STAGE 3: The Acquisition and Expansion Phase of Entrepreneurship
Your business has grown and you’re looking to the future to take it to the next level. Often times, entrepreneurs consider acquiring another business. It could be a competitor to knock out competition, a supplier to streamline your supply-chain, or a complementary business to expand your product offering.
Acquiring another business can help you gain an advantage or insights within your industry that are hard or time-consuming to replicate organically. It can also give you access to much needed technology, industry secrets, or assets to further the advantage your business has within the market.
Acquiring a business takes capital and there are multiple ways to obtain capital. We recommend having an established relationship with a commercial banker who puts relationships first before you need one. They can help determine the best strategy for acquiring an existing business and guide you through the financing process.
What’s The Business Strategy?
Your banker can help you think through what your acquisition strategy is – why it makes sense or doesn’t make sense to buy a business. They’ll help you with how buying a particular business will make your existing business better. They’ll also help you think about the risks it could present to your business. Most importantly, they can help you review the business financials so you don’t have any surprises and make sure you really understand how the financials work. Working with a banker helps you get into the numbers and be able to predict what the acquired business or expansion will do for your business and what factors could change those numbers?
How Much Capital Do You Need?
After you’ve thought through the business you’re buying financials, it’s time to look at yours. It’s important to have your financials in order and be prepared to discuss your business financial trends with your banker if you’re thinking about accessing capital. This will help your banker determine how much credit you qualify for to acquire a business or expand your current one? It will also help them direct you towards the right type of capital – for example, a conventional loan, SBA loan, or line of credit. Ask your banker what you should have prepared for this conversation. In a competitive acquisition market, it is critical to be able to move fast and having this preliminary discussion will help.
Is An SBA Right For My Business?
There are multiple funding options for your business expansion. A popular option is SBA Financing, government-assisted loan programs through the Small Business Administration. SBA 7a loans and SBA 504 loans provide a solution for businesses that are relatively new or experiencing rapid growth. SBA 7a loans are generally used to fund working capital, expansion, and purchasing a business. SBA 504 loans are often used for fixed assets, equipment, and real estate purchases. Recently, there have been different incentives for SBA loans and there could be again in 2022.
Who Else Should I Talk To?
Your banker is a great partner to build your Village. If you’ve never purchased a business before they can introduce you to a business broker, a lawyer that specializes in acquisition, an accountant if you don’t already have one to review financials and provide tax consulting, and commercial real estate agents that can help you value commercial property if you’re acquiring a building.
Next Steps Check-in
Ask yourself these questions to better understand if an acquisition is right for you: • What is the return on investment of an expansion or acquisition? • What competitive advantage does it give my business? • What story do your business financials tell a banker? • Do you have a trusted banker to consult on the process of purchasing another business or expanding your current one?
If we can help you get to the next phase of your entrepreneurship journey, please reach out to a banker. We would love to be a part of your Village,connect with them today!