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Should I Buy A Business To Expand My Current Business?

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Comments & Replies: 2     Views: 2196     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.


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Elizabeth McGovern: Escrow Services - SF Bay Area

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

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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.

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.

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We offer Cannabis Industry Consulting & Due Diligence Services to business buyers, owners, sellers, entrepreneurs throughout CA. We offer assistance with: licensing issues, cultivation facilities, products/ services, dispensaries, corporate strategy, & project management. Call 866-591-7802 for info.

Harry Sidhu, CBB, Broker - SF Bay Area, Central Valley, SAC Region

Assisting both sellers and buyers of businesses - dealing mainly with Liquor Stores, Grocery Markets, Gas Stations, Smoke Shops, Restaurant Related, Retail Related, Service Related. Serving SF Bay Area, North Bay, Sacramento area. Call Harry Sidhu, CBB for assistance at 510-366-6130.

Michael Floorman, Business Broker, BTI, San Francisco Bay Area

Business Team, San Jose (Campbell) located in the Pruneyard Towers at Bascom and Hamilton. Established in 1981 Business Team with over 6600 sales to date has 1000 business listings to choose from, paid Google advertising. We offer highly trained and experienced professionals.

Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence

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