I, and many other business owners, recognize that reducing expenses is always a good thing, and during an economic downturn such as the one we are presently experiencing it is more than necessary. But my experience is that you can only reduce expenses so much. It helps your situation month after month to attempt to reduce your expenses to improve your bottom line, (and is a great business discipline), yet at some point you get to the place that you cant really reduce expenses much more, YOU NEED TO GROW SALES.
Sales growth also occurs across many different efforts, but these different efforts can be simplified to categorize sales growth as:
- Internal Sales Growth (or referred to as organic growth)
- Growth thru Acquisition
Companies may tend to use just one of the above means, or both of them. In my last business our sales growth came thru a combination of both internal growth and growth thru acquisition. Both means have advantages and potential disadvantages. But both should be considered. The longevity of the business may also dictate what means to utilize for sales growth. Speaking from personal experience of growing and running a business for 20 years here are a few of my findings.
In the early years annualized sales growth of high double digits and or low triple digits was very attainable thru internal growth. But as your sales grows and your year over year comparisons are based on higher sales numbers attaining the higher sales growth figures became more difficult. So acquisitions helped support our internal growth efforts. Efforts for internal growth never stopped, they just got supplemented with strategic acquisitions. Recognize that acquisitions that are synergistic in nature can have some tremendous results on your bottom line.
A poorly performed acquisition can also have the opposite result and can be very costly to the business. Where do you look for potential acquisitions? Competitors are always the first best place to keep your eyes open to. Below are some of the pros, cons associated with growth thru acquisition and thru organic efforts.
Sales growth thru Acquisition and Organic efforts
Pros/Cons – When acquisitions are truely synergistic the effect on your bottom line can be significant. Even when considering the acquisition cost of money consider the following. If you sell Yellow Widgets and your sales are $10,000 a month – you may have the monthly cost of business to sell those widgets including a building, a telephone, insurance, advertising, company car, receptionist, etc -cost totalling $6,000 per month. You decide to buy a local competitor that sells Red Widgets and his sales are $7,000 per month. He also has similar cost of business- you may find that you may increase your sales now to $17,000 and you no longer need his building, phone, company car, and receptionist. Even considering the cost of money for acquisition- you probably have increased your bottom line virtually overnight. So immediate sales increase is a plus – But consider:
- Handling/managing a big bump in sales “overnight” can be a daunting task and business can be lost in transition and may need to be factored into the acquisition decision analysis.
- The customers of the “other” company are used to doing things in a different way. Your way may be an improved way, but the difference may be detrimental in the eyes of some acquired customers.
- Financing the acquisition can be difficult- Financing thru the Seller is usually easiest, and being they are in the business- they can better understand and see where the money is coming from and the likelihood of payment.
- Acquisition can grow sales at a much higher more immediate rate. You gain the benefit to the bottom line “today”.
- In current economic times Acquisitions may be had at more favorable multiples of earnings.
- Organic growth – the customer is “brought along” with your company philosophy, approach ,and methods and have a certain “comfort factor” with this approach.
- Organic growth rates may decline as the maturity of the business grows.
- Organic growth adds to the stability of the company. If acquisitions are not available the company can rely on own internal efforts and have control of those efforts.
Acquisitions for most businesses should be considered. Organic growth can be more “slow and steady”, but “slow and steady” with a surge here and there can be a beneficial company business model towards fueling business Sales Growth.
Image by iChaz.