Alexandre Bonvin is the founder and CEO of Audacia Group.
getty
Early in my entrepreneurial journey, I had an opportunity to acquire a business with great potential for profitability and future growth. I didn’t have enough capital to buy it outright, so I started exploring other options.
I approached the seller and worked out a seller-financing agreement, borrowing money to use as equity. Then I negotiated a bank loan for the rest of the acquisition funds, using shares in the company I was buying as collateral. I acquired the company with borrowed money in a leveraged buyout, meaning that I was responsible for paying the loan back with interest, and if I failed to do so, the bank was entitled to both my equity and collateral. Because my new company was already generating solid cash flow, I used that money to pay back my debt and acquire other businesses.
I’ve since discovered that there are several paths to acquiring and consolidating businesses. For example, you can purchase a company in a leveraged buyout or direct acquisition or create an investment holding company to maintain multiple businesses. There is no one-size-fits-all blueprint that works for every entrepreneur. Each approach has its advantages and disadvantages, and your best path forward will depend on factors such as your capital, risk tolerance and long-term objectives.
I believe the secret to success is to start small and build slowly. Acquire a business that is already very profitable or cash-flow generating. Then you have the option to either sell it at a higher price and use the profits to buy another business or to direct the cash flow toward paying off your debt and interest and acquiring another company.
In my experience as a serial entrepreneur managing several profitable acquisitions, I’ve learned the importance of examining every angle of a deal before pursuing it. Here are the top four considerations you should weigh in any potential acquisition.
Business Niche
Choose a business that aligns with your expertise, interests and market knowledge. You will spend a lot of time building and optimizing this business, and you want this time to be as interesting and fulfilling as possible. Don’t chase the hot new thing that is trending right now; the bubble may burst in a year or two, and you could get stuck with something that’s just a flash in the pan.
Do a thorough analysis of each business and its industry, and understand why the owners are selling. Prioritize sustainability and profitability—businesses that are either making money now or that could quickly start turning a profit with your investment.
Location
Entrepreneurs just starting out often think they have to be in a major city—London, New York, Paris, Berlin—to be successful, but I advise against this strategy for most people. If you have a lot of knowledge and credentials and a great network, you may be in a good position to start a big investment fund in a big city. Large metropolitan areas offer access to top-tier talent and professional resources, but they are also much more expensive and competitive to operate in.
I recommend starting in a smaller market that you know well and has promising opportunities for your business—perhaps not even a secondary city but a tertiary city in your area. If you know the place and the people, you speak the language and you know how things work, you start with an advantage. You're already well-positioned to know who would be interested in buying your product or service and how much they'd be willing to pay for it.
I chose to base my investment holding company in a small city in Switzerland, my native country. The first company I bought was headquartered here, and it made sense to keep it where it had already established a great team and strong contacts.
Talent
Employees truly are your business's greatest asset. Attracting and retaining top talent is crucial for your long-term operational efficiency and growth. Fortunately, technology has expanded the hiring pool in many industries. Depending on the type of business you acquire, you may be able to operate with a hybrid or remote team. What can you outsource? Which functions require an in-person staff? For example, for a manufacturing business, you could outsource IT to a remote third-party provider, but you would need to maintain a production team in your factory.
Invest in HR support as soon as you start to hire employees, even if you are still a small team. You can outsource HR in the beginning, choosing a flexible plan to adapt to your needs, then hire an in-house department once you reach a certain size. HR is more than just managing benefits and paychecks; it serves a critical need in your business, meeting compliance and legal obligations, supporting employees and creating a healthy work environment
Financial And Legal Support
Taxes and regulatory requirements can vary dramatically depending on your location, and unless you have expertise in these areas, I don’t recommend managing them on your own. Work with experienced tax advisors, accountants and lawyers who can help you structure the acquisition in a tax-efficient manner while staying compliant with local regulations. For example, they may advise you to create an investment holding company in Delaware in the U.S. or Switzerland or Luxembourg in Europe for additional tax benefits. Seeking expert guidance is an upfront cost, but it's a worthwhile investment that can save you an enormous amount of time and money in the long run.
Acquiring your first company can be both thrilling and daunting. Improve your odds of success by starting small, evaluating key considerations and growing gradually.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
