Entrepreneurship Through Acquisition: Buy Then Build a Path to Ownership
Entrepreneurship through acquisition (ETA) offers a unique path to business ownership, allowing an individual to purchase an existing business and bypass the challenges of starting a small business from scratch. By buying existing businesses, entrepreneurs leverage established assets, customer bases, and operational frameworks for immediate growth. Unlike with a startup, a business acquisition provides a business owner instant access to annual revenue streams and tested business models, mitigating risks and accelerating profitability.
A philosophy rooted in the book "Buy Then Build" by Walker Deibel, MBA, the goal of entrepreneurship through business acquisition is for acquisition entrepreneurs to look for opportunities with untapped potential. Key principles that steer aspiring entrepreneurs include identifying promising targets, conducting thorough due diligence, and implementing strategic initiatives post-acquisition. Compared to starting anew, ETA entrepreneurs can sidestep brand building and market establishment hurdles. Instead, they focus on driving growth and innovation as a small business owner, leveraging the foundation laid by the acquired business for entrepreneurial success.
Entrepreneurship Through Acquisition Business Models
Entrepreneurship through acquisition encompasses various business models. Each ETA model offers unique approaches to acquiring existing businesses:
- Leveraged Buyout: In a leveraged buyout (LBO), entrepreneurs use a combination of equity and debt financing to acquire a business. This ETA model allows for the acquisition of larger businesses by leveraging the assets and cash flows of the target company.
- Search Funds: A traditional search fund involves raising capital from investors to finance the search for and acquisition of a target business. Searchers typically focus on industries they are familiar with, conducting extensive research to identify suitable acquisition targets.
- Independent Acquisitions: Independent acquisitions are a self-funded search. It requires the searcher to independently identify, negotiate, and acquire businesses without the backing of other venture capital investors or funds. This model offers autonomy and flexibility, but requires entrepreneurs to fully fund the acquisition or seek alternative financing options once the search process identifies a potential business.
How to Buy a Business
Research Businesses for Sale
Before buying any small company, conduct thorough research to identify suitable opportunities. Check online marketplaces, industry publications, and networking to find businesses for sale that align with your goals and interests. Consider hiring a buy-side business broker to uncover opportunities you may not be able to find on your own. By casting a wide net and leveraging multiple channels, prospective buyers can maximize their chances of finding the ideal business that aligns with their goals, interests, and investment criteria.
Review Financing Options
Explore various financing options to fund the acquisition. Depending on your circumstances, you have a variety of options. Retirees interested in buying an existing business can leverage personal savings, retirement accounts, or pension funds. In other scenarios, families may pool resources or use family-owned assets for the purchase of a new business. Alternatively, private equity investors may provide capital in exchange for equity ownership in the acquired business.
Financing options may include:
- Search Funds: Entrepreneurs leading search funds raise capital from investors to finance the acquisition process. Investors provide funding in exchange for equity ownership in the acquired business.
- Traditional Loans: Explore traditional bank loans as a financing option. Banks offer various loan products tailored to business acquisitions, providing capital based on creditworthiness and collateral.
- SBA Loans: Small Business Administration (SBA) loans are backed by the government and intended to support small business acquisitions. SBA loans offer favorable terms and lower down payments compared to traditional loans.
- Seller Financing: Seller financing is when the seller loans the buyer the funds to the purchase of the business. This arrangement allows buyers to acquire businesses with minimal upfront capital and may include flexible repayment terms.
Negotiating and Structuring the Deal
During the process of buying a business, you will need to negotiate and agree to terms of the sale with the seller. Beyond auditing the business with a formal business valuation, you should also consider establishing clear terms of sale, complete due diligence with the help of professional advisors, and define all post-acquisition responsibilities.
Negotiating the deal involves reaching agreements on price, payment terms, and potential contingencies. Structuring the deal requires careful attention to legal and financial aspects, such as asset allocation, tax implications, and transition plans. Additionally, defining roles and responsibilities post-acquisition ensures a smooth transition and alignment of expectations between the buyer and seller.
Post Acquisition Strategies: Building the Business
After you’ve acquired the business, your full-time job is to continue building the business for long-term success. Identify opportunities for growth, operational improvements, market expansion potential, and strategic partnerships to unlock new potential. By leveraging synergies and implementing strategic initiatives, your business can make the most of emerging trends and untapped market opportunities.
Talent retention should be another critical aspect of your post-acquisition strategies. Retaining key employees ensures continuity, preserves institutional knowledge, and fosters a positive workplace culture. Investing in employee development and offering competitive compensation packages can help retain top talent and drive business performance.
Ultimately, the goal of post-acquisition strategies is to build value. By optimizing operations, strengthening customer relationships, and fostering innovation, the business can enhance its competitive position and generate sustainable growth and profitability. Through proactive management and strategic decision-making, your newly acquired small business can thrive in its new environment, delivering value and driving long-term success.
Entrepreneurship through acquisition is a compelling route to business ownership by offering immediate access to established assets and revenue streams, bypassing the challenges of starting a business from scratch. Explore businesses for sale on BizBuySell to find the right business to buy and build your way to entrepreneurship.