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Should I Buy A Business To Expand My Current Business?

Comments & Replies: 3     Views: 3188     Posted By: Rob Hartman  Rob Hartman, Business Broker, SF Bay Area



Topics: Buying A Business     Tags: buying a business



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.


If someone does buy a business to expand their current business, I suggest that the other location is close enough that it is able for the owner to reach it with in a reasonable amount of time, such as a neighboring city or county, but far enough that the next location does not take customers away from the first location. I sell restaurants, so I know that a second location can be manageable and successful, usually the owner will work out of the flagship location, and then check up on the other location during the day or have a family member or trusted individual maintain and run the second location. With multiple locations, inventory can be moved from one location to another, when successfully done, can control food cost, because excess can go to another location before it spoils.


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Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence

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 805-428-2063.

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