As the Great Recession recedes, business owners are taking their lessons learned to rethink risk and growth strategy. They’re spreading risk by diversifying — by making strategic alliances, for example, or, as one remodeler has done, going whole hog and buying the business next door.
Curt Kenyon, owner of Countryside Cabinetworks, in Spencerport, N.Y., a full-service remodeling company with a kitchen and bath showroom, saw that one-third of his clients were purchasing their appliances from the appliance store not 100 feet from his door. “There was not even a dollar incentive for them to do that; it was just convenient,” he says.
When the aging owners of the 62-year-old family appliance business were looking for a way to retire, they approached Kenyon, who saw an opportunity to spread his risk. He too had been thinking of his own future and the value of his business. “If I manage this [acquisition] correctly, I can have something to sell,” says Kenyon, who feels he owes it to his employees and their families to create something of value that, he says, “could survive if I got hit by a bus.” After many negotiations, the two parties struck a deal, and Kenyon now officially owns Page Appliance.
Making the final decision to buy took more than a year of research. Kenyon considered the following: Business practices: He studied the appliance store’s profit and loss statements and balance sheets. “They’d been doing business the same way for 62 years,” he says. Though the store was profitable, Kenyon recognized ways to increase revenue.
- Valuation: Kenyon’s CPA helped him assess the value of the appliance business.
- Comparison: The remodeler looked at successful models of similar combined businesses.
- Additional revenue: Kenyon saw incremental revenue opportunities after looking at what competitors were offering. Example: Page Appliance wasn’t charging for parts, such as hoses, or for hauling away old appliances — standard practice for most appliance stores.
- Employee input: Countryside has 12 employees. Kenyon asked them if, using their current processes, they could handle another $1 million in sales. “No,” they said. He figured that if they couldn’t handle more remodeling work, then they wouldn’t be able to handle the merger they were about to undergo. As a team, they determined that better workflow would help them handle more work more efficiently and would make the transition easier. With everyone’s input, they created a new workflow and organizational chart.
- Physical space: Kenyon bought the appliance company’s building.
- Marketing: By promoting this as a merger, Kenyon hopes to protect the value of the Page Appliance name, which is locally well known.
Though the two businesses will share a back office, each will operate in its own space until Kenyon creates one large showroom. He believes customer traffic will flow both ways.
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