When should you buckle down and buy out a competitor? Purchasing a competitor is an extremely big step to take — and often an expensive one. When purchasing a competitor, you are absorbing the operations of their business into your own in order to improve upon your client base and revenue. But buying out a competitor isn’t always the best move. Before you step forward, there are some factors to consider.
How Can You Streamline Their Operations?
In the most ideal situation, purchasing a competitor will give you access to their client base without significantly increasing your overhead. In order to do this, you need to be able to streamline their operations and integrate them into your own. Otherwise you will simply be increasing your overhead on par with your income.
Do They Have Something You Don’t?
Businesses often find themselves in competition with an organization that simply has something they don’t — whether it be superior equipment or simply better branding. An acquisition of a competitor often makes the most sense if they have some competitive factor that you can’t acquire. In many areas, this can simply be that the business is already entrenched and established within the region. This type of reputation can be very difficult for a new business to fight against.
What Additional Costs Will You Have?
Never assume that your competitor’s operating costs will necessarily be your own. As an example, your insurance policies may have vastly different rates than their policies — simply because you’ve initiated more claims than them. By the same token, your policies could actually be much less. Rather than taking anything for granted, you should get accurate quotes and calculate your expenses with this information.
Does the Business Have Liability and Debts?
Debts can be a substantial burden for a business. Though your competitor may be doing very well in terms of income, they may also have extreme liabilities that could make them very difficult to manage. Before you think about buying out a competitor, you need to consider all of their potential liabilities — including debts they have to investors and shareholders. If a business has significant liability, it may not be worth the cost.
How Much Does Your Market Overlap?
The best competitors to consume are the competitors that have markets with very little overlap. Acquiring a competitor that is in a nearby but non-overlapping market is one of the fastest ways to expand and grow your business, though it does come with the catch of increased overhead. While it can make sense to acquire a competitor in your same market — especially if they are performing as well or even better than your business — it isn’t the ideal situation. It’s more likely that you will lose their existing clients if you purchase a company within your own market, as these are clients that have already made the decision to work with a different business.
Can You Get Financing?
Purchasing a competitor often requires financing. Not only is it expensive to buy a competitor with cash, but it’s usually not an ideal solution either; businesses need liquid cash in order to continue their operations. Credit repair companies can work with business owners to make sure that they qualify for credit lines and loans.
When it’s the right time, purchasing a competitor can be an incredibly valuable move. But you need to be certain that it’s the smart financial choice. Buying out a competitor makes sense when they will expand your market and when you can streamline their overhead. It may not make sense if their business will not significantly increase your income over your acquired expenses.