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Should I Buy A Business To Expand My Current Business?

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Comments & Replies: 3     Views: 3102     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.


  Helpful Resources To Assist In Selling And Buying California Businesses
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.

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.

Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

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.

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.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.

Mike Brewer: Liquor License Brokers, ABC Consulting Services

Liquor license brokerage and consulting services. We provide: Alcohol License Transfers Application Consulting & Processing, Liquor License Purchases & Sales, City Zoning Permits & Land Use Entitlements, Public Convenience or Necessity Findings and Letters. Phone Mike Brewer direct at 800-437-1100.

Prabhjot Randhawa, Broker: SF Bay Area, Northern Central Valley

I'm a Business Advisor at Liberty Business Advisors of San Fransisco. I have over 20 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 10 businesses.


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