Q: My business is well-established in its marketplace and operates profitably year after year. I make a good living and am satisfied to continue as I have. However, recently my two sons both expressed an interest in joining me in my business. They have the education and experience to step in and be productive in a very short period of time; however, my business does not currently have room for them, not to mention their salary requirements. How can I "make room" for both of them at the same time?
A: Your dual goal of bringing both sons into your business at the same time will be quite a challenge. And you're right to have identified the limitations of your existing business. One way to approach your challenge is to focus--not on the limitations, but rather on the strengths your business possesses. In fact, you may be able to leverage your business' strong points into creating a combination of your business and one or more other profitable businesses.
The benefit to combining your business with another is that in the process, you will have the opportunity to grow your business' sales immediately from the addition of the other business. And everything else being equal, the new "combination business" should have the potential to become even more profitable than the two businesses operating independently. This potential for increased profitability comes as a direct result of both sales increases and operational efficiencies (opportunities to reduce total costs) that accrue from combining your two businesses.
Obviously, selecting the right business is key to the success of the combination. The right business should have elements that combine well with yours. Your business and the other business should possess unique strengths that enhance the performance of each other's contribution to the new combined business's bottom line. For example, if you combine your business with one or more companies that provide products and services complementary to yours, you have the potential to increase total market share by:
- Selling your old business's products and services to the other business's customer base.
- Providing the other business's products and services to your old business's customer base.
- Reducing total costs by implementing a combined effort, such as using one set of marketing efforts to the same target market and sharing "best practices," which will enable the new combined business to operate more efficiently than either of its two predecessors.
Forming this kind of combination is typically considered either a merger or an acquisition. When two or more businesses merge, a new business entity must be created. This new entity brings the two separate operations together as one new business. The two previously separate customer bases become one, the operations of both typically combine into a new one, and the management and employees are assessed and sorted into a combined work force that's smaller than the sum of the old businesses, and presumably more efficient as well.
In the case of a business acquisition, one business now owns the other. Because of the formal sale of one business to the other, the acquired business becomes, in effect, a subsidiary of the business doing the acquiring. This gives the acquiring business total control over both the operations and profits of the acquired business.
Whatever the form, the decision to combine must make financial sense for all parties. In order for any combination to come to fruition, the new entity must be greater than the sum of all the old parts. Furthermore, in your particular instance and given your desire to bring your sons into your business, you will have the added burden of determining if the proposed new combined business can logically accommodate your sons' respective skills and experiences, as well as their salaries.
David Meier received an MBA in Finance from Loyola of Baltimore, and spent much of the 1970s teaching business courses; later, he created a consulting group, and for the next two decades, provided accounting and tax services to small-business owners. He is currently the founder and COO of Small Business 411, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs. Visit the Small Business 411 site at http://www.smallbusiness411.com
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.