If you are looking into entrepreneurship through acquisition, you might be feeling a bit confused and frustrated. What are the steps you should be taking? How can you ensure you choose the right company? What are the potential pitfalls? Let’s explore!
What Is Entrepreneurship through Acquisition?
Entrepreneurship through acquisition, or ETA, is the process of buying an exciting business, as opposed to starting one of your own. It means you can skip the early stages of development and focus on growing an already-established business.
How Does Entrepreneurship through Acquisition Work?
There are several stages and steps to ETA you should know about:
- Start by considering the kind of business you want to acquire.
Why are you buying this business? What do you want it to achieve? How big or small should it be? What industry should it operate in? Consider your expertise and experience. What business can you confidently own, help run and grow?
- Once you know what kind of business you want to buy, start looking for one.
Do as much research as you can and perform due diligence to evaluate the finances and operations of the company. This is not a step you will be able to complete alone, so you will need the help of a consultant, an accountant, and a lawyer.
- Your next task will be to secure the financing of your acquisition.
Consider getting a bank or an SBA loan to get started. You might also need the help of an SBA loan investor who can supply the funds you may still be missing. Carefully analyze the financing terms and risk before you choose the right type of funding.
- With the funding secured, you will need to negotiate the terms of the purchase.
This will include the price itself, as well as the transfer of any assets, liabilities, warranties, and so on. Again, you will need to get help from a financial and legal advisor for this step.
- The final stage of business acquisition is to manage the transfer.
You now need to start running this business yourself.
How to Choose a Good Business to Acquire
One of the biggest concerns acquisition entrepreneurs have is how to choose a business to purchase. Here are some key factors to consider:
Ideally, you will choose an industry you’ve either worked in or have extensive knowledge about.
While acquiring a business that has only been around for a couple of years can still be a good move, you preferably want to look for one that has a more substantial track record. It will have already established a good relationship with its target audience.
The business should currently be generating enough to cover all of its overheads.
Consider how many people you want to manage on a daily basis. Bigger companies come with a unique set of challenges, while smaller businesses will often be less profitable to begin with.
Consider how close the business premises or headquarters are. Even if you are purchasing an online business, take into account whether you need to move their stock and where their employees are located.
The Benefits of Entrepreneurship through Acquisition
ETA is usually the fastest route to business ownership. Here is why it’s worth considering:
- You don’t have to worry about market research, choosing the right business model, and creating a reliable revenue stream. All the risks of early-stage entrepreneurship will already be behind you.
- You are able to grow an established business faster than one that is just starting out. It will have all of its operational, sales, and marketing processes in place. All you potentially need to do is figure out how you can improve them.
- The employees that come with your new business are one of your most valuable assets. They can help you achieve your goals faster than a team you put together from scratch. Make sure to rely on their skills and knowledge and ask for their input every step of the way. They know the company better than you do, after all.
- You are likely to break even or turn a profit through ETA faster than when establishing a brand-new business.
- While ETA involves paying a large sum upfront, it can still be more cost-effective in the long term than starting a business from scratch. You won’t have to invest in inventory and equipment, and you will already have a good team on board.
- You won’t have to worry about customer acquisition as much as with a new brand, as there will be an established target market waiting for you.
The Challenges of Entrepreneurship through Acquisition
ETA does come with a very unique set of challenges as well:
- You will need to spend a lot of time looking for the right business to acquire. Some business owners will be outright dishonest and try to hide financial or other relevant information, so you will need to stay sharp and have a good team of experts on your side.
- Funding the acquisition can also be costly, so you will need to spend additional time securing the right financial source. This could be a loan or an investor. Either way, you will need to read the fine print with a fine-tooth comb.
- Adopting the culture of your new business can be very challenging, especially if there is pushback from the staff. You will need to hone your leadership and communication skills to ensure a smooth transition.
- Customers and clients may be hesitant to keep working with you after a change of ownership, so you will need to work hard to retain them.
Now that you understand the benefits, challenges, and processes involved in entrepreneurship through acquisition, you are able to decide whether this is the right choice for you. Whatever you choose, make sure to double-check all facts and figures and recruit a reliable team of experts to help you out.