Growth is an important part of long-term success, but for many business owners, it has been a challenging concept over the past few years. Factors like inflation, rising interest rates, and uncertainty surrounding the 2024 election have led many business owners to focus on managing their operations and finances rather than seeking expansion. Now, as we enter a new year with expected interest rate cuts and a new administration taking office, business owners may feel ready to pursue growth in 2025.

Ways to Grow Your Business

When working with business clients who are looking to expand, I often discuss three key paths: organic growth, capital investments, and mergers and acquisitions (M&A).

Organic growth happens naturally within the business. It includes efforts like boosting sales, launching new marketing campaigns, or improving the customer experience to drive higher revenue.

Growth through investment means putting money into the business to enhance operations. This could involve purchasing new equipment, adding an extra work shift, or expanding production or warehouse space to increase capacity.

The third type of growth is through mergers and acquisitions (M&A). This involves evaluating whether buying a company with similar or complementary products or services makes sense. Another option is acquiring a business that operates earlier or later in the supply chain, known as vertical integration.

For business owners prioritizing growth in 2025, taking the first steps may seem overwhelming. However, a knowledgeable banker can guide you through the entire process. Your commercial lender, who understands your business well, can help structure the right financing and provide treasury services tailored to your needs.

Considering Mergers and Acquisitions

If acquiring another business would help your company expand its reach or improve efficiency in the supply chain, it is important to carefully assess your next steps.

Several factors outside of your own business should be considered, such as economic conditions, timing, and the financial health of the company you want to purchase. Key aspects to evaluate include:

• The broader economy. Inflation and interest rates play a major role in M&A decisions. Keep an eye on economic trends in 2025, as changes in these factors can affect the timing and cost of an acquisition.
• Local market conditions and timing. The Texas Lawbook, a publication that covers legal matters for businesses, reported that 135 Texas-based M&A deals in 2024 reached or exceeded $1 billion. While most transactions fall below this level, the trend indicates a growing interest in M&A as we move into 2025.
• Financial strength of the target company. One of the most commonly used financial metrics for evaluating a business is EBITDA (earnings before interest, taxes, depreciation, and amortization). This number provides insight into a company’s financial performance before adjustments. If EBITDA is inconsistent, it is essential to understand the reasons behind the fluctuations. A stable EBITDA indicates steady sales and operations.
• Plans for future growth. Before finalizing a purchase price—often based on a multiple of EBITDA—it is important to have a strategy for maintaining and improving performance. For example, if the acquisition price is based on three times EBITDA, you should be confident in the company’s ability to maintain at least that level of earnings for the next three years. Additionally, developing a plan to increase EBITDA will ensure continued business growth beyond the initial purchase.

By carefully evaluating these factors, you can gain a clearer understanding of your readiness and strategy for growth in 2025.