Considering Business Acquisition for Business Growth

Want to grow your business fast? Considered a business acquisition?

Most business owners see the benefit in adopting a growth strategy. Sometimes though market forces make organic growth difficult and expensive. A much faster method of achieving growth targets is to bolt on other businesses through an acquisition.

You may choose a competitor whose sales you can absorb and strip out overheads. Your target might be complementary in that it offers something of use to your customers or vertically/ horizontally in your supply chain. Irrespective of the type for most a business acquisition offers the hope of growth. Many owner managers however, find the thought of an acquisition not appealing; too many problems, too much risk, too difficult to fund and too expensive.

At Nicholsons we partner with clients looking to acquire to help guide them through the purchase process every step of the way.

One piece of advice I often give is that deals don’t need to be Richard Gere in Pretty Woman style massive deals. I’ve recently worked on two acquisitions both with values of less than £25,000 but deals with values up to £100,000 can still generate good value.

Both of these recent deals offered integration benefits; sales and profit growth, customer cross selling opportunities, channel integration, economies of scale and a less than 3 year payback.

Smaller deals like this are often easier to complete. There are often smaller ego’s amongst the sellers (& their advisors) and whilst Due Diligence other pre purchase checks and legal documentation are still needed it can often be really focused on key areas which helps keep costs proportional to the deal size.

Sometimes buyer burnout in the deal process means that integration and day one planning is not effective. Smaller deals don’t drag on and there is plenty of energy left for integration planning. This is a real benefit of completing small deals because you can integrate them easily whilst keeping on top of the day job. Post purchase integration is where excellent business owners generate value and make acquisitions work so having more time on this area is a benefit.

So my advice would be. Don’t discount acquisitions as a means of achieving growth, but think smaller.


Are you looking for investment in your business?

We are all aware that it’s more difficult to obtain funding from banks. Many SME’s continue to do battle with the current economic conditions without full bank support. Even strong businesses with good track records and assets to secure funding against find it difficult to obtain funding to invest in new products or their development.

This lack of liquidity in the SME sector is a real challenge. Despite central government intervention via schemes such as the funding for lending scheme banks are favouring traditional asset backed and working capital deals. The consequence, underfunded speculative research and development projects.

To assist businesses innovate, the government has introduced “innovation vouchers” and re-packaged “SMART grants” that provide small amounts of funding in certain areas. That however, leaves a real cash flow gap for those engaged in serious innovative developments.

Alternative lenders such as Funding Circle continue to fund projects and are becoming more popular but for larger investment requirements business owners should still consider investment from business angels and others with pots of spare cash benefiting only from low interest rates offered by banks on savings.

Unfortunately for most SME owner managers, outside angel investment is not well understood and is even less accessible. As we sometimes see on Dragons Den however, accessing angel investment and people with contacts, experience and knowledge can be the difference for many businesses.

It’s for that reason that Nicholsons have teamed up with Lincolnshire Investment Network to help business owners access local Lincolnshire angel investment. On 27 June we are holding a seminar which will help you become more investment ready and answer questions such as:-

  • Where do I go to meet angel investors?
  • What do they look for?
  • How do I know whether my business is ready?
  • How and what do I present to them?
  • What will they want?
  • How long will it take?

If you are a business looking to raise finance for a project you should not miss the opportunity to learn about how you can raise that finance from Lincolnshire based angel investors.


How accurate is the information in your accounting system?

I’ve recently been working with a number of my clients on their management accounts reporting. Whilst a lot of the discussion has been around the measures and numbers I’m mindful that some work remaining, is centred on ensuring that the numbers coming out of their accounts system are accurate.

 

There are lots of different accounting systems to choose from today, some offline and other like XERO in the cloud. All offer simplicity and ease of use however, the accounts and information that they produce are only as good as the information that is put into them.

 

So I would suggest that any review of management accounts information starts with a comprehensive check of the underlying financial systems and procedures; is the bank balanced on a regular basis, is cash checked to what’s in the till or petty cash tin, is depreciation (of fixed assets) posted into the system and are the rates appropriate, are debtor notes reviewed to identify potential bad debts and are they provided for, are prepayments and accruals large enough to worry about on a monthly basis, is the stock  balance updated and Work In Progress adjusted, is the VAT balance checked and are the wages and PAYE/ CIS accounts balanced?

 

Without addressing these points the information you review in your accounting system may not be an accurate reflection of how your business is performing.

 

A good way to ensure the accounts are accurate is to work to a monthly checklist, a list of tasks that you do each month. When I prepare these for clients I always make sure that they are annotated so that there is a handy “how to” next to each item. This helps take the stress out of updating the system each month and ensures you don’t spend a long time thinking about how to enter information.


New report into levels of bank lending

I read with interest this morning that a study by the Federation of Small Businesses (FSB) has revealed that around 42% of all business applications from small businesses are being rejected.

 

Whilst I’m not surprised to see bank lending in the spotlight again it does worry me that 40% of small businesses looking for funding are being turned down.

 

We are told that banks are open for business and will support strong propositions and therefore can we conclude that over 40% of small businesses are too weak to survive? I’m not sure about that.

 

It does however, highlight the need to maintain a strong balance sheet and good business proposition in these turbulent times and look towards alternative funding sources like funding circles for development finance.

 

The FSB report can be accessed here