How to Buy a Business Part 1: Who Can Buy a Business
Are you a hardworking professional feeling dissatisfied with your 9-5 job? Do you want more ownership over your time and the opportunity to make a positive impact while increasing your income? If so, buying a business could be a rewarding pathway for you, and it might be more accessible than you think.
The Growing Trend of Business Acquisition
Business acquisition, also known as entrepreneurship through acquisition (ETA), is gaining traction in the United States. According to the Small Business Administration, around 10 million baby boomer-owned businesses are projected to change hands between 2019 and 2029. This transition presents a significant opportunity for those ready to roll up their sleeves and embrace the entrepreneurial journey.
As a former small business owner and SBA loan broker, I'm excited to share insights on the business buying process. Prior to becoming a business owner, the idea of buying a business was never on my radar. However, after purchasing a laundromat in 2023, I discovered my passion for operating a business and the fulfillment that comes with it.
Why Consider ETA?
There’s a good chance if you’re considering ETA, you’ve also considered other investment strategies such as purchasing real estate or starting up a business. Let’s discuss why ETA may be the more favorable choice out of these three options.
Lower Risk: Compared to startups, which face high failure rates, acquiring an existing business typically offers cash flow from day one. When you buy a business with a proven track record, you can minimize risks associated with starting from scratch.
More Control: Compared to real estate, business ownership can allow you to have a significant degree of control over operations, pricing, and strategy. For instance, if utility costs increase, you can adjust your prices promptly. Depending on the market, real estate can be tightly regulated and you may not have the option to easily raise rent or evict a non-paying tenant in a timely manner.
Active Participation: While both business and real estate investments require effort, business ownership often leads to a more direct relationship between your efforts and the results. Increased engagement in your business can enhance your returns on investment. The value of real estate (outside of fix & flips) is largely driven by market conditions outside of your control.
Overall, I personally prefer business acquisition as a way to invest my time and money over real estate or a typical 9-5 job.
Who is ETA For?
ETA is designed for individuals seeking personal growth, new challenges, and an opportunity to take control of their time. However, it requires a commitment to hard work and responsibility. It’s crucial to understand that business acquisition is not a path for those seeking quick returns without prior experience. Instead, it’s for those ready to invest time and energy into learning and managing a business.
Evaluating Your Fit for Business Acquisition
Before diving into business acquisition, consider the following:
Willingness to Work: Understand that entrepreneurship through acquisition is a commitment. Finding a suitable business, securing financing, and managing operations all require substantial effort.
Personal Risk Tolerance: While owning a business can provide financial stability, it also carries risks. Assess your personal situation and determine if you’re ready to take on the challenges that come with being a business owner.
Liquidity: How much in personal liquidity do you have available to comfortably put into the transaction? An SBA loan is a great option to get a highly leveraged loan to support your business acquisition (up to 90% of the total project cost). However, an SBA lender will still require a 10% down payment or equity injection from you, your investors, or in the form of a seller note. Regardless of how you come up with the equity injection, your lender will also require you have at least a few months of post close liquidity on your personal financial statement.
In conclusion, the path to acquiring a business is not just about financial gain; it’s about creating a positive impact on your life and the lives of others. If you're intrigued by the possibilities of entrepreneurship through acquisition, check out our post where we discuss how to find and evaluate a business.
