Should I buy another business to fill unused real estate?
Rock, I own a business park and lease out space adjacent to our plant. I have unused space where I store items and stage jobs when we’re busy. I’ve thought about buying another business to fill the space and diversify our offerings. On the other hand, it sounds like more hassle than it’s worth. Ideas?
What’s holding you back? Is it the planning and decision making? Financial risk? Finding the right business?
Unused real estate offers you the opportunity to leverage something you’re already paying for (and paying taxes on.) Utilizing empty space with an active business helps to thwart crime and suppress negative activity. If you’re already jobbing out a part of your workflow, it makes sense to bring it all under your roof. Buying another business can help with logistics, turnaround, materials usage, filling capacity, and making sure there’s enough work for your employees.
In terms of “hassle,” a modest tuck-in will probably be easiest. With some training and adjustments, you can leverage existing administrative and production personnel.
There’s not much of a downside unless you are severely under capacity or not consistently profitable, in which case I would focus on sales first rather than adding a cost burden.
When considering a tuck-in, here are things to research:
What’s the market potential for adding the new service? Survey customers. Find out if they plan to continue buying that type of service in the next 3 to 5 years. List the factors that would make that type of service go away completely. For example, Are customers likely to bring that type of service in house as technology changes?
What do experts predict will be the future demand for that service? Are there industry factors that would change the demand? Innovation? Changes in consumer behavior? It can take a few years to achieve consistent profitability, so you want to be sure there will be demand at that time.
Can you earn the business? If customers do plan to continue to buy the type of service you are considering, would they buy it from you? I have had frank conversations with clients who think they can add any type of new service they want, when in fact their company culture, quality benchmarks, and workflow processes could not support it.
Can you compete with other providers currently offering that service? Evaluate how you will sell the service and how you will take business from competitors. Is your sales team equipped to lock down accounts quickly before customers drift away?
Can you get up to speed quickly, production-wise? Know how you’re going to integrate new equipment into your workflow and train operators. Know which equipment installation personnel will need to be available during the transition. If you need to modify the space — slab, electrical, phone lines, humidity control, lighting and ventilation, etc. — how long will that take?
Calculate how soon you will see a profit. Develop a realistic timeline with contingencies built in. Go through your budget and see where there will be additional monthly costs, such as insurance, utilities and security. Factor in the cost of sales that will affect cash flow and your relationship with vendors.
Business growth through acquisition is a strategic decision-making process that involves finances, timelines, market evaluation and capital investments. To make the most of your growth plan, enlist the help of an industry expert.
Check out other articles in my #AskRock series for more mini case studies and expert answers for the specialty print and converting industry.