Before embarking on the search for an acquisition, ask yourself, "What does 'good' look like?" Failing to address this simple question is at the center of several subsequent failures, from an inability to get the ideal goal, through – much worse – to locating the incorrect goal and buying it.
So, what are the kinds of acquisition and what businesses suit every type?
Type 1: Local contest
These are the easiest to find because they are on your doorstep. The local market is large enough to support one operator but not two, so you're trying to find your nearest competitor. Look out for the variables discussed below – after all, purchasing a local competitor should provide you the same advantages as geographical expansion and gaining scale, and carries lots of the same dangers.
Type 2: Geographic growth and gaining scale
Here, you're looking for a small business acquisition as similar as possible to yours but operating in another geographic region. It's easy to be reduced by superficial similarities, but if you're going to achieve the cost savings that come through merging duplicated functions then there has to be a very good match. Otherwise, you can incur high costs in coping with the complexity that's been added to your business. Areas to investigate closely are:
Customers: Even though you could both specialize in small companies, there may be a major difference between the requirements and economics of selling into sole-traders and businesses with only ten employees.
Suppliers: the products that you sell might be equal but come from various sources. If you're not able to shift all of your demand to a single provider, you won't have the ability to negotiate better terms and you will keep the costs of supporting both.