As you grow your Remote Local business, you may find opportunities to grow through acquisition. While this can sound exciting, remember Warren Buffet's advice to be fearful when others are greedy. Let's start the process with the homework for any acquisition: due diligence.
Due Diligence
There are two categories to look at here, the numbers and the work.
For numbers, is there a CRM? Are there processes in place? Do the numbers make sense?
For work, how much time does the owner spend working in and on the business each week? Whatever number you are told, double it. (Keep in mind that no one is going to say "50-70 hours a week" and if they do, run.)
Your Value Add
When acquiring a business, you're not just looking to increase your toppling revenue, you're also looking to add your special sauce to what is already going on at the acquired business.
After your due diligence you may be able to see improvements you can bring:
- better digital marketing (many local businesses do this poorly)
- better hiring practices (many local businesses don't have a playbook in this area)
- economies of scale using your existing team members (this doesn't mean you need to fire everyone from the acquired business, but you can perhaps deploy them into areas to bring in more revenue)
- removing problem clients (the ability to fire clients is one of the greatest benefits of business ownership)
- increasing price (many local businesses are underpriced)
- better processes (many local businesses don't know the meaning of the word "automation")
The Offer
Many local businesses should sell for 1-2X EBITDA. This can vary, of course, depending on how capital-intensive the business is (and what assets you are acquiring along with it) or the technical competencies required to run it (and what training you will need to do so).
Don't assume that you have to come up with an all-cash offer. While all business owners prefer that, many are open to other deals, particularly if they have already mentally "moved on" from the business. You represent a chance for them to do that, and they may be willing to offer options like no money down earnouts.
Whatever you end up paying, make sure that it fits into your current business model's cash flow. Again, be cautious when others are greedy: just because something looks attractive doesn't mean it's the best financial decision for your business.
Final Thought
One of the most exciting ways to grow a Remote Local business is through acquisition. You've already followed the script to create at least one branch of your company. Wash, rinse, repeat is calling your name, and as long as you do your diligence, see where you can add value, and make the right offer, it'll work.
Photo by Bench Accounting on Unsplash
This article was written by Neel from MaidThis Franchise, a remote-local franchise opportunity for people looking to escape the rate race and reach financial freedom. Learn more here.
