Tips for acquiring a competitor

Photos courtesy SignTek

Photos courtesy SignTek

By Luc Michaud

If you are anything like my business partner and I, you are a tradesperson running a business and not a business guru running a sign shop. Indeed, learning how to make great signs is important, but so is learning how to make a profit.

The barrier to entry for this industry is low. The stream of new shops popping up, existing shops changing hands, and others closing their doors, seems endless. All this flux creates regular buying and selling opportunities. Maybe you are actively seeking out your competitors or someone has handed you an unexpected deal; either way, there is a lot to consider when looking at purchasing another business. This article will look at many of the variables you will need to assess before making a decision.

My goal here is to share some of the lessons we have learned by looking at and completing a few different purchase deals over the years. I am not a business guru, a millionaire, or a lawyer. The points below are nothing more than insights that we have gained from the bumps and bruises doled out by the school of hard knocks.

Reasons for buying

There are many different reasons one might consider buying a business. Maybe they specialize in a niche product line or geographic area that has a small footprint. Do they have good quality equipment and materials you can acquire for pennies on the dollar? Do they have several key customers you have been trying to win for years? Possibly, most important in our self-trained industry, can you inherit experienced and capable staff?

Even in a situation where someone is on the verge of closing their doors, there may still be benefits to buying them out. If you leave them to bleed dry, you don’t necessarily know how it is going to play out. How much trouble is a motivated and persistent new owner going to cause for you if he rescues the company from death’s door? What if those capable staff move on to work for a competitor? If you buy out a company that is on the brink of shutting down, you have control of the outcome.

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Types of deals

There are two different types of deals. An “asset” sale is the most common type. This involves you buying the “stuff” your competitor owns, but not the business itself. This “stuff” may include the business name, files, phone number, real estate, website, equipment, inventory, goodwill, customer contracts, etc. Note that receivables and work in progress may be negotiated into the purchase, but do not assume they are coming with the deal. The business will sell you all their stuff and the previous owners are responsible for paying off any liabilities and closing the business entity on their own.

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