Buy vs. Build
By: Robert Dougherty
Do you want to be an entrepreneur but don’t have an idea? Are you passionate about the agency and the legacy that comes with starting a business but don’t know where to start? What you may not know is that there is an entire industry built for people like you. It’s called Entrepreneurship through Acquisition. This industry is dedicated to people looking to buy vs. build their businesses. At this point, many wonder how do you buy a business if you have no money and where do you find these businesses. Here we will discuss all the above and more.
Entrepreneurship Through Acquisition
Entrepreneurship through Acquisition (ETA) provides a pathway for aspiring entrepreneurs to own and operate an established business rather than starting one from scratch. This approach has gained popularity due to the reduced risk associated with buying an existing business that already has proven cash flow, an established customer base, and operational infrastructure.
Searching
Where to Look: Finding the right business to purchase is the first and perhaps most crucial step in ETA. There are several avenues you can explore:
Business Brokers: Professional intermediaries who help sellers find buyers.
Online Marketplaces: Websites like BizBuySell, BusinessMart, and Flippa list businesses for sale.
Industry Networks: Networking within specific industries can lead to potential opportunities.
Direct Outreach: Contacting business owners directly to inquire about potential sales.
Tech Needed: Leveraging technology can streamline your search and evaluation process:
CRM Software: To manage and track potential deals and communications.
Financial Analysis Tools: Software like QuickBooks or Xero for evaluating financial statements.
Project Management Tools: Platforms like Trello or Asana to organize tasks and timelines during the acquisition process.
Deal Process: The acquisition process typically involves several key steps:
Initial Research: Identifying potential businesses and conducting preliminary evaluations.
Valuation: Assessing the business's worth through methods like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples.
Due Diligence: Thorough investigation of the business’s financials, operations, and legal standing.
Negotiation: Discussing terms with the seller and negotiating the sale price and conditions.
Closing: Finalizing the deal through legal documentation and transferring ownership.
Deal Fees: Various fees can be involved in the acquisition process, including:
Legal Fees: For contract review and due diligence.
Broker Fees: If you use a business broker, they typically charge a commission.
Valuation Fees: For professional business valuation services.
Financing Costs: Interest and fees associated with loans or investor capital.
Who Makes a Good Searcher? Successful searchers often have certain characteristics:
Analytical Skills: Ability to assess financials and operations critically.
Negotiation Skills: Effectiveness in negotiating terms and prices.
Persistence: The search process can be lengthy and challenging.
Leadership: Capability to lead and manage the acquired business post-purchase.
Funding
Securing funding is a significant hurdle in the acquisition process, but there are several avenues to explore:
Bank: Traditional bank loans can be used to finance a portion of the purchase. The Small Business Administration (SBA) in the U.S. offers loan programs specifically designed for business acquisitions.
Investor: Partnering with investors or venture capitalists can provide the necessary capital. These investors typically take an equity stake in the business in exchange for their investment.
Seller: Seller financing is another option, where the seller allows the buyer to pay a portion of the purchase price over time. This can be beneficial for both parties as it eases the financial burden on the buyer and provides the seller with ongoing income.
Operating
Once the acquisition is complete, the focus shifts to operating the business effectively. This involves:
Transition Management: Ensuring a smooth transition of ownership with minimal disruption to the business.
Strategic Planning: Developing and executing a plan for growth and improvement.
Operational Oversight: Managing daily operations, from staff to supply chains.
Financial Management: Keeping a close eye on cash flow, profitability, and financial health.
In conclusion, Entrepreneurship through Acquisition offers a viable path for aspiring entrepreneurs to own and operate their businesses. By understanding the search process, securing appropriate funding, and effectively managing the acquired business, individuals can realize their entrepreneurial dreams without starting from scratch. Whether you choose to buy or build, the key is to be informed, prepared, and committed to your entrepreneurial journey.
