Business Combinations: A Path to Exponential Growth and Profitability?

Posted by Bernard Schoeman on 27 August 2021.



Bernard Schoeman

CA(SA), Post Graduate Diploma Accounting, BCom

The Tax Shop Head Office

More about Bernard Schoeman

Bernard studied BCom majoring in information systems and accounting at the University of Cape Town and qualified as a Chartered Accountant (SA) in 1997 after completing of his articles with Deloitte & Touche. Bernard has extensive international and local experience having worked for nearly three years with financial institutions in the UK (London) and having audited numerous companies listed on the JSE in South Africa. He is a member of the South African Institute of Chartered Accountants.
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“If everyone is moving forward together, then success takes care of itself” (Henry Ford)

Initiating, setting up and launching a new, typically, small business is a challenge and can be a lonely journey to growth and, hopefully, success.

Could developing a partnership or co-operative with like businesses be a pathway to growth and profitability?

How do you describe your business?

Truly understanding how to properly describe what your business is can make the difference between success and failure. This is an important consideration for both the entrepreneur and potential customers. Is a company that uses a truck(s)/bakkie(s) to move goods around simply a moving company or is it in reality a logistics organisation offering a range of transporting options? A proper description can put what the organisation really is in proper perspective for those who are looking for a supplier of goods or services.

Next, ask yourself “Are there other products or services that relate to what my business does and should we pool our resources?”

The story of a plumber and how he grew his business

Consider, for example, the construction industry. Not the big guys but those who supply into that industry. Tradesmen such as plumbers, carpenters, electricians, painters, plasterers and so on.

Some years ago a plumber who had a good reputation (an essential element) for both the quality and timing of his work wanted to grow and develop the operation. He had a team working with him but found it difficult to scale up the business.

Because of his standing (reputation) in both the residential and commercial construction industry, he had been asked, from time to time, to recommend other tradesmen of similar quality. He turned those requests into a growth business. He approached the artisans he had worked with who had proved to be reliable and for whom he had a good regard and suggested they join his business. He explained how it would work.

He would find the work for them and refer them to the client. This was in respect of all the trades servicing and supplying the industry. He took a small percentage of the fee/charge for the following benefits he offered these tradesmen:

  • Work sourcing,
  • Administration for them (and their teams if they were more than ‘one-man bands’),
  • Handling all the finances, banking, submission of regulatory returns,
  • Sourcing of supplies for them where necessary,
  • Managing their payrolls and attendant administration,
  • Other issues.

Of course, there was a simple written agreement between his little company and those who contracted with his business.

The consequences of this “pooling” of talents and services
  • His business grew in influence, reach and demand as its reputation grew,
  • There was a growing demand from tradesmen to join his operation, and he was able to be selective in deciding with whom he would develop relationships,
  • Because of the aggregation of supplies he sourced he was able to obtain quantity discounts. He retained part of these savings which went to meet the costs of his business with the balance being passed on to the tradesmen contracted to his operation,
  • The individuals who contracted with his business were able to scale up their operations as they were introduced to suitable lucrative and reliable contacts who paid their bills on time and in full,
  • Eventually, some decided to go on their own. This was always his expectation, that once they were on a sound footing they would develop their own operations further,
  • He was able to turn his full attention to growing the broader operations even though he kept his hand in his original plumbing operations,
  • Finally, he was never greedy and kept his focus on growing both his and his cooperative partners’ businesses.

His operation grew exponentially and after many years he retired a well-off man who had the satisfaction of having contributed to the well-being and success of others in a tough industry.

What do you need to consider?

Once you have determined exactly what your business really can be described as, consider whether there are any other businesses that relate more or less naturally to your operations.

Is there an opportunity for you to ramp up your operations to offer relevant services to these businesses to grow both their and your operations and provide your business with additional income streams?

The construction industry example used here is but one where collaboration could lead to growth and improved performance and income generation.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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