger, more established workforce, they might be resistant to new ideas and new ways of doing things. It makes more sense to buy a company that’s the same size or smaller than your current company; you know you have the skills to make it work (see below).
You’re not ready to run a company that’s much larger than yours. Every milestone, from hiring your first employee, to getting to a million dollars in sales, to hiring a manager to run the business while you grow the business– represents a learning curve and plenty of mistakes along the way. It takes a completely different set of skills to run a $10 million company than it does to run a $2 million company. And you can’t buy your way there. There’s nothing wrong with running a company and growing organically; bigger will not instantly make you better.
The stress and pressure might be more than you bargained for. Acquiring another company means taking on much more debt and risk, and not everybody is cut out for that. You’ll be spending lots more time on management, even if you’ve got a good staff in place. If you struggle to manage your time or stay organized, you’ll need to hire extra help to make sure you stay on top of things. Burnout becomes a real possibility. So it’s important to ask yourself why you’re deciding to grow and whether getting bigger will change your quality of life for the better.
If you’re growing the company to sell, acquisition might be the right path. If you’re growing a company you want to manage, getting stronger instead of bigger might be the right decision for you.
