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Tag: Buying a Business

  • The 5 Roles You Need on Your Team When Acquiring a Business | Entrepreneur

    The 5 Roles You Need on Your Team When Acquiring a Business | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Acquiring a business is no small feat. The complexity and scale of the process necessitate a deep understanding of various domains, from financial analysis to operational management. You’re not just buying assets; you’re inheriting a legacy, a brand, an employee base and an entire ecosystem that needs to be meticulously managed and integrated.

    Success hinges on assembling a team of skilled professionals who bring diverse competencies to the table, ensuring every facet of the business is thoroughly examined and seamlessly incorporated into your vision.

    Each role is designed to cover critical areas of the business, addressing challenges specific to different core industries. Whether you’re venturing into technology, manufacturing, healthcare or any other sector, these key positions will help you navigate the complexities and unlock the full potential of your new venture.

    Here are the five positions that are indispensable for a successful acquisition and smooth integration.

    Related: 6 Critical Steps for Buying a Business

    1. Business Development Strategist

    Role overview:

    A Business Development Strategist is instrumental in identifying growth opportunities and creating strategic plans. Their responsibilities include market analysis, partnerships, risk mitigation and strategic planning.

    Real-world example:

    When Amazon acquired Whole Foods in 2017, the Business Development Strategist team played a critical role. They identified potential synergies between Amazon’s technology and Whole Foods’ physical stores, leading to innovations like cashier-less checkouts and improved supply chain efficiencies.

    How they work with other roles:

    With Financial Analysts: Collaborate to align strategic plans with financial forecasts and valuations.

    With Sales Leaders: Share market insights to refine sales strategies and set realistic targets.

    With Industry Specialists: Use regulatory and market intelligence to craft informed growth strategies.

    2. Financial Analyst

    Role overview:

    A Financial Analyst provides essential insights into the financial health of the business through financial modeling, valuation, due diligence, performance analysis and strategic financial planning.

    Real-world example:

    During the acquisition of LinkedIn by Microsoft, Financial Analysts conducted detailed due diligence, including discounted cash flow (DCF) analysis and comparable company analysis, to justify the $26.2 billion price tag and forecast future performance.

    How they work with other roles:

    With Business Development Strategists: Provide financial data to support strategic growth plans and risk assessments.

    With Sales Leaders: Analyze sales data to gauge the financial impact of proposed sales strategies.

    With Operations Managers: Monitor financial performance metrics to identify cost-saving opportunities in operations.

    3. Sales Leader

    Role overview:

    A Sales Leader drives revenue and scales the business through strategy development, team management, customer insights, data-driven decision-making and cross-departmental collaboration.

    Real-world example:

    When Salesforce acquired Slack, the Sales Leader’s role was pivotal in integrating Slack’s sales processes with Salesforce’s, developing a unified sales strategy to maximize cross-sell opportunities and drive adoption of Slack’s platform within Salesforce’s existing customer base.

    How they work with other roles:

    With Business Development Strategists: Align sales goals with strategic growth opportunities.

    With Financial Analysts: Use financial metrics to refine sales strategies and measure effectiveness.

    With Industry Specialists: Leverage industry insights to tailor sales approaches and enhance customer engagement.

    Related: Purchasing a Business Doesn’t Have to Be Difficult. Here’s Your Comprehensive Guide.

    4. Industry Specialist

    Role overview:

    An Industry Specialist brings deep sector-specific knowledge, covering regulatory compliance, innovation, networking, market intelligence and training.

    Real-world example:

    In the acquisition of EMI Music by Universal Music Group, Industry Specialists ensured compliance with complex music industry regulations and helped integrate EMI’s diverse catalog into Universal’s operations, while fostering relationships with key stakeholders in the music industry.

    How they work with other roles:

    With Financial Analysts: Provide industry-specific data to enhance financial modeling and valuation.

    With Sales Leaders: Offer insights into industry trends and customer preferences to inform sales strategies.

    With Operations Managers: Ensure operational processes align with industry standards and innovations.

    5. Operations Manager

    Role overview:

    An Operations Manager ensures smooth day-to-day operations, focusing on process optimization, supply chain management and quality control.

    Real-world example:

    When Walmart acquired Jet.com, Operations Managers streamlined Jet’s supply chain processes and integrated Walmart’s logistics infrastructure, leading to improved efficiency and cost reductions.

    How they work with other roles:

    With Business Development Strategists: Implement strategic plans by optimizing operational processes.

    With Financial Analysts: Manage operational costs and identify cost-saving initiatives to improve financial performance.

    With Sales Leaders: Ensure operational capabilities align with sales goals and customer expectations.

    Related: Buying a Business? Make Sure It Checks The Boxes On This Checklist Before You Pull The Trigger.

    Assembling a team with these specialized roles — Business Development Strategist, Financial Analyst, Sales Leader, Industry Specialist, and Operations Manager — can transform the daunting task of acquiring a billion-dollar business into a well-managed and successful venture.

    Each role not only brings essential skills but also works synergistically with others to ensure every facet of the business is expertly handled. By integrating these roles effectively, you position your acquisition for long-term success and sustained growth.

    Roy Dekel

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  • When Investing, Should You Go For Percentage or Dollar Returns? | Entrepreneur

    When Investing, Should You Go For Percentage or Dollar Returns? | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    I was recently speaking with an entrepreneur who’d passed on an investment because it would not need yield the company at least a 10x growth opportunity. I told him those returns might be reasonable when investing in small businesses (under $5 million) but that he should consider lowering his ROI threshold when investing in larger ones.

    My logic was twofold: First, bigger companies are harder to grow as quickly as small ones, so the growth percentages will be lower; and second, there’s the potential to make substantially more money on a bigger company investment, even if the ROI was only 3x to 5x.

    Here’s how to know when it’s better to focus on percentage returns vs. dollar returns when assessing your investment opportunities.

    George Deeb

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  • How You Can Afford the Lifestyle of Your Dreams in Retirement | Entrepreneur

    How You Can Afford the Lifestyle of Your Dreams in Retirement | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Entrepreneurship is the new “dream job” for older adults in the U.S., even after they retire. A recent survey from The UPS Store found that 54% of Americans would rather open a small business than retire, and the proportion of new entrepreneurs in the ages 55 to 65 cohort has increased faster than among people ages 25 to 35.

    Working in retirement is not a new phenomenon. Some retirees and older adults have always decided to keep working past the traditional retirement age, whether it’s a few hours a week at a part-time job, solo consulting work or other ways to stay active and earn extra income. But for this new generation of retirees and older adults who are approaching retirement age, entrepreneurship in retirement can be a great way to take on a fun new challenge while making money with a flexible schedule, on your own terms.

    Today’s generation of retiree entrepreneurs is often called “encore entrepreneurs” or “second act” entrepreneurs because they’re coming back to the workforce for one more appearance. Being a retiree entrepreneur can offer special satisfaction and financial rewards. Running an online business, like an ecommerce store, Fulfillment by Amazon (FBA) business, blog, mobile app or another digital asset, has become a popular new strategy for entrepreneurship in retirement.

    But as an online business entrepreneur in retirement, you don’t have to reinvent the wheel or start from zero. If you want to get your foot in the door with online business ownership, more retirees should consider the option of buying an online business. In the same way that some entrepreneurs might want to buy a franchise or purchase an existing business that already has a proven brand and strong foot traffic, buying an online business can be a cost-effective way for “encore entrepreneurs” to have a successful second act in retirement.

    When I talk with entrepreneurs and investors around the world, we’re seeing strong interest in this space from older adults. In the past year, as I’ve attended industry conferences and done meetups in cities around the world, approximately 75% of people in the audience are in the ages 55 to 65+ cohort. Clearly, this age group is interested to learn more about online entrepreneurship. They see how buying an online business or digital asset could be a smart investment.

    Here are a few big reasons why online business and retiree entrepreneurs are a natural fit — and why buying an online business could be the right strategy for your goals.

    Related: Want to Retire Early? Do This One Thing.

    1. You get the lifestyle you want — and the income you need

    Why do older adults often decide to work in retirement? Because they want to earn extra income on a flexible basis, without the all-consuming schedules and expectations of a full-time job. Buying an online business is a great fit for these goals.

    If you want to earn extra money on your own terms, running an online business can deliver the return on your investment that you need, with a flexible schedule and the ability to work from anywhere. If you want to travel in retirement, split your time between seasonal homes or spend more time with grandchildren or other loved ones, running an online business can give you the freedom of being a digital nomad, not tied to any one location.

    Why buy an existing online business, instead of starting your own business from scratch? Because when you buy an online business, you’re getting a built-in customer base, a known brand and reliable revenues. You’re getting a stronger foundation to build upon. This is another reason why buying an online business can be a perfect fit for older adult entrepreneurs — it helps you avoid the time-consuming struggle of finding new customers and building a brand.

    2. They’re cost-effective investments of extra cash

    Retirees sometimes have access to a lump sum of cash that they can use for investing in a new venture. Whether it’s an early retirement severance package from your last job, proceeds from the sale of a house after downsizing, an inheritance from a loved one or other windfalls, retirees are (hopefully) in a stage of life where they have some extra cash that could use a good purpose.

    There are a few ways to invest extra cash. You can put it into a savings account, CD or money market account and barely earn enough interest to keep up with inflation. You could buy an investment property — but real estate inventory in most U.S. cities is limited right now due to rising interest rates — or you can invest cash in other asset categories, like the stock and bond markets, which can be risky and go up or down for reasons beyond your control.

    But what if you could invest some extra cash in an online business — and invest in your own skills, talents, expertise and entrepreneurial energy? Buying an online business is a way of betting on yourself. Online businesses can deliver steady monthly cash flow to boost your retirement income, as well as a long-term appreciation of the asset price. And hopefully, with an online business that you’re passionate about in a niche you know well, you can achieve a bigger long-term ROI than other investment categories.

    Related: 3 Tips for Buying an Online Business

    3. They can be low-risk

    Buying an online business doesn’t have to cost a lot of money. You don’t need hundreds of thousands of dollars to buy an online business, and you don’t have to bet your life savings on one single business idea. Unlike buying a franchise where you have to be part of that larger brand and follow its rules, running your own online business gives you the freedom to make your own choices, try new things and follow your own intuition. Unlike buying a brick-and-mortar business like a restaurant or retail store, online businesses tend to have limited overhead costs and big potential profit margins.

    Choosing the right online business to buy depends on striking a balance between how much cash you want to invest upfront vs. how much time/expertise and additional cash you’re prepared to invest into the business as you manage for future growth.

    For example, there are lots of online businesses (like ecommerce stores, mobile apps or revenue-generating content-based websites) that are for sale for as little as $5,000 to $10,000. If you’re willing to put in some effort to improve the performance of these businesses, with better content, higher customer retention, sharper SEO (search engine optimization), diversified sources of traffic and more precise advertising, you could boost the business’s monthly revenues and recoup your initial investment within a few months to a year.

    Not every online business is an immediate slam-dunk moneymaker. Some online businesses require some extra help and careful management to reach their potential. But in general, if you’re a recent retiree or soon-to-be retiree who wants to earn extra income in retirement while keeping your entrepreneurial skills sharp, buying an online business could be the best strategy for you to get in the game. Buying an online business helps you save time and start selling to customers faster, without the growing pains of getting a new venture off the ground.

    Blake Hutchison

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  • 6 Common Pitfalls Small Business Owners Must Avoid When Selling Their Business | Entrepreneur

    6 Common Pitfalls Small Business Owners Must Avoid When Selling Their Business | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Selling a business is a monumental decision for any entrepreneur. After years of toiling to build your venture, it’s essential to ensure that you receive the best possible return on your investment.

    However, in the rush to close a deal, many entrepreneurs fall into traps that can jeopardize the sale or significantly reduce the value of their business. I’ve compiled a list of several common pitfalls that entrepreneurs must sidestep to ensure a successful sale.

    Chad D. Cummings

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  • Want to Purchase a Business? Use This Checklist as a Guide. | Entrepreneur

    Want to Purchase a Business? Use This Checklist as a Guide. | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Every day, millions of Americans pursue the dream of owning their own business.

    Ownership brings the freedom to make the decisions about how a company is run, which can pay off in far greater financial rewards than a regular paycheck. Best of all, there’s a sense of pride that comes from building a legacy that can be passed on to others.

    That said, the rewards come with risk. Being the owner of a company is a high-pressure position. A paycheck is steady and reliable, but profits often are not. Making the wrong decisions can leave you with nothing to pass on (or something that no one wants).

    Purchasing an existing business can be the ideal strategy to avoid becoming an owner who shuts down their business in the first year. It’s a complex process — the most complicated purchase you may ever undertake. The list of stakeholders and concerns you must address is long — customers, employees, equipment and inventory, to name just a few.

    Plan to spend several months shopping for the right business, from researching the market, negotiating with the seller and eventually closing on the purchase itself.

    If you’ve decided to buy a company that is already in existence, here’s a checklist for managing the process.

    Related: 10 Questions You Must Ask Before Buying a Business

    1. Decide what kind of business you want

    Do you want an independent business or a franchise? Buying a franchise offers a proven model with plenty of support and a network of resources. With an independent company, you’re free to make decisions on your own — which might suit you better if you prefer to go it alone.

    If you’re unsure, decide on what industry you may want to enter. What are you good at? Do you have any expert skills that would be useful in a business? How will you manage your time?

    2. Assemble your team

    You’ll need a crew of experts to handle the complicated financial and legal issues that are part of the purchasing process. You’ll need an attorney and an accountant, and when buying an independent business, you should also work with a business broker. The broker will help you locate and vet potential buyers. With solid knowledge of the market and the industry you’re getting into, they’re a crucial guide, even for experienced business owners.

    No matter how much more your team may know about the purchasing process, never forget that you’re in charge. The team works for you, and while they’ll usually give you good advice, the decisions are yours to make. It’s your name that’ll be going on the door and your money that’s being risked.

    3. Search for available businesses

    You won’t find a “for sale” sign outside of a business worth buying. Just like the Multiple Listing Service (MLS) that realtors use, there are a number of reliable sources you can turn to when you’re looking to buy a business.

    The website BizBuySell is a trusted directory of available companies, you can find expert guidance at Transworld Businesses Advisors, and trade shows are another fertile source of prospects.

    Related: The 4 Biggest Red Flags to Look for When Buying a Business

    4. Secure financing

    Don’t listen to anyone who says that plunging your life savings into a business means you’re admirably devoted to its success.

    A small business loan or other financing is the smarter way to go, especially for hard assets (equipment, buildout, etc.) If you get funding from investors, be clear on how they will be involved, what their share of revenue and expenses will be and other issues your accountant and attorney will work out with you.

    5. Close on the sale

    Huddle with your team before closing to make sure everyone understands the sale. Be clear on what you’ll be walking into, like employee and vendor contracts, inventory, accounts receivable and the state of the lease (if there is one).

    Is there an opportunity to renegotiate the lease with the property owner? Will the seller stay in the business to help you transition to total management, or do they expect to hand you the keys and wish you luck on their way out the door?

    Once again, this is where you’ll be glad you’re working with an accountant and an attorney.

    Related: A Comprehensive Guide to Buying a Business

    6. Step into your office

    Your sale is complete, but the purchase is not done. Your first 30 days in the business should be a time of transitioning into ownership.

    You should be getting to know your employees and how they do things, as well as giving them an opportunity to get to know and trust you. Clean the space, interview employees, and listen to what they tell you. Don’t make any quick changes until after the first month.

    Don’t forget one of the best parts of the post-closing process: Celebrate! Take time to reflect and enjoy all that you’ve done to make this dream come true.

    Ray Titus

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  • How to Profit from Acquiring Distressed Businesses | Entrepreneur

    How to Profit from Acquiring Distressed Businesses | Entrepreneur

    Opinions expressed by Entrepreneur contributors are their own.

    Since the start of 2023, leading companies, including Vice Media, Virgin Orbit, David’s Bridal, Bed Bath and Beyond and Jenny Craig, have filed for bankruptcy. More broadly, underlying economic conditions have resulted in a flurry of business failures, with a 77% increase in commercial Chapter 11 bankruptcy filings for the first quarter of 2023. Business failures across all industries have created uncertainty for investors but great opportunities for competitors and buyers.

    Far from causing concern, entrepreneurs should look at this as an opportunity and follow self-made billionaire Warren Buffet’s advice to “buy when there’s blood in the streets.” Distressed companies can be acquired at a fraction of the multiples that healthy companies trade at and therefore offer entrepreneurs a unique and cost-efficient way to grow their businesses.

    As CEO of a Nasdaq company, I grew by acquiring great distressed companies. The valuations were phenomenal – and each came with its unique challenges and opportunities. With a backdrop of more than 20 acquisitions, here are some lessons I learned during the journey to grow my business.

    Before pursuing a distressed company, a few basic questions must be answered to ensure that the transaction makes sense.

    First, is the valuation low enough and the potential upside high enough to compensate you for the risk that comes with acquiring a distressed company? The most attractive element of buying distressed companies is their price, and without a low enough valuation, the business shouldn’t be considered for purchase.

    Related: How to Value a Business: 9 Ways to Calculate a Business’s Worth

    Second, does this business fall within your area of expertise? Buyers who don’t understand the business fundamentals of a market sector should be very cautious. Consider that the leadership of the distressed business presumably had more than a cursory understanding of their industry and opportunities but still failed to succeed.

    Finally, what do you bring to the table that will enable you to succeed in turning around the business? You will need resources the owner didn’t have or a plan they never created or couldn’t execute to turn the business around and increase profits. Generally, the ability to turn a business around will rest less upon identifying great ideas you could bring to a company and more upon addressing the problems that caused the company’s current state of distress. You must act like a doctor and identify the cause of your patient’s symptoms before administering the cure. Generally speaking, the quality of your post-transaction team will drive your success, your ability to use technology and automation, and your ability to stabilize your customer base and exceed their expectations going forward.

    Related: Purchasing a Business Doesn’t Have to Be Difficult. Here’s Your Comprehensive Guide.

    Finding a business in financial distress that matches your area of expertise usually occurs through a broker specializing in distressed company transactions. However, finding failing companies through word of mouth, searching business information sites, or poring through online bankruptcy court filings in your area is also possible.

    After deciding to pursue the distressed business, it makes sense to ensure you have a team that can succeed. You should consider the benefit of hiring a lawyer specializing in distressed business transactions. If the business is pursuing bankruptcy protection, you can start with a clean slate once the company is purchased and the deal finalized, but to get there, you’ll need to navigate a complex transaction with many moving parts successfully. Creditors’ concerns will need to be addressed, bankruptcy and auction time frames must be followed, and the judge overseeing the case will need to hear and approve your proposal.

    Regardless of how you acquire a distressed business — through bankruptcy or a non-bankruptcy ‘firesale’ — performing thorough due diligence is critical. This will include talking with the company’s employees (so far as is legally allowed) to gain a better sense of the internal state of the company. It isn’t uncommon for employees within financially strained companies to begin looking for work elsewhere as they become anxious about the company’s future. However, you’ll need to find a way to retain the very best workers and align their interests with yours.

    Related: Four Survival Principles For Start-Up Entrepreneurs Amid Crisis

    If the business is service-based, then speaking with customers (as permitted) and understanding their perspectives and intentions will be especially important. Customers generally can’t terminate contracts with companies during a bankruptcy proceeding, and the problems this can create for your potential customers as they wait throughout the bankruptcy process can destroy the business’s credibility with them. Customers who lose their goodwill toward the business may decide against the continued use of your service once the company resumes business under your leadership.

    Acquiring distressed complementary companies can be a cost-efficient way to grow your customer base and revenues. However, buying distressed businesses comes with unique risks and rewards, so it’s important that you carefully assess the opportunities and assemble the right team to ensure success.

    Stephen Snyder

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  • How to Calculate a Brand’s Real-Dollar Value Before Acquisition

    How to Calculate a Brand’s Real-Dollar Value Before Acquisition

    Opinions expressed by Entrepreneur contributors are their own.

    Measuring brand value and equity is similar to shopping for a home as an investor. While many home valuations are based on intangibles like square footage, the number of rooms and the home’s condition, there are also a lot of intangible factors, such as style, architecture and a certain je ne sais quoi that are more subjective than objective in value.

    If you’re a business looking to acquire another brand in your portfolio and struggling to calculate its valuation, I’ve outlined a few points to help you calculate the value of a brand based on its quantitative and qualitative metrics.

    Related: The Key Metrics in Building a Brand Worth Acquiring

    What are brand value and brand equity?

    Before a merger, it’s vital to differentiate between brand value and brand equity when assessing total value. Brand value is the financial or market value of a brand and all of its assets. On the other hand, brand equity measures consumer sentiment and awareness of a specific brand.

    Differentiating between these two metrics will help you decide how much you are willing to pay for a brand. For example, suppose you were looking to acquire a recently expanded boutique with a dominant presence in the Dallas market. In that case, their market valuation may be lower because it has a high current ratio (e.g., more debt than it could pay off at the present moment). However, if you conducted a customer survey and found that almost all of its customers were satisfied and excited to shop with the brand, you would conclude that its equity is worth more than its current market value.

    Ultimately, calculating brand value and equity will provide a baseline for what you and other competitors would be willing to pay for a brand. In competitive markets, understanding present and future value will help you make a competitive bid that will satisfy both parties involved.

    In addition, calculating brand value can help in several financial aspects, including:

    • Using a brand’s value as collateral for a loan
    • Understanding its tax evaluation
    • Tracking its financial performance
    • Understand areas of weakness the brand can improve in

    With this in mind, let’s explore how to calculate the value of a brand using traditional financial metrics and then quantify the quality of a brand’s equity using some of these same ideas.

    Related: When Acquiring a Company, Don’t Forget About the People

    A quantitative approach to brand value

    To begin with our valuation, we can take a few different approaches to calculate a brand’s financial value.

    • Market valuation: The total value of a brand’s assets, profit margin, capital structure, debt, stock price, or the comparable market value of other brands sold.
    • Income valuation: The estimated value of income that would result from purchasing this asset (i.e rate of return over X years)
    • Cost valuation: The total value of costs required to build a brand to its current valuation (e.g. raw materials consumed, marketing spend, labor costs over time)

    Market valuation is similar to pricing a home, while income valuation would be similar to assessing the total profit of a rental property or passive-income instrument. On the other hand, cost evaluation provides a good estimate of the rate of return of all previous marketing and business efforts to scale a brand to its current value.

    By combining these estimates with qualitative metrics like consumer loyalty, we can gain a good idea of the total value of a brand and whether or not it will be a profitable investment.

    Related: 7 Steps to Prepare Your Company for an Acquisition

    A qualitative approach to brand equity

    While calculating brand equity is mostly subjective, we can get rough scale estimates by assigning value to things like CLV, customer sentiment and brand awareness to quantify the total value of a brand’s equity.

    Here are just a few examples of calculating brand equity in dollar value.

    • Customer lifetime value (CLV): Assign a value to a customer and then multiply this by the number of transactions and their average length of retention. CLV quantifies the long-term value of a brand.
    • Marketing ROI and brand awareness: Assign a value to each customer reached based on CLV and calculate the number of conversions for each impression against the cost spent for those total impressions.
    • Customer sentiment: Conduct customer surveys and invest in social media monitoring tools to assess how satisfied customers are with a brand. To quantify, you can score customers in a survey (0-10) on how willing they are to shop with the brand again, recommend it to friends or family and whether they would spend more or less on future purchases. Then, assign a value to each score to get a rough estimate of the value of total consumer sentiment.

    While customer sentiment and loyalty could be more difficult to evaluate, they also provide a pretty good idea of how much money your most loyal customers provide to a business. Taking a basic Pareto approach, most specialized businesses receive about 80% of their revenue from about 20% of their total customer base.

    Overall, brand equity is more a determinant of long-term brand value than short-term profitability.

    With these metrics in mind, you can create a financial overview of the total value of a business and its brand equity to determine whether its future valuation justifies its current purchasing price.

    While businesses could easily improve a brand’s reputation over time and opt for a lower-priced brand, your business will ultimately benefit more from purchasing a brand with a strong and loyal local presence that requires very little maintenance or costs to keep profitable.

    Matt Bertram

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  • How To Find Success During Search Fund Launches

    How To Find Success During Search Fund Launches

    Opinions expressed by Entrepreneur contributors are their own.

    Search funds have started flipping the script on generalists winning in a largely specialized business environment. The efforts of a specialized thesis have recently proved more fruitful than the opportunistic approach, as Stanford’s 2020 Search Fund Study found, “Searchers who focus their search, as well as developing and adhering to a systematic approach of creating deal flow and analyzing deal opportunities, have a higher likelihood of identifying and closing an acquisition.”

    Although the inspiration for a thesis and industry vertical might be apparent based on the searcher’s passions and past experience, often finding an enterprise that fits the search mold could prove challenging.

    Related: Search Funds: What You Need To Know About This Investment Model

    The good news, however, is that value chains in almost every industry are riddled with opportunities that fit the model. They are the hidden gems. What this means, for example, is if the goal is to serve as an operator in the healthcare supplement industry (from knowledge gained over the years as a professional athlete), an operation that makes or procures a certain ingredient that goes into the final product, as opposed to the final product sold to consumers, would make for an ideal opportunity.

    This “value-chain-based searching” approach also opens up flexibility on the geographic front. Running a geographically agnostic search while widening the pool of potential targets might not be viable for most searchers. Offsetting this with more businesses within an industry’s value chain helps keep the net wide while respecting the searcher’s mandate.

    While necessary from the outset, alignment with the entire cap table on a thesis (and geography) and continuing commentary through the process unlocks resources that come from having a large experienced team and seeing multiple searchers and transactions from an investor’s lens — the successful, the break-evens and those who didn’t make it. The most valuable resource of which is a playbook, be it in the form of time committed to mentorship or proprietary documentation conducive to a successful search.

    Related: Search Funds: A Financing Option for Business Buyers

    Whoever first said, “it takes a village,” was probably a searcher. Building out a team who are unequivocally sold on the vision and believes in the mission is crucial to the searcher’s experience as a leader pre-CEO, as well as their chances of landing on a hidden gem of a business. Most searchers achieve this through interns, both in undergrad and business school, looking for an appetizer to private equity.

    While more heads the better by way of sourcing and in the data room looking over opportunities, a key factor lies in the fund’s governance. Karl Scheer, now CIO at the University of Cincinnati, was clear in his governance remarks, “you can’t have investment success with a bad governance structure.”

    Although at a vastly different scale, the same principles apply in aligning incentives and what a potential intern or search fund fellow can get for their time and effort. Additionally, a decision to build out a remote vs. in-person team in 2022 remains a personal preference. This could change with a clearer answer as work dynamics continue to get tested and studied over the next few years.

    Another important set of people to have in a searcher’s arsenal is a set of mentors who celebrate your success by way of unbiased advice — advisors, for lack of a better term. With a large population of the search community embarking on the search journey out of business school, a valuable pool of resources could come from a supportive group of professors and classmates in touch with the focus industry. The Stanford Search model dubs these people as “river guides” and even suggests an incentive structure with which searchers have found success over the years.

    With the people in place, the tools to set the search up for success help close the loop on the most effective use of everyone’s time. A tech stack helps automate low-effort tasks like initial outreach, and net-net gets the searcher in front of more potential targets. A project management suite opens up a layer of transparency on what everyone’s working on and helps move the needle from zero to one.

    Finally, like many things, we are tuned to think the next opportunity around the corner could be a better bet, and regardless of how good the current deal looks, it’s hard to think past the “what-ifs.” With most searches limited to a two-year time horizon to complete an acquisition and competition from other searchers as well as some private equity funds intensifying, having a “take the train” approach should be top of mind. If a deal fits the thesis, can model out successful growth over the next five to seven years, has a viable exit strategy, and is an experience a searcher deems enjoyable above all else — go for it!

    Related: A New Breed of Private Equity Investors Present More Exit Options Than Ever for Entrepreneurs

    Karl Eshwer

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  • Why Start a Business When You Can Buy One? Here’s What You Need to Know.

    Why Start a Business When You Can Buy One? Here’s What You Need to Know.

    Opinions expressed by Entrepreneur contributors are their own.

    The process of starting a business from scratch can be very daunting and time-consuming. There are many things to consider, such as business structure, marketing, R&D/product development (if you’re creating something), raising capital, finance, legal matters, etc. One of the first things you need to look at when starting a business is simply the amount of money it’ll take to get the business off the ground. For many people, it can be difficult to come up with or raise the initial investment needed to start a business from scratch.

    Let me be clear here, I’m not advocating against anyone starting a business or anyone building a new company at all. I’ve conceptualized at least 15 or so different business ideas and was able to bring a handful of them to life, although many didn’t get off the ground or even go to market for that matter.

    I think all entrepreneurs, at some point in time, should get their hands dirty in creating something from scratch. I think most will probably conceptualize an idea or two that they want to take to market because it may be the next greatest “thing,” in their specific target marketplace, and they’ll have an awesome learning experience doing so — and some will inevitably achieve the success that they imagined they would.

    Related: 5 Reasons to Buy a Successful Business Instead of Starting a New One From Scratch

    The many benefits of buying a business

    With that being said, though, I think that the notion of buying an existing business may be a much better option both from a fiscal responsibility standpoint (and pragmatically, for that matter). When you buy a business, you’re acquiring a customer base, established systems and processes, potential assets (physical and digital) and much, much more!

    Another reason buying a business makes sense is that you can usually get it at a discount. This is because businesses often sell for less than their actual value, since the owner(s) may be motivated to sell quickly due to personal or financial reasons. And lastly, an existing business comes with an established reputation and goodwill, which can save you a lot of time and money in marketing and advertising costs.

    These factors alone can give you a significant advantage over businesses that are starting from scratch. But the key to success in purchasing a business is finding “the right business” to purchase. It’s subjective, I know, but there are some general frameworks that you can use to guide you and aid in your journey to evaluating and eventually closing on your first business acquisition.

    There are more businesses for sale today than there are buyers

    As you may or may not know, businesses for sale have grown exponentially in the last decade. There are many reasons for this, including the current state of the economy, retirement and quite a few others.

    Business owners are facing financial difficulties in some instances and are unable to continue operating their businesses. While it may not seem like a good thing, in a down economy, there is an opportunity for those looking to purchase a business. I’m not suggesting that it’s a time to take advantage of someone, but I am saying that you can acquire businesses for fair prices, in some cases, well under market value.

    There’s a significant cohort of business owners who are about to enter or seeking to enter retirement. They may not have family members or children to pass their business on to, so in some cases, businesses simply go out of business or cease to exist. Herein lies an opportunity, for you, as someone seeking to become a business owner.

    Related: 10 Questions You Must Ask Before Buying a Business

    It’s easier for existing businesses to generate cash flow

    Simply put, cash flow is the lifeblood of any business, big or small. It’s the money coming in and going out, and it needs to be managed carefully to ensure the business is healthy and profitable.

    It is generally easier for an existing business to generate cash flow than for a startup business or brand-new company. This is because an existing business typically has revenue streams from customers and other sources, while a startup or new company may not yet have any of those things. An existing business should be generating income through existing channels or specific sources that it currently employs.

    Increasing cash flow is just as important as reducing expenses when it comes to boosting profitability. A business can only grow if it has enough cash on hand to invest in new opportunities. Remember: Increasing cash flow is essential for long-term success in any business.

    You’re purchasing a proven model

    When you’re starting a business, one of the inevitable questions that you’ll be asking yourself is “How am I (or how are we) going to make money?” Fortunately, this isn’t necessarily one that you’re going to have to answer if you’re buying an existing business. Existing companies typically have proven revenue models. This means that they’ve successfully sold and continue to sell its products or services. The repeatability of this model is what you’re looking for when you’re purchasing a company.

    A startup business, on the other hand, may not have a proven revenue model because it has not yet sold its products or services. This can be due to a variety of reasons, such as the company being new and therefore having no track record, or because the products or services are not yet ready for market. Either way, a lack of a proven revenue model can be a major obstacle for a startup business.

    Related: No Big Startup Idea? No Problem. Here’s How to Buy a Business.

    There are many reasons to buy an existing business instead of starting one from scratch. Perhaps (as I’ve mentioned), the most compelling reason is that you’re buying a proven business model. The riskiest part of starting a new business is figuring out whether your business model will actually work and be profitable. With an existing business, you know that the business model works and that the business can be profitable.

    Hopefully, I’ve inspired you to jump-start your journey toward acquiring your first existing business! Remember, you need to completely educate yourself in business before you start trying to acquire them. There are inherent, built-in risks associated with business ownership that so many fail to recognize or understand. This isn’t meant to discourage you, it’s simply to let you know that the details really do matter in business, so don’t overlook them!

    David N. Peterson

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