Choosing the entrepreneur career path can be financially rewarding, but the risks are also high. According to the Bureau of Labor Statistics, 20% of small businesses fail within the first year, and approximately half will have failed by year five.
Embroker reports that 42% of businesses fail due to misreading market demand, and 29% run out of funding. In spite of these hurdles, many people choose to work as entrepreneurs, and succeed over the long term.
One way to reduce your risk is to pursue acquisition entrepreneurship, which refers to purchasing a business and improving company results. The entrepreneur applies creativity and innovation to a set of products and services, and increases sales and profits.
Is Buying a Business the Best Start for You?
An acquisition entrepreneur needs several types of skills to succeed. Generally speaking, you need management skills, and the traits that make entrepreneurs successful.
Management skills
If you have business management skills, buying a business may be an option.
An acquisition entrepreneur must be able to operate the existing business, and then implement changes. The existing business has to be well managed, in order to generate profits and cash inflows. Once you’re comfortable with running the business, you can gradually start to make changes.
Leveraging what already works
You increase your odds of success when you leverage the company’s existing business model. A new owner can do this by adding more products and services to serve the client base.
Let’s assume that you purchase a landscaping company. You decide to provide irrigation services for customers who have in-ground sprinkler systems. This service is a good fit, and something that landscaping customers may be purchasing from another vendor. Another good example is getting into business by buying from people/companies who are offering to sell franchise businesses. They’ve already done their own product/services research and they pretty much already determined how to best deal with their target customers.
If you have management skills, and you make smart decisions to innovate, you can succeed as an acquisition entrepreneur.
5 Tips for Acquisition Entrepreneurship Success
Think of acquisition entrepreneurship as buying a home, rather than building one. You already have a structure in place, and you’re not starting from scratch.
The business has a portfolio of products and services that drive sales. A team is in place operating the company, and the firm has a customer base and some brand awareness. The business has a track record, and you have metrics to measure company performance.
Here are five tips to take an existing business and make it more successful.
Using innovation to improve results
The challenge for an existing business is a lack of innovation, and an entrepreneur can apply innovation to improve results.
Assume, for example, that Tree Line Outdoor manufactures products for the hiking and mountain biking market. Sales and profits have grown, on average, 5-8% per year, and 80% of sales are to retailers. The firm also sells 20% of products online.
You have a background in ecommerce, and you believe that Tree Line can gain more market share by growing the online portion of the business. After purchasing the company, you upgrade the online buying experience, and advertise on social media. These innovations increase sales and profits.
Considering private equity
If you acquire a business and need more capital to implement your growth plans, you might consider private equity funding.
According to Marla DiCarlo of Raincatcher, private equity firms raise money from institutions and high net worth individuals. These firms invest in businesses, and work with the owners to improve results. Private equity managers want to recover the cost of their investment within five years, and eventually sell the investment for a gain.
If you’re an entrepreneur with creative ideas, a private equity investor may be attracted to your business. Investors are looking for higher rates of return, and the private equity market has grown substantially in recent years.
Look into seller financing
When you find a company and want to negotiate a purchase, ask the owner if they would consider seller financing.
Seller financing means that the buyer pays a down payment, and then makes annual payments of the remaining purchase price over three to five years. This strategy makes it easier for the buyer to finance the purchase. Owners know that seller financing motivates buyers, and can speed up the process of a business sale.
Implementing new ideas post-pandemic
The coronavirus pandemic disrupted businesses in dozens of industries, and many companies have to decide how to operate post-pandemic. This may be a great time to apply your entrepreneurial skills to solve a problem.
Restaurants are a great example, because thousands of businesses shifted from in-person dining to delivery and carryout. Now, restaurants must decide how to operate moving forward. Do they maintain a large delivery and carryout business, and lease smaller in-person dining space?
Entrepreneurs can work to solve these problems, and build more resilient businesses post-pandemic.
5. Look for boomers who are selling businesses
The baby boomer generation is nearing retirement age, and that may trigger a large number of business sales as boomers retire. As of late 2019, baby boomers owned 2.34 million small businesses, according to CNBC. Entrepreneurs may find a large number of motivated sellers looking to sell a business that can benefit from innovation.
The decision to become an acquisition entrepreneur may affect your career for years to come, and you should seek out experts who can help.
Find trusted experts
Business brokers help investors find businesses for sale, and guide the purchaser through the buying process. Discuss your professional background and your entrepreneurial ideas with a business broker, and get feedback on your ideas.
Once you start looking for a business to purchase, you’ll also need an accountant and an attorney to help you make an informed decision, and to protect your interests. With proper planning, you can succeed as an acquisition entrepreneur.