It's a buyer's market and there's a lot of choice out there. If you want to skip the initial start-up phase, a good option may be to acquire an existing business. The key to acquiring the right business is to understand what you're buying.
Franchise
They account for about a quarter of all business purchases. A franchise is proven and tested, so you are buying a business that is already successful. As a franchisee, you benefit from the knowledge, established production, management methods, publicity, advice and better buying power of the franchiser. You gain security by offering a known product or service.
The trade-off is that you have little room for creativity, or opportunity for taking the company in new directions. You'll also have limited control over price, products and production.
Ask yourself these questions first:
- Are the franchises in your area financially sound?
- Is the brand well known?
- Are there many competitors in your area?
- What are the restrictions and obligations imposed by the franchiser?
If you're looking to buy a franchise, check out the Internet portal www.iefranchise.com or consult the Canadian Franchise Association for advice. In Québec, you can consult the CQF (Conseil québécois de la franchise -French only) for information on franchising and affiliated businesses in Québec.
Sub-optimal or failing business
Some entrepreneurs opt to buy a failing business at a bargain price and then turn it around. This strategy involves recognizing unexploited opportunities and developing a means to capitalize on them. You may also come across products that were not successful but still have potential. For example, some ecological products may have been introduced when people were less interested in the environment.
Strategic acquisition
If you already own a business, an acquisition could be a good strategic move. Buying an additional business can help you enter a new market with ready-made expertise, expand your range of products and services and increase your operational efficiencies. A strategic acquisition is an ideal way to drive rapid growth and generate revenues not possible with your existing business. By adding an acquisition to your bottom line, you may be able to get additional financing due to more collateral.
Acquisitions also provide you with new resources and capabilities, adding a whole new set of skills to those your employees currently have. You may also secure new technology, physical assets, innovative business processes and the rights to products that may strengthen your position in the marketplace.
Acquiring your competition may enable you to revamp or recycle their ideas. You could potentially increase your market share and allow your company to diversify its product line.
Consider manufacturing products designed by somebody else as a way to expand your product offering. A product designer may have a patent and or prototype, which you would manufacture and market for a royalty fee. You could also secure the rights to reproduce a product with a protected trademark in another country.
Buying a supplier or a distribution channel can enable you to increase your company's performance and reduce delays. It may also result in increased buying power, which can lead to cost savings and operational efficiencies.
Management buyout (MBO)
Buying the company you work for is another type of acquisition. This option enables you to reduce the risk by joining forces with the rest of the management team and buying out the owner. In an MBO, you have several advantages over external buyers:
- Industry know-how
- Knowledge of risks and problems within the business
- Good fit with the current company culture
- Established relationships with customers, clients and suppliers
