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Should I Buy A Business To Expand My Current Business?

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Comments & Replies: 2     Views: 2341     Posted By: Craig Osterhoudt  



Topics: Buying A Business     Tags: buying a business



I just received this question from a business owner and thought I would post it for other BizBen Users to comment on:

"Should I buy a business as an expansion plan to my existing business? Will another location hurt or help my existing business? What kind of economies of scale can I expect to receive by opening an additional location or two?"

My take on this subject:

I think the largest benefit is reduction in marketing costs as a percentage of sales. If you wonder how Subway can afford to runs hundreds of radio commercials everyday, its because they split that cost among hundreds of locations. That one minute radio spot, costs the same no matter how many locations you have. So, if you are advertising on the radio, and open another location you should technically cut your radio expense in half, as a percentage of sales.

Its important to research whether the new location is in proper proximity to your existing location, to maximize marketing return on investment, but all other things being equal, lowering your marketing expense as a percentage of sales can be a large benefit of opening another location.

Opening another location also ads to your pool of employees. If someone calls in sick, you technically should have twice as many options as far as covering that missing shift. You should see some economies of scale in labor costs, recruiting costs and so forth.

Would love to hear what other BizBen Users feel about this subject. Thanks.


What a great topic! Very often the best way to expand a business is by acquisition. I know this from my own experience in owning and growing manufacturing and high-tech companies, and from advising business owners in various industries to do the same.

Craig points out the definite economies of scale from consolidating marketing costs and employing a larger and, thus, more flexible work force. Generally, the larger a company is the more sustainable and financially secure it is.

But there are other advantages as well. Most administrative costs do not increase linearly; for example, a business two or three times larger will not incur two or three times the legal, accounting, insurance, or human resource costs. Often warehousing and distribution can be more efficient. And, inventories can be more flexible; by doubling the business maybe the currently available inventory can be just one and a half times more, resulting in more inventory "turns" in a year, and more profit. Plus with higher purchases volume, the business can often negotiate better costs and terms from suppliers.

In addition, management personnel can often oversee more than one site, for even more increased efficiency and cost-saving.

Of course, in acquiring an existing business, proper due diligence should be done, including a projected proforma P&L and cash flow of the potentially combined companies to be sure that the buyer will truly realize the economies of scale anticipated.


  Helpful Resources To Assist In Selling And Buying California Businesses

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Craig Osterhoudt, Business Broker, SF Bay Area

Craig Osterhoudt is a San Francisco Bay Area Business Broker who shares his broker experiences with BizBen readers and has had varied direct small business experience in the past but now assists small business owners sell their business and offers business buyers proven search success programs.

Matt Sadati, Business Broker, SF Bay Area, Northern CA

I have Engineering and Law, JD degree, with over 30 years of experience in all phases of entrepreneurship. During the past 15 years my concentration has been in business of mergers and consulting. I have owned and operated over 33 businesses each having one to 30 branches.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Matt Weiler, Business Broker: Gas Station Specialist

Business Broker Specializing in primarily gas stations. Geographic area of focus: San Francisco Bay Area to Sacramento and as far South as Monterey, California. To sell or buy a small or large gas station phone Matt (gas station business broker specialist) direct at 408-623-0920.


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