What to do with your company’s profits? Buy another company and not a high displacement car.

Blog / Financial Literacy

What to do with your company’s profits? Buy another company and not a high displacement car.

You have just received your company’s financial report and were impressed by the significant profits made in the last quarter. Congratulations! This is a testament to his hard work and the successful businesses he has done. Now what to do with the capital? You may have already thought about it and have an investment plan in place, or it may be the case of a mature company that just wants to remunerate its shareholders. Whatever the case, everyone looks to the market to find the best ROIC (return on invested capital) and ensure future returns. Have you considered that by acquiring a company you can ensure the continuity of your returns? Acquiring a company is an important alternative for your capital.

Yes, you read that right. Buying another company can be a great way to increase your turnover, expand your market, diversify your products or services, reduce your costs, gain scale and competitiveness, and even eliminate a competitor. Obviously, this decision should not be taken impulsively or without adequate planning. It will be necessary to carefully analyze the opportunities, risks, values ​​involved and the compatibility between the organizational cultures of the two companies. But if done correctly, with care and professionalism, you can benefit greatly from a business merger or acquisition.

To better illustrate this idea, let’s imagine two hypothetical scenarios. In the first, he is the owner of a company that makes and sells artisanal ice cream. It has a good clientele in its region, but is looking to grow and reach new markets. Discover that there is a company that produces and distributes natural popsicles in another city, which has a great reputation and a loyal customer base. Contact the owner of the company and propose a negotiation to buy his share in the company. He accepts your offer and thus becomes the owner of both companies. It now has a more varied product portfolio, can meet the different preferences and demands of its consumers, has access to a wider and more efficient distribution network, and can take advantage of synergies between the two operations to reduce raw material costs, logistics, marketing, etc. Furthermore, it eliminates a potential competitor and strengthens its position in the ice cream market.

In the second scenario, you are the owner of a company that provides business management consultancy services. It has a qualified and experienced team, but faces strong competition from other companies in the same sector. You realize that there is a growing demand for information technology consultancy services, but you do not have the resources or knowledge necessary to offer this type of service to your clients. Are you aware that there is a company that provides IT consultancy services in your city, which has an excellent reputation and a portfolio of successful projects. Contact the owner of the company and propose a merger between the two companies. He agrees with your proposal and becomes the majority shareholder of the new company. It now has a wider range of services to offer its clients, can meet the different needs and challenges of organizations, has access to a more diverse and specialized team, and can take advantage of the complementarities between the two areas of activity to generate more value and innovation. Furthermore, it differentiated itself from its competitors and increased its credibility in the consultancy market.

These are just two fictitious examples, but they show how buying another company can be a very advantageous option for those who want to make their money do more than simply investing it in a bank or investment fund. Of course, there are many other factors that must be taken into consideration before making this decision, such as the business profile, the market situation, current legislation, legal, accounting, tax, environmental aspects, etc. But if you have an entrepreneurial vision and are willing to take some calculated risks, you may be surprised by the positive results that a company purchase can have for your assets.

So, what are you waiting for? At Valuingtools we are experts in evaluating and negotiating companies in all areas, from industry to commerce, including services and technology. We have a team of qualified and experienced professionals who can help you find the best solution for your business. Who knows, maybe you’ll find your next gold mine? And remember: buying another company is much better than buying a high-displacement car. After all, it may be prettier and faster, but it won’t generate profits nor will it make you grow as an entrepreneur. Think about it!

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