What Is A Business Acquisition? A Complete Guide in 2020

What Is A Business Acquisition? A Complete Guide in 2020

A business acquisition can be a useful strategy to expand your business, scale your network of businesses, or own your first business. Acquiring a business can help you hit the ground running as the foundation has already been laid down. And if you’re planning on buying an established business, you’ll gain access to an audience as well so you can start selling the same day. Or if you’re looking for a starter business, you’ll find a website that’s set up, so you don’t need to set everything up in your first couple of weeks. In this article, we’ll discuss what is a business acquisition, some pros and cons of acquiring a business, and how to finance a business acquisition.

What Is A Business Acquisition?

A business acquisition is when one person or company buys another company. A business may be acquired to own the competition, reach a new audience, or get a head start on your first business. 

business acquisition

Pros of Business Acquisition

1. You Get A Head Start

One of the benefits of business acquisition is that you get a head start on building a business. Some people choose to buy businesses instead of creating their own. It can be challenging to find the energy to do all the little steps you need to do in the beginning. There may also be an overwhelming list of things to do, which can make you feel stressed or frustrated. If this happens to you, you may find that buying a pre-built business is the best option for you. While most people think of major brand takeovers when it comes to business acquisition, the reality is that you can buy a business for as little as $50 on Exchange. These businesses may have products added to the website, a fully designed site, and other great features that make it easier for you to get started.  

2. The Audience Is Built

In some cases, such as when buying established businesses, you’ll be able to acquire companies with pre-built audiences. In marketing terms, that might mean that the business’ social media accounts have followers, an email list has subscribers, and a customer list may be available too. The hardest part of marketing is often those early stages when you’re starting with zero of everything. Amazingly, you can skip that step by buying a business instead. Having an audience in place allows you to focus on growth instead of social proof. Since you’ll already have followers or subscribers, you can start marketing to an existing audience the day the business acquisition is complete.

3. Your Product Has Been Tested

An interesting pro of business acquisition is that the product has already been tested. There’s a reason why you’re interested in buying a business in the first place. And it likely has to do with the types of products the brand is known for. On Exchange, you can see the sales data of a website so you can see proof that the business has generated money. If you like the product someone is selling, you might choose to buy the business so you can sell that exact product. Maybe you’re a loyal fan of a particular product and notice a business for sale that sells the product. This could be a great example of a founder-product-market fit. You should look to start a business in an area you’re passionate about.  

buying from a business

4. The Brand Is Known

While it’s true that you can buy a starter business that hasn’t generated sales yet, it’s also true that you can buy businesses that are well known too. Some brands may have made a couple of hundred thousand dollars in sales. So, their growing brand has increased recognition than a new one. The more brand recognition a business has, the more expensive buying that business will be. However, with more brand recognition likely comes increased sales, a larger customer base, and more perks (good relationships with suppliers, effective team, etc.). 

5. There’s Little to Procrastinate On

When you start a business for the first time, it’s really easy to procrastinate. The hardest part is taking that first baby step. And instead of taking action, most people daydream about their success without doing any of the work to make the daydream a reality. Instead, they take a few small steps and give up before the dream has a chance of flourishing. However, people who buy businesses instead of creating them can’t procrastinate for three weeks on their logo design. And they can’t waste time on deciding on a business name. Instead, the tasks that you’d typically procrastinate on are decided for you. And the products are already available on your website. And you can begin to run your business the day you take ownership of it. You’ll have the head start you need to succeed, to turn those daydreams into your reality. 

working on business

6. Gain Access to Suppliers

One of the perks of business acquisition is that you can gain access to the suppliers that your business has built relationships with. If you’ve always wondered what supplier a specific brand has worked with so you can sell their products, a business acquisition is an excellent way to gain access to that behind the scenes information. Working with those suppliers will allow you to sell their amazing products. However, if you want to expand into a network of businesses, you might choose to create sister brands using a similar supplier. If you’re in the ecommerce space, you’ll likely be interested in knowing who the supplier is to your new business so you can continue to expand your business. 

7. Buy-Out Competitors

One of the most popular reasons for business acquisition is to acquire competitors. Yup. Sometimes, you just gotta buy them out. When a competitor is growing in popularity, and it’s negatively impacting your sales, you might decide to buy them out instead of trying to take them down. Ultimately, you need to focus on reaching a bigger audience. And a business acquisition of your competitors could very well help you do that. You might notice a popular competitor listed for sale on Exchange with strong sales and a big social media following. If you see businesses for sale, you can reach out to the owner to discuss a business acquisition. That way, you can own more market share in your industry. 

buy out the competition

Cons of Business Acquisition

1. Requires An Upfront Investment

A business acquisition requires an upfront financial investment. You’ll need to spend some money to acquire a business. Fortunately, there are businesses for sale at every budget. If you’re looking to have a pre-built website and products added that you can sell, you might be able to find businesses for as low as $50. If you’re looking for a business that has already made some sales, has an email list and social media followers, you might be able to find some for as low as $200. Despite the upfront investment, you’ll save time (your most valuable possession) because a lot of the build-up work was done for you. That way, you can start selling on day one, instead of designing your logo, setting up your website design, and creating social media accounts. 

2. Requires Some Business Knowledge

A business acquisition requires some business knowledge for the business to be a success. You’ll need to know a little bit about marketing and sales to ensure that your company makes a profit. You’ll also need to know how to grow an audience. You might need to have some insight on how to choose winning products, so you sell products people want to buy. Fortunately, gaining business knowledge isn’t too hard. You can read blog posts, sign-up for online courses, attend webinars, and more. Plus, what better way to learn than by doing. You’ll learn so much about running a business by owning a business.

online learning

How to Finance a Business Acquisition

1. Your Funds

Most people turn to their personal funds to acquire their first business. For example, with starter stores costing as little as $50, most people use their own savings to invest in their first business. Using your funds to finance a business acquisition is a common practice from people looking to buy a business. You might save money over time to invest in the future. Or you might have a savings account that’s used when you see an exciting business opportunity. Most people using their personal funds for a business acquisition tend to buy small businesses. You could find businesses for sale that cost only $50 or at most a few thousand dollars, which makes the startup investment quite low when compared to other businesses. Keep in mind that not much more than a decade ago, the cost to start up a company for the first time cost much more than that, which makes today a great opportunity to start a business.

2. With Assets

One strategy that people do to acquire businesses is to use other assets to make the payment. This is most common for people who already own a business but are looking to expand their network of businesses. In this case, you’d have your business pay for the acquisition of the second, third, or even twentieth business. In most cases, businesses buy medium businesses or large businesses to add to their network. In some cases, they’ll buy out competitors. In other cases, they may be looking for a new vertical to expand in. However, using your business’ profits for a business acquisition is a fairly common practice.  

3. Bank Loan

Another way to fund a business acquisition is to get a bank loan. This strategy is one of the most expensive ways to finance a business acquisition as it requires taking on debt. This is a common practice, though. And it’s used in cases where a business owner or business can’t afford to acquire another company because the cost is higher than they can afford. Getting a business loan is tough as it is, so you’d need to have a lot of paperwork to prove that this investment is worth it and that you’ll be able to pay off the loan over the long-term. Banks are risk-averse, so the less risky the investment is, the more likely it is that you’ll get the loan you need.

funding your business acquisition

4. Round of Funding

Established businesses looking to acquire a new business may choose to raise money from investors to complete the business acquisition. In this case, the business owner loses some equity to raise cash. They lose some say in the business while helping to grow their business. This may be an option for some mid-sized to large companies. 

Where to Find Businesses to Acquire

If you’re looking to make some business acquisition, look no further than Exchange. On Exchange, you can find a range of websites for sale in some of the most popular categories. You’ll find fashion businesses for sale, dropshipping businesses for sale, and so much more. If you’re looking for businesses in languages other than English, you’ll find those too. You can find businesses for sale by location

There’s a business on Exchange for every budget, passion, and product you’re looking to buy.

If you’ve always had an interest in starting a business, studies show that those who buy existing businesses are more likely to be successful than those who build a business from scratch. With a business acquisition, you get a head start that helps propel you a bit faster towards success.  

Conclusion

A business acquisition can be a great way to get a head start on building a massive empire. If you start with a starter business, you’ll have the groundwork laid out for you so you can hit the ground running rather than overthinking your logo design. If you buy an established business, you can make sales on day one by promoting to your pre-existing audience. A business acquisition may be a sound investment for someone looking to edge out competitors, expand their network of businesses, or start their first business. It works within any budget. And since you can find a business in any category, the options are endless. So, instead of spending weeks trying to design the perfect business, consider acquiring one of your own.

Is a business acquisition something you’re considering? Let us know in the comments!

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