When it comes to business, strategy is everything. Having detailed, meticulously planned short-term and long-term goals in place provides business owners with an invaluable lodestar to navigate the ups and downs that lie ahead.
One business strategy you may be considering is having two businesses – your original company and an additional business that you buy as an investment. While this approach might seem like twice the work (and twice the risk), there are some benefits of having more than one enterprise – especially when it comes time to exit.
Without further ado, then, let’s explore this asset-building exit strategy in more detail, illuminating the pros and cons of running more than one business with the view to crafting a suitable exit strategy.
The pros and cons of having two businesses
The pros
Firstly, let’s explore the benefits of owning two businesses as part of a long-term exit strategy.
For one thing, when you eventually decide to sell one of your businesses, you will still have your core enterprise bringing in revenue for the foreseeable future. This gives you more leeway (not to mention more robust finances) with which to plan your next steps – whether that’s retirement or charting a new course in your career.
Secondly, by running your original business as a predictable and reliable cash cow, and purchasing another as a scalable asset, you diminish the financial risks for yourself as an owner. After all, you will always have a core revenue source, even if the secondary ‘asset’ business fails to live up to your expectations.
Alternatively, if your core business ever runs into serious or unforeseen difficulties, you still have the scalable business to keep you afloat, whether you sell it right away or decide to grow it yourself.
The cons
While the advantages of the two- business strategy seem clear, it’s also important to factor in the potential risks and pitfalls.
These include the obvious investment – in time, energy and money – required to purchase another existing business. While this avenue is less time-consuming and risky than launching a second company from scratch, it’s still a significant undertaking with its own helping of risk. After all, you’ll be juggling two different operations with their own staff, their own finances and their own unique frameworks. This can potentially lead to burnout, or at the very least, spreading yourself uncomfortably thin.
Secondly, there is always the chance that running your new business will detract from your core venture. Perhaps you need to dedicate extra time or resources to a teething problem, for instance, or perhaps the new business needs a substantial cash boost, and you decide to take it from your original enterprise. Whatever the reason, there is the potential for your new asset-building venture to cause problems for your ‘cash cow’.
Finally, another challenge you may encounter is branding issues – specifically, brand dilution. If your personal brand is well-known and you buy a new business with different branding, your customer base could become confused, and you may even face retention issues. This could be a costly blow so it’s vital not to underestimate the problems that divergent branding can have on your profit margins – and reputation.
How to tell if owning two businesses is right for you
Before you begin eagerly scanning Rightbiz for a second business to develop as an asset, it’s important to ask yourself whether the two-business strategy is feasible. Even if you have a well-established core business with enough capital to invest, acquiring another company might not be sensible, for several reasons.
So, how do you know whether it’s the right option for you or not? Ask yourself the following questions:
- Do you have the skills and resources to make it work?
- Do you have the energy and resilience required to own and run two businesses simultaneously?
- Have you done the research required to make buying another business a success? If you’re thinking of investing in a business from a different market to your own, you need to have a firm grasp of current and emerging trends within that market so you can choose the right company to buy.
- Do you have a strong team around you? Being able to delegate will prove crucial once you have two companies to run. Consequently, having a robust management team or some savvy business partners at your side can make all the difference.
- Do you have effective systems in place to manage more than one business smoothly and efficiently? Bear in mind that, these days, there is an abundance of software and other technology available that can automate a wide range of tasks and help you streamline your business operations.
- Do you have a solid grasp of the financial implications? Not only in terms of investing in a second business and scaling it up, but also in terms of sorting out taxes and ensuring healthy cash flow for both enterprises. There’s a lot to consider from a financial perspective alone!
Buying the right scalable business
Those of you who have decided to take the plunge and embrace the two-business strategy may be wondering where to begin. How do you find the ideal business to transform into a valuable asset?
To help you, we’re going to provide some insider tips that should hopefully help you locate and purchase the perfect target.
1. Analyse, analyse, analyse
As we’ve already mentioned, market research is key when it comes to buying an existing company, especially one that is easily scalable.
Your best bet is to look for businesses that are ‘asset-light’. This means they don’t have a lot of capital tied up in physical infrastructure, nor do they require large numbers of employees. In most cases, they don’t even need a physical location to operate out of.
This kind of business is the easiest to grow and comes without the additional costs and risk factors of having costly property and equipment to maintain or lease. Depending on the type of business, they may also be relatively reliable when it comes to revenue. What’s more, if they are innovative and flexible enough, they may have the adaptability and resilience to maintain steady growth while weathering any unexpected downturns.
Of course, at the same time it’s important to consider your own transferable skills and expertise when choosing a market – and a business. After all, you need to be sure you can make a success of the company once you’ve bought it.
2. Ask the experts
Buying a business can be daunting at the best of times, but you don’t have to go it alone. As well as consulting dedicated online platforms like Rightbiz, you can also hire a business broker to take over the acquisition process on your behalf.
Business brokers have a wealth of experience to draw upon when it comes to uniting buyers and sellers. They can use their network of contacts to seek out the most suitable prospects for investment, making it easier and faster to find ideal targets.
What’s more, they can handle every stage of the deal for you, from protecting confidential details and filling out complex paperwork to assisting with due diligence.
3. Make sure your target is the right fit
Once you’ve found a business that you think could represent a valuable asset, it’s time to invest in thorough due diligence. This means scrutinising its operations and its finances from every angle to make sure it has a positive track record and that its revenue is growing steadily.
Along the way, you should also be on the lookout for any hidden pitfalls, whether that’s a bad debt or a pending legal case.
Once you and your legal and financial advisors have ascertained the health and efficiency of your target, you can think about preparing for deal completion and integration.
Making two businesses work for you
So, there you have it – top tips and advice on the two-business approach to investment, its pros and cons and how to go about it.
If this business strategy seems like the best way to expand your market reach and generate a firm financial foundation, perhaps you’re now pondering your next steps. For clarity, expert advice and dedicated assistance at every turn, why not give our team at Harris Acquire a call? We have years of experience in helping businesses add to their portfolio.
To begin with, we can help you find the most suitable targets for investment and make initial contact. Then, once you have a candidate singled out, we can embark on the acquisition process on your behalf, handling the deal from start to finish – leaving you with plenty of time and energy to focus on managing your core business.
To find out more about how we can help you buy a business – and to learn about our 30-day money-back guarantee – give us a call on 01926 757100 or send a query to Hello@harrisacquire.com.
