Growing your business ahead of a sale: Organic or inorganic growth?

In this series, our experts discuss all the cornerstones of selling a business. From exit routes and handing your organisation over, to valuing a business.

In this edition, Jenny Toulson and David Richardson talk about strategic growth plans ahead of a sale.

As a business owner, you will have dedicated a lot of time and effort into making your business a success. So, it’s natural to want to achieve the best possible outcomes for your organisation upon your exit.

For many, this will translate into the value that’s placed upon your business. To maximise this value, one of the most important steps is to drive growth in your business.

You can do this through organic growth, through acquisitions or a combination of both.

Inevitably, there are pros and cons that come with either strategy. The route you take depends on you, your goals, and where your business is now.

Growing your business organically

Organic growth involves using your resources and assets to make improvements to your business. You will need to focus in on the potential value locked up in your business.

Organic growth can be rewarding, helping to bring your ambitions to life before you exit. But it can take much longer for the business to mature.

When looking at an organic growth strategy, you should consider the following:

• Increasing your sales - Have a clear strategy in place for increasing sales. Whether it's by increasing your market reach, reviewing your price points, or expanding into new markets.

• Cutting costs – Unnecessary costs in your business could be having an impact on profitability. Look at your office space, suppliers, production costs, systems and software to see if you can cut back.
• Looking at your customer base - Having the right mix of clientele will ensure resources aren’t being overstretched. It will also allow you to sell at better margins. It’s more effective to have one customer paying you £10,000, than 10 customers paying you £1,000.
• Developing new offerings - Growth often requires innovation. To strengthen your unique selling points, consider investing in new products and services.  
• Improving efficiency -  Whether it’s investing in new systems to improve productivity, or restructuring your teams to make the most out of in-house skills, increasing efficiency will help your business to grow.

Growth through acquisition

Growth through acquisition, or ‘inorganic growth’, involves buying other businesses. Usually these companies are within the same/similar industry as you.

Inorganic growth allows you to achieve critical mass quickly, whilst acquiring talent, assets and new income streams. But you need to have the funds to be able to do this.

To carve out an inorganic growth strategy which is set up for success, you need think about:

• Being strategic – You need to make sure that there’s a clear and strategic acquisition plan in place. Set objectives and realistic timescales. From here you’ll need to ensure that your team, processes and systems are ready to deliver these goals.
• Funding the acquisition – Funding an acquisition usually involves equity and debt. If you don’t have the funding within the business, you can look to secure external funding. It is worth keeping in mind that banks and lenders are far more risk-averse after the last few years. This could make it more challenging to find a loan.
• Finding the right match – Finding the right target for acquisition is crucial. Each business will differ in culture, values and geographic spread. You need to make sure that the business you acquire aligns with your own. This will require thorough due diligence – which will also help to ensure that you’re not landed with any liabilities at a later date.

Taking a hybrid approach

It’s possible to take a hybrid approach to your strategy. If done correctly, this can be a really sustainable growth plan. And it can lessen the risks that come with relying solely on either organic or inorganic growth.

For example, you could buy a smaller business that has a different customer base, which would fit well with your current offering. This will allow you to open up into new markets and gain new resources, which could help to build your current strengths and capabilities.

If you do decide to implement a hybrid approach, it’s important to maintain balance. Don't let the details of acquisitions distract you from the tasks that support your organic strategy. Equally, don’t dismiss the challenges and risks that come with acquisitions.

Working with an advisor

No matter which growth strategy you settle on, working with an advisor can add real value to the process. They can examine your business from an outside perspective and identify hidden opportunities and challenges.

In doing so, they will be able to help you create a comprehensive plan to drive growth. Helping you to maximise the value of your business ahead of your exit.

No matter where you are within your exit journey, our team of experts are on hand to support you. Find our comprehensive Exit Planning Handbook crafted by our experts to support your exit planning strategy today.