What if you could achieve massive, permanent growth this year without being constantly in launch mode, upping your ad spend, or changing your team? No matter the size of your company, making one acquisition can double your revenue without increasing your expenses. Today, Chris demystifies the company acquisition process so that you can get started looking for competitors who are ready to sell. You'll hear the two guidelines to use when looking for a business to buy, how to negotiate deals, and why acquisitions are a surprisingly simple way to achieve game-changing growth.
I've seen small companies make giant jumps in their growth by acquiring just one company.
In this Episode:
- Understanding the acquisition map and the key markers of a company that will increase your profits
- Why it's important to only acquire companies that can assimilate into your culture and minimize expense increase
- What you need to know before starting negotiations
- How to negotiate the cost of an acquisition
- What the best deals look like that benefit you and the person selling
- If you think you don't know of any companies you could acquire, find out why you need to turn toward your competitors
Find out exactly what aspect of your company is the current weak link that, if fixed, will help you scale faster and more successfully.
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Transcript:
We all want a business that's built to grow. I've been blessed several times over with multiple successful companies within the first few years, but knowing how to do that didn't come overnight, and it didn't come by accident, or without a lot of trial and error. It came because I'm in the trenches every day myself, growing my own companies and pushing through obstacles. And at every single growth spurt, I systematize what works so we never have to learn those lessons again, and so I can reproduce that growth in each of my other companies too, the same systems, the same strategies that you'll be learning on the Built To Grow Podcast.
So even just one meeting could literally flip the switch and change the game for you and your company, almost overnight. Now we've got some pretty aggressive growth targets for each of my companies every single year. And we use a bunch of different strategies to make sure that we meet or exceed each of our annual goals. One of which is my absolute favorite, and it's what I want to share with you today. It's acquiring other companies.
Company Acquisitions Can Be A Simple Process
Don't let this get overwhelming to you. Because when you know what we're about to go over today, acquiring another company can be a simple process. And the growth that you could experience, when done right, is dramatic. But if you don't know what we're going to go over today, and you do it wrong, you could lose a whole lot of time and money. And maybe even a few years off your life from stress. I know what I'm talking about here. Unfortunately, you could see some gray hairs from the times that we've messed this up.
So I'm going to talk high level and I'm going to go over the main moving pieces. But what I'm not going to do is go over legal or accounting aspects. Because you're going to want to do that with your accountant or your attorney.
Understanding the Acquisition Math
Let's get started with some guidelines. First, you need to understand what the acquisition math is. We only acquire a company that already has the skill sets, assets, relationships, or the customers that we need to grow. So if we know that another company is for sale for maybe $10 and they have a specific skill set that will easily make us $10 more profitable, then I want to look deeper into that deal.
Or maybe they've got assets that we could use in our company, or that we could sell, and become $10 more profitable. If that's the case, then I want to look deeper into that deal. Or maybe they've got key relationships that we can leverage and become $10 more profitable. If that's the case, again, I want to look deeper into that deal. Or maybe they've got a customer database that we could sell our products to, or our services to, and become $10 more profitable, then definitely yes, I want to look deeper into that deal.
Acquiring a Company That Can Assimilate Into Your Culture
Next, after that, we only acquire a company that we can assimilate into our culture in a way that at least doubles our revenue. At the same time just marginally increases our expenses.
For example, if we're currently making $10 a year gross revenue and they're also generating $10 a year in gross revenue, and by acquiring them, then we grow to at least $20 a year in gross revenue. But at the same time, there's going to be a whole lot of overlapping expenses that we could get rid of. Like we don't need two accounting teams. We don't need two CRM softwares. We don't need two high-priced CEOs. So in most cases, we could literally double, or more, our revenue, with just a marginal increase in our expenses.
And we're not looking to acquire every single opportunity that comes across our desk. You need to be highly selective. We might have dozens of opportunities every single month in my company. But I will only look seriously at one acquisition every year or two. So you might speak to six, 12, even more companies who are ready to sell, but you might only acquire one. The one that you'll acquire is the one that fits your current needs the best.
What's Between a Win and a Loss
After you find a company that fits those two requirements, the only thing between a win and a loss is the negotiation. There's a lot of little moving pieces in a negotiation. But let me give you a typical scenario. The owner almost always wants an immediate payout of some amount of money. Let's call it a million dollars for this example.
Now I have to take a step back before I get into this because I forgot to tell you something that's pretty important, and this killed our first few deals years ago. But there's a good chance, at least, for you to learn from my mistakes here and make me feel a little bit better. Because the very first two chances that I had to acquire companies, I literally walked into the negotiation and I lost out on what could have been two super sweet deals for us. Actually not just for my company, but for both sides. When I say us, I'm talking about both companies. There should be a sweet deal for both of you.
The reason why I lost it is because I went in not knowing what I needed to know. Most deals die because the wrong due diligence is done. You can't rely on the due diligence just from your accounting team, legal team, or your marketing team. There's got to be something a lot deeper and this is the core. This is what makes this actually work. Before I even sit down to negotiate anything, I want to know as much as humanly possible about the company, the industry and the competition. But even more importantly, I want to know about the owner and why they're selling.
Meet the Owner
Now, I've never bought a company without meeting with the owner several times and building trust and finding out why they're selling. Maybe they're retiring. If they are retiring, what does retirement look like for them? Or maybe they're selling to fund their kid's college or to start a new business. If so, what kind of business and how much money do they need to get it off the ground? I want to know everything. You want to know literally as much as possible about the reason why the owner is selling. Because when you know that, it's much easier to make this a win-win for both sides.
Here's an example. If I walked into a negotiation and the owner wanted the million dollars paid upfront, it'd be pretty rare that I would go for that right off the bat. Unless the deal was super amazingly weighted in my favor for some reason. Maybe the poor guy is selling a ten million dollar company for a million dollars to pay a hospital bill or something like that. That was a bad example because probably I'd work something out to help him. Because I wouldn't want to take advantage of somebody like that.
But let's say he's selling a million-dollar paid upfront company, and I already did all the math and I know at least three ways that I'm going to make this deal a big win for me at a million dollars. And by the way, we always want three ways to profit from any deal. But let's say I'm not willing to take all the risk by paying him everything upfront, which is pretty common for me. I almost always want to pay the current owner, with their money, as much as possible. To do that, I first need to know if the price is firm so that I could go back with a lower offer.
Relate Your Offer
But in order for that to happen, I'd want to relate my offer to whatever I already knew about their next stage in life. If I found out that they're retiring and living their dream of sailing around the world in a $400,000 boat, maybe I would go back to them with an offer of a little bit more than that. Maybe I'd go back to them and offer up 650 and that's a big discount. At that kind of a discount, I might be willing to pay in full today. But you should know that this is a key rule.
Most small business owners, under $10 million, they've almost always got an emotional number in their head and they rarely want to budge from it. It's crazy to sit down in front of somebody who has an emotional number in their head. So if this owner asks for a million dollars, the chances of them coming down from that is pretty damn uncommon. But our best deals kind of look like this.
I might go back to them and offer them maybe $400,000 today, plus 650 over the next 36 months. That gives them way more than enough to get their boat. If they finance their boat, they've got a bucket load of money left over for gas and food and pretty much great experiences at every single port that they stop at on their trip. I'm going to paint that whole picture for them.
A Fallback Plan
Plus, they're getting more than the million that they asked for. Which is motivating for them to say yes and give me the ability to absorb every valuable aspect of their company into mine. I'm going to take their employees, their best systems, customers, brand loyalty, relationships, and even their hard assets. I'm going to go to work doubling my revenue, or more.
I always have a fallback plan. Like I said before, you always want three ways to profit from any single deal that you get involved in. In this example, if I did the math beforehand and I know that if all shit hits the fan, I can monetize their customer lists. I can sell their hard assets and make at least my investment back plus some. Although that's never really happened to me in a deal, not even close, I always have a contingency plan so that I could sleep at night.
Now what you're going to find if you stay really open-minded to this, is that there are far more companies out there who are willing to sell than you could ever imagine. The very first time I started speaking about this with one of our clients, they sat there and they thought, "Well, gosh, there's nobody. I don't know anybody who is selling their company." I promise you, when you start opening up your mind, you're going to see so many opportunities. Most of the very best ones are not advertised for sale. They're literally competitors of yours who are tired of working, or who have other dreams that they want to move on to.
How Much More Could You Grow
So the question becomes, how much more could you grow if you acquire one of your competition? Would you grow an additional half a million dollars a year, a million dollars a year, $10 million, $50 million? Because I've seen small companies make giant jumps in their growth by acquiring just one company. And medium companies become industry giants with just one acquisition.
This is a key strategy that my companies use. But also a key strategy that the companies that I advise use, to two, five, ten times their growth curve, year over year. Be open-minded to the possibilities of acquiring a company within the next eight to 12 months. Because when you do that, when you change your thought process and you do that, this could be a game-changer for you. It's literally thinking outside the box.
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