What are the acquisition costs associated with purchasing a competitor’s business?
February 8th, 2010If I own a consulting company and I want to purchase a competing consulting company, what are the costs associated with the purchase?
Already have these costs, wondering if I am missing anything:
- acquisition purchase price (includes assets, business, acquire customer contracts)
- finance charges
- taxes
- lawyer fees
- closing costs
- travel costs (company is in another company)
- training/converting that business to my business
- restructuring costs
- will have to pay the new employees
- marketing costs
- attrition costs (to keep as many employees from that company as possible)
Sounds like a great idea –
I too have been doing consulting and various small business actives for a number of years (currently am running four ventures).
I have looked at several competing groups over the years, but to this date have not actually purchased any yet. Here are some adds to your list:
* Identify the real assets of the organization – is it in the products, people or some combination of the two. If it is only the people, then your attrition costs could be higher than initially thought if you lose the key person (people) that are really satisfying the customers.
* I think that you are saying that the organization is in another country – if so, there very well could be local, state or federal governmental laws, regulations or other rules of business that could come into play. Ensure that your legal fees come from that country (or sometimes even various states within the USA) to ensure that you meet all local rules.
* Depending how long the organization has been in business, what will be the cost of changing the name of the company if in fact you intend to do that. If you keep their name and also have your own, then will you develop a competition between the two groups that will waste advertising dollars? Think through how to combine the two organizations to maximize the service to your customer base.
* What might current or perspective customers think of this purchase, merger or buyout? Will a purchase cause some conflict with local client in the other country now that they perceive that an outside (not one of them) is running the company?
* What are the Cost of Poor Quality (common calculations can be found in anything dealing with Six Sigma – http://www.isixsigma.com/dictionary/Cost_of_Poor_Quality_-_COPQ-63.htm) numbers in the accounting of both organizations? Will this purchase help or hurt your organizations?
* Do you have a mastermind group that can help you through this process? What would it take to develop a mastermind group if you do not already have one?
* Might you need various forms of professional help to run the businesses once they are both on line? Since you can only be physically in one place at a time (although net meetings are great), how will you ensure that each location is running smoothly and that customer satisfaction is the highest priority at each location?
These are a few questions that I come up with just off the top. There are other factors depending on the specifics of this particular purchase option. One suggestion that I might offer is for you to talk a very close look at the people you would have at each location and see how you can develop them into real entrepreneurs so that at some point they just run with ideas and grow the businesses for you.
You might use my standard advise to new owners (you already know most of this) with your employees to help convince them that they are important to you and that you really want them to stay around (given of course that you really do):
Anytime you want to start any kind of business, there are several basics that you will need:
* You should first sit down and think about what it is you want to do and then write out the scenario in detail! This may sound tedious, but it will help you clarify what it is you are thinking about. Also, when you talk to anyone about the business (mentor, bank, clients, prospective investor), you will have a clear vision to share with him or her. You can check any number of books at your local library or the Internet for ideas on creating a business plan or goals list.
* Is there anyone out there doing something like what you want to do already? Can you research what it is that they do and maybe even talk with them about what they do?
* Are there businesses out there that are doing some aspect that you want to do? In this case, you want to create an online drop shipment business. What websites have you seen that you like (can you talk with them)? How does the local McDonalds or other retail outlet do business that might help you in yours (i.e. how is McDonalds able to provide a product to a customer on demand at almost anytime of day – and do it with a much of high school kids)?
* Never listen to anyone who says that you CANNOT do something UNLESS they have been there and tried that!!!!! Anyone can tell you the good things that you can try or do, however, only someone who has actually tried the specific thing your are thinking can truly give you advise on the pitfalls that could await the unsuspecting.
* If you want to look for a mentor (free or paid – although mentors usually offer their time at no cost), the question that you should be ready to address is WIIFM (What In It For Me {the mentor})! What are you willing to do for your mentor to help them with something that they may need (for me it’s simple – I am looking for 10 points 
Contacts:
* Contact your local Better Business Bureau or Chamber of Commerce – they have business people who will help start up operations.
* Contact your local high school, community college or university and find out whom the teachers are for courses related to your business (like business or computer/internet classes). Contact these teachers to get some ideas or even to see if they will take you company startup on as a class project or special project for some of the student to work on (might give the students extra credit and you a free startup). In the worst case, you might get the names of some good students whom you might hire to do certain aspects of what you need at a very low cost.
* Contact you local, county or state governments (check their websites) – many areas have small business administrations (or some other agency that can help with various things) that have any number of references and resources available at little or no cost.
* Go to your local library in the Reference Section and find the Encyclopedia of Associations. It is a three-book set published by Gale Research. The first book lists thousands of tiles of professional organizations and groups. It will give a code number to use in the other two books to find out more about that organization. Contact the organizations who have something to do with your idea and find out if they have a services to give you advise or local groups that you can network with. In many cases, just asking for membership and publications information may give you a lot of useful stuff.
Other outstanding sources that I have used in running my four businesses:
* Nightingale-Conant – the largest producer of audio/video training programs in the world. Many of their programs can be borrowed for free from local libraries. http://www.nightingale.com
* Entrepreneur Magazine (http://www.entrepreneurmag.com) – many great tips and ideas about running a company.
* Rich Dad Poor Dad – http://www.richdadpoordad.com/ – by Robert Kiyosaki. Has any number of products (read the book first) that you can choose from.
* Start Up Nation (besides their website, they have a radio show that may be on in your area – usually Sundays and read the book) http://www.startupnation.com/index.asp
The secret to success in business is to read everything that you can relate to your subject and to talk with as many people in the field as possible.
Good Luck.
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