Growth to multiple locations is one of the most effective ways to substantially increase the value of your business. A business with multiple locations improves your value proposition to referral partners, improves your ability to increase discounts with key vendors, makes you more attractive to other companies looking to grow via acquisition and when you reach an appropriate size, makes your business more attractive to private equity groups investing in the industry. But it is also risky and can be financially disastrous when done haphazardly (M2 is often cited as an example of a growth plan that failed spectacularly).
In order to create a business that builds generational wealth, something that generates enough wealth to pass to your children (or even grandchildren), it is important to understand the different options available to a business to achieve that growth. The exciting part about the collision industry is that the opportunity to build a business that creates generational wealth has never been greater. I firmly believe we are in the golden age of the collision industry.
If, on the other hand you are considering a sale, it is valuable to understand how companies finance growth. Understanding how growth is financed is important when it comes to negotiating the price and terms of a transaction. Understanding when and where an acquiring company can or cannot make concessions allows a seller to negotiate a more beneficial purchase agreement for both parties. There is an old saying in investment banking, “You set the price; I’ll set the terms.” Understanding how a company finances growth allows a seller to better effect the terms any purchase agreement.
Many companies have demonstrated it is risky to grow to multiple locations without the right financial management. A solid understanding of the options to finance growth is important to minimize the risk of failure. Understanding the trade-offs of these different types of financing and managing the overall capital structure of the business is one of the primary roles of the corporate finance professional. Continue reading here.
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