It’s a promising time for business owners and aspiring entrepreneurs to build a business through acquisition. Often referred to as ETA, entrepreneurship through acquisition is an attractive option for entering small business ownership or expanding an existing portfolio.
Timing is everything: The "silver tsunami"
The “silver tsunami” is a phenomenon driven by the retiring Baby Boomer generation, which has created an abundance of businesses seeking new ownership.
Business owners who have held their ventures for decades are now faced with the need to sell their businesses to secure retirement funds. This phenomenon isn’t limited to business ownership alone; it permeates multiple sectors where the majority of the workforce is in their late 50s and 60s. The need for succession planning or retirement strategies is evident, making this transition period the largest transfer of wealth in history.
This environment of transition creates an optimal opportunity for those looking to grow through acquisition. Individuals averse to the challenges of starting a new business from scratch or who want to swiftly become small business owners may find acquisitions particularly appealing. The advantages lie in the established customer base, existing employees, profits, and cash flow that come with an acquired business.
At Byline, we take the time to get to know your business. Whether you’d like to improve cash flow, expand operations or update equipment, our team can customize financing and treasury solutions to help. Get in touch.
The 9-step path to entrepreneurship through acquisition
The process of acquiring a business, whether you’re growing an existing portfolio or entering the world of business ownership for the first time, follows a systematic approach.
Step #1: Industry research
Start by identifying your preferred industry. Research potential businesses for acquisition within that industry.
Step #2: Skill set assessment
Evaluate your skills and roles and determine where gaps exist. Consider whether you’ll need to learn these skills or hire employees to fill the gaps.
Step #3: Networking
Initiate conversations with business owners in your chosen industry. Discuss succession plans and inquire about potential opportunities for acquisition.
Step #4: Broker engagement
Connect with business brokers who specialize in the industry you’re interested in. Brokers can provide insights and opportunities within their networks.
Step #5: Financing options
Explore financing routes, such as SBA loans or private capital to fund the acquisition. Evaluate options that require little to no upfront capital.
Step #6: Structuring the deal
Design a deal structure that suits your needs and aligns with the seller’s expectations. Consider routes like stock options, seller notes, or earn-out agreements.
Step #7: Due diligence
Thoroughly examine the target business’s financials, operations, and client relationships to ensure it aligns with your goals.
Step #8: Negotiation and agreement
Negotiate the acquisition terms and finalize the agreement with the seller.
Step #9: Integration
After the acquisition, focus on effectively integrating the acquired business into your operations and maximizing its potential.
The benefits of ETA
Acquisitions offer numerous benefits, particularly in industries facing a talent shortage. Acquiring an existing business grants access to an established customer base and a team of skilled employees, helping you bypass the challenges of recruiting in a competitive market.
For those who already own a business, the acquisition path is equally viable. The process is similar, with the added advantage of leveraging your existing business’s resources and reputation.
The silver tsunami signifies not just a wave of retirements, but a wave of opportunities for those who are prepared to navigate it. Business owners must adapt to this changing tide, and potential buyers have a unique chance to capitalize on the emerging acquisition opportunities. The world of acquisitions offers a path to growth, sustainability, and success, all while avoiding the challenges inherent in starting a business from scratch.
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This article was written by Michael Ly from Inc. and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].
