Buying into your future

Owning more than one business can bring greater buying power

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Buying a second business is a quick way to build up your empire but acquisitions are not as straightforward as they might seem

Whether you?re looking to establish your legacy, increase your income or just take on a new challenge, acquisition is a popular way of achieving rapid growth.

Andrew Coulter, director of business development at Redwoods Dowling Kerr, says publicans, nursery owners and retailers are examples of business people who often invest to expand their business portfolio.

?People make a great success of their business and want to mirror that. They?re confident they bring something unique and can bring that to a second business,? he says.

Coulter says an increase in the size of your operation can bring big advantages in buying power that can improve your bottom line. A proven track record means that ? unlike a start-up ? you have a degree of clout with suppliers and could secure discounts for bulk orders.

?If you?ve got a pub, for example, you?re constantly thinking ?how can I get another 10% discount per barrel??? he explains.

A proven business history could also stand you in good stead with the bank, leading to a higher percentage of funds.

But with the chance for greater reward comes an increase in the number of risks you have to manage. Michael Taylor, director at business transfer agent Everett Masson & Furby (EM&F), says owning more than one business means you need to balance complex financial considerations.

?You?ve got to look at the cash and how it?s going up. If you?re buying an outlet to bolt on you?ve got to make sure the existing business is making good money to cover staff costs and leave a bit in the pot for you.?

Your accountant can help navigate the situation, helping with the projected cashflow management.

Jonathan Sharpe, head of business advice at Devon and Cornwall Business Link, says: ?The first thing owner/managers should do is get professional advice through Business Link or the accountant or solicitor they usually use.

Before making an investment, Prior says a good starting point is carrying out an internal audit to ensure the systems and processes that you are currently running can be transferred to the new business.

He says: ?You might be using a simple Excel spreadsheet for your finances in town A but is that adequate in town B??

Accountants will also help analyse the projected cashflow of the new business. They will, for example, assess any peaks or troughs in expenditure and income over the course of a year and whether that could impact on the finances of the business.

Robin Jarvis, head of small business affairs at the Association of Chartered Certified Accountants, says you need to ensure claims of turnover and the physical assets qualify the asking price of the business.

?Small firms need to be careful of how they use their resources but due diligence is a very important one if you?re taking over a business.?

Jarvis adds that it is wise to develop two separate business plans and to integrate them to exploit shared resources and leverage any economies of scale.

Staff is a key resource to consider. Under the Transfer of Undertakings element of employment law (TUPE) all employees must remain with the business being acquired.

Coulter of Redwoods Dowling Kerr says this can bring benefits since, with more staff, business owners have the opportunity to draw from a larger pool of skills. If a key employee is ill, for example, then staff from another location that understand the business can be called upon.

However, for small business owners, handing over the responsibility for running a separate branch can bring additional challenges. Taylor of EM&F says: ?You can?t be in two places at once so you need to have reliable staff.?

He recalls one example where the owner of a Post Office business one day discovered that his slim profit margin was the result of a branch manager handing over stock to a relative on a daily basis.

Security measures, such as an EPOS till system to protect cash and tagging systems to monitor stock, will remove temptation for employees and provide peace of mind for you, says Taylor.

This emphasises the need to monitor all branches closely. Physical visits, particularly in the vulnerable early integration phase, are important to keep in touch with the operation and develop a rapport with staff.

Sharpe of Business Link says, ideally, everybody in the business you are already running should be briefed of the acquisition, possibly via a team away day. He adds that new staff should also be told as soon as possible.

?Communication is essential. As soon as you know the deal is going ahead and there?s no risk of confidentiality being broken then you need to get the buy-in of the business.?

Sharpe adds that the positive impact of an acquisition on the bottom line might not be instantly apparent. But, he says, by following the right procedures it could over time provide the foundations for a mini empire.

He says: ?If the costs are cut back and the staffing costs reduced, the value of the whole business increases and the profit goes up.?

The Top Five

BUSINESS LINK?S FIVE ESSENTIAL TIPS TO BUILDING YOUR SMALL BUSINESS EMPIRE

1. Take professional advice
2. Undertake due diligence
3. Get the staff on board
4. Make sure your business processes are robust
5. Check that the acquisition fits in with your current activities