We tend to gravitate toward what feels familiar. That’s why many business owners think about growth in terms of organic strategies like opening a satellite office or expanding capacity. M&A feels big and risky, like something only large companies do.
But any business can grow through acquisition. And in many cases, M&A represents less of a gamble than trying to expand on your own.
Not-so-hidden risks of organic growth
Organic growth has notable limitations: it’s typically slow and costly. While you’re doing the hard work to open a new office or launch a new service line, you can spend years (and a significant amount of money), in marketing and development. In the end, your growth plan could be just as expensive as an acquisition and just as risky as a startup.
Tight labor market brings extra challenges
Growing organically, or growing from within, becomes even more difficult when skilled talent is hard to find. Right now, businesses can’t get the people resources they need. Some organizations will plow ahead, hanging their growth strategy on an unproven new hire who wasn’t their ideal candidate.
Other organizations will put more pressure on their existing management team, stretching them thin. After much time and effort, they may burn out their best people only to find that a competitor beat them to market.
Or, with talent short, businesses may find they’ve simply bitten off more than they can chew, damaging their reputation in the process. You can’t manage your growth rate if you don’t have the people to deliver on that growth in the first place.
Lenders like a known entity
Expanding through acquisition means you’re buying a known entity. You’re getting a business with an experienced team, proven cash flow, and an existing customer base. You’ll gain valuable skills and knowledge, new customers, and new sources of revenue in an accelerated time period.
Yes, buying a business does come with a significant upfront expense. But most deals are structured so that the target business’s existing cash flow more than covers any new debt you’d take on. Your lender may be more likely to support an acquisition over other inexact growth plans.
Check culture fit before transition
Joining two businesses is not without challenges, particularly if you have to reorganize management and merge employee teams. Before you buy, ensure that culture is a good fit. Beyond that, put incentives in place to retain your best talent. Look for ways to make the merger attractive to employees on each side.
Acquisition can be an efficient path to growth. If you choose this strategy, be ready to move ahead quickly once you’ve found an attractive target. Talk to your lender about your options and build your advisory team in advance. Market activity is hot, and your competitors are also working on plans to grow.
