July 29, 2019
Here is an overview of the pros and cons of three common routes to business growth:
Advantages
Acquiring a competitor (or alternatively another business offering complementary services to your own) is a relatively quick method to either growing your market share, or alternatively diversifying into other services thereby opening up additional revenue streams. By acquiring the target’s existing reputation, customer base and expertise, you will be able to hit the ground running.
Disadvantages
Acquisition can be expensive and carries with it an onerous due diligence process. There is also the added risk of acquiring the risks or liabilities of the business, depending on how the acquisition is structured. It is integral that you ensure that the company you are buying is the right one for you and your business strategy, so don’t shortcut the initial due diligence phase.
Advantages
The current market offers a lot of options to securing equity investment, some of which can be relatively quick to complete. An injection of capital can help you achieve your strategic short-term goals, such as acquiring a particular asset which will help increase efficiency or production output. In addition to the cash, many investors bring with them a lot of business acumen and sector-specific expertise thereby adding value to the running of the business generally, as well as being invaluable sounding boards for strategic decisions.
Disadvantages
By giving away equity in your business, you will inherently be giving away some control. Traditionally this has been seen as a key disadvantage to equity investment, however the right investor could bring a lot of added value. Our advice would be to explore equity investment, but carefully consider the terms on which the investor is investing. Institutional investors can often want a lot more control over the business than individuals, and if this is a concern for you make sure you negotiate those terms carefully at the outset.
Advantages
Franchising is a great option to grow your business, particularly if you are looking at expanding nationwide (or even globally) but without wanting to expand in those territories yourself. Establishing a network of franchisees can help you grow quickly while increasing brand awareness and profitability.
Disadvantages
Not all businesses are suitable for franchising. The core to franchising is that your business can be replicated anywhere else. Franchising also requires a lot of investment beforehand both in terms of finance and management time in order to make your franchise a success. Remember as well that a network of franchisees will need to be managed – so think carefully about whether you are prepared to do that (or alternatively take on the cost of employing someone to do it for you).
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