Organic or acquisitive business growth?
What are the pros and cons of organic and acquisitive growth?
Businesses have two ways of growing – organic, or internal growth; and acquisitive expansion.
Growing internally means increasing turnover and profits by improving the productivity of your organisation.
You can do this in a number of ways, such as product or service innovation, implementing a recruitment strategy, training and developing your people, using new sales channels to access fresh markets, and improving customer loyalty.
Organic growth is considered to be safer than acquisitive growth because it involves adapting a familiar business model.
However, it’s important to keep in mind that organic growth is not cost-free. For example, research and development and upskilling your workforce will usually require substantial funding.
Buying other businesses is more risky than organic growth, although it is usually much faster. Purchasing a business with a similar turnover will double your revenue almost instantly.
Before you even begin to search for targets, adequate funding must be in place. In today’s climate, this is challenging in itself, whether you access finance from banks and specialist lenders, or work with a private equity investor. Depending on the nature of the deal, you may be able to fund the acquisition from your own reserves and if you can, you probably should.
Acquisitions also require financial and legal advisers, plus extensive due diligence to ensure the company you are buying doesn’t come with any nasty surprises. When the deal is complete, the hard work is only just beginning – it’s crucial to act quickly to integrate the acquisition to make the most of synergies.
Few businesses are faced with a straightforward ‘either/or’ choice when deciding on their growth strategy. Strong organic growth in tandem with intelligent acquisitions usually produces a balanced and effective programme of strategic expansion.