Strategic Acquisitions

3. Reducing Your Costs

With a higher volume of activity, you should be able to achieve substantial economies of scale.

3.1 You can make better use of overheads.

It may also be possible to cut out some management salaries. But be careful - you may be cutting out talent which your business could use (see 8).

• Make savings in central functions, such as finance, administration and personnel.
• Look for similar savings on premises, distribution, sales and marketing.
• If the companies are in the same line of business, you might make savings on manufacturing or assembly facilities.

3.2 The increased size of your business should give greater negotiating power when it comes to purchasing.

• You should get better prices when buying in greater volume (bulk-buying). Ask your existing suppliers for quotes, so you can judge the potential savings.
• You may be able to negotiate better terms from your bank.

3.3 You may enjoy some of these benefits even if you buy a business in an unrelated area.

• You can still share some resources, such as premises and distribution.
• If the product is different but the technology involved is similar, you may be able to share production facilities.