| Horizontal and Vertical Mergers or Acquisitions Will Grow Your Business, Quickly |
| Invention Development Advice - Marketing | |||
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All small business owners and entrepreneurs want growth and sales however it's important to control the rate of your growth or you will risk the future of your business. Quick sales growth is exciting and those sales numbers are often used as a measure of business success. However, business owners need to focus more on profit (and strategy), than on sales. In other words, how much is fast business growth costing you (both in the short, and long, term)?
All small business owners and entrepreneurs want growth and sales however it's important to control the rate of your growth or you will risk the future of your business. Quick sales growth is exciting and those sales numbers are often used as a measure of business success. However, business owners need to focus more on profit (and strategy), than on sales. In other words, how much is fast business growth costing you (both in the short, and long, term)? Rapid sales growth can be achieved either organically through activities internal to the business or inorganically through activities external to the business). Organic growth typically occurs through the launch of new services or products, or by expanding the geographic market, and/or by starting up a new business - although growth in this case can start slow and then speed up. Inorganic growth typically occurs through mergers or acquisitions and it can add sales revenues very quickly (although the costs for this type of growth can be high if not well-managed). Inorganic growth can be fast; if you buy a company the same size as you (or bigger), you've doubled your size. However, there is a cost to that growth in terms of resources, time and money. Buying another company often means that you are buying the bad along with the good. For example, you might end up buying the sales along with old inventory, a bad reputation, a bad product or unhappy employees. You need to weigh the pros and cons of the acquisitions; are the pros (sales, the customers, the staff, removing a competitor) of more value than the cons? Be sure to have a strong finance team to work with in your horizontal or vertical merger or acquisition. Also be sure that you have a good understanding of what is cash flow (because cash will be tight) and that you have a strong working capital formula. When deciding whether or not to buy growth inorganically by merger or acquisition, you need to also consider the less tangible challenges. For example, if you expect to gain synergies through the merger - by improving production efficiencies and laying-off staff - how will you manage the impact on employee morale and on the culture of the new organization? Will the culture be divided by a 'winners' (the staff from the buying company) and 'losers' (the staff from the company being bought) mentality? If you don't manage this integration and transition effectively, it can be a significant long-term expense. Do you need human resource support to help you through this process? The difference between acquiring a company and merging with another company is usually related to either a win-lose proposition (one company is the winner, the other the loser) or a win-win proposition (both companies are motivated to merge successfully for a number of business reasons). Horizontal and vertical mergers can consume a different resource focus: ensuring that both companies, their staff, their customers and all stakeholders feel that the end result was a win-win. To be successful in managing growth you need to ensure that you have the right people in your organization; people who will help you lead the change management required. You also will need to ensure that you have a strong human resources plan to handle fast growth, and peaks and valleys in business activity. Ensure that you have job descriptions and an organizational structure for your business and, if applicable, that you have standard operating procedures for your business operations. Build an employee training development program to integrate new staff into the organization. Your customer service department and program needs to be strong so that customers are insulated, and supported, through the growth and change processes. Commit to a continuous improvement program and commit to maintaining, if not improving, your quality. Understand that you will need strong cash flow to sustain growth: for supplies, materials, labor, transportation, severance packages (if applicable), and more. Unplanned or rapid business growth can have a negative impact on liquidity. Use a checklist approach to grow your business through acquisitions or mergers. Review all the pros and cons of moving forward, or not. Carefully analyze the tangible costs and benefits of the business decision; including the results of using accepted business valuation methods. Make sure you focus on sustainable growth; and that you engage your employees early on to commit to your plan. More information: Vertical mergers and acquisitions are only one strategy for growing inorganically your business; use more business tactics found at More For Small Business.
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