Entrepreneurship
by Acquisition …..Planning Your Search
Part 1 – Develop your
criteria to utilizing in evaluating acquisition targets
Contrary to what most people believe, being an entrepreneur
is not just about making money, and is it not purely about starting, owning,
and running a small business to create value — it is a way of life and
alternative to the model of go-to-school, get-good-grades, and get-a-good-job. Entrepreneurship has historically been
defined as a process through which individuals identify opportunities, allocate
resources, and create value. This creation of value is often through the
identification of unmet needs or through the identification of opportunities
for change. But in this current economic with a dramatic decrease in consumer
spending, tight lending (or access to capital), budding entrepreneurs will (or
should) seek success by identifying opportunities for change with existing
businesses.
The current crop of new entrepreneurs, many because of the
dismal job market, will become an entrepreneur by buying a business, managing
that business, growing it, and they view this as a career decision in lieu of (or
better than) working for someone else.
Buying a business has always offered advantages over
starting one for seasoned professionals, but currently those advantages or even
greater. Some of those advantages are
- Proven concept, business
model, products or services in place
- Cash flow (and hopefully
recurring revenue) from day one
- An existing customer
base, contracts and, vendor relationships
- Existing staff and
management
- Transition of knowledge
from the seller (current owner) allows the buyer to learn about running
the business, which helps in gaining an insight about their experiences
and also the expertise needed to keep the business competitive.
- Brand or reputation -
existing goodwill is associated with the product/service, name and
location.
- Lenders or financiers
are more willing to lend money to an existing business with a track record.
If you’ve bitten by the entrepreneurial bug, you can either
start a business from scratch or buy an existing operation. However the risks
associated with starting a business from scratch, which has always been great,
are much more frightening during economic times like we’re now experiencing.
Developing Your Criteria
Your
first step in the buying process should be clearly defining the criteria you
will use to select a business. Write out these criteria, continually refine it,
and use it the screen businesses during your search. This will guide your
search process, save you time, and ensure you’re using an objective approach
(non-emotional) in your search process. Your criteria can be developed by answers
some questions concerning you and what you want in a business:
·
When
do you want buying the business?
o
Remember
if this is a goal is needs to be time specific
·
Why
are you buying a business?
o
Do
you plan to manage the business?
o
Do
you just want to be an investor?
o
Are
you buying a job or lifestyle?
·
What
factors about a business or industry are most important to you?
·
How
much revenue should the business be producing?
·
How
large of a company do you want to run?
·
How
important is the growth potential of the company or industry?
o
How
large of a market area and market potential is desired
·
What
is your price range for buying a business?
o
Complete
a financial statement on yourself, determine how liquid you are, identify your
sources of capital, and determine if you can leverage other sources of capital?
·
Determine
what industries you’re interested in and also indicate those you will not
pursue.
o
You
should first assess your background, skills, interests, and education.
Answering these
questions will result in a well defined criterion to utilize in screening opportunity
during your search.
Following is an
example of a well thought out criteria that a buyer actually used in a search
and also used it as a mailing to business brokers and small equity funds:
|
Joe Doe
1234
Anywhere Court
Somewhere,
Florida 33333
407-666-5555
I am focusing on identifying and acquiring a company in a mature,
preferably fragmented, non-cyclical industry.
It is my goal to acquire in the 2008-2009 timeframe and run the
company on a full-time basis.
The types of themes that I seek to evaluate include:
·
Scalable businesses
·
Recurring revenue, long-term contracts, and/or
stable customer bases
·
Sustainable profit
margins
·
Historical and
sustainable high margin cash flow, with minimal cyclicality
·
Businesses with distinctive market
positions/competencies
·
Ability to grow strong franchises, unique
distribution, or media brands
I am interested in evaluating profitable and growing privately held
companies that are currently being marketed, those with ownership expecting
to retire in the next twelve months (i.e., undergoing generational changes of
ownership), and any companies meeting my acquisition criteria that would be
receptive to an unsolicited offer to buy.
Although I do not seek severely distressed opportunities, I will consider
under-performing companies with identifiable asset such as:
·
An excellent product line or service
·
Technology enabled
·
Sound distribution network and customer base
·
Manufacturing know-how
·
Skilled workforce
·
Licenses, patents, or distribution agreements
While the current revenue of a company is not the only investment
consideration, the ideal target would generate revenues between $1 million
and $5 million serving an existing market in excess of $100 million. EBITDA margins between 8% - 10% and market/industry
growth should exceed 10%.
Existing management should expect to stay in place and can anticipate
intermediate transition terms with possible incentive based compensation
programs.
Pre-transaction valuation range (enterprise) will be between $1
million and $5 million and the target should have assets available for
financing.
I am focusing on companies in the following industries:
·
Marketing Services
·
Insurance Services
·
Business Services
·
Logistics and
facilities management
·
Distribution, and Light Manufacturing
Industries or companies that I will not consider include high
technology, telecommunications, broadcast media, real estate, restaurants,
and convenience stores. We also will
not consider start-ups, franchises, or early stage ventures.
I will only consider opportunities in Southeast United States. However, I am specifically interested in
opportunities in the state of Florida. I target my solicitation on business
brokers/appraisers, bankers, accounting firms, estate planners, financial advisors,
and a variety of other sources and may consider paying intermediary or finder
fees.
I am offering an excellent opportunity for those
business owners or investors who seek exit or liquidity strategies.
John B. Doe, MBA
(Bio attached)
Advisors:
Jane
Jones, Attorney, P.A.
132
Sands Avenue
Beach Life, Florida 33715
John
Smith, CPA
John
Smith & Company
111
Circle North
Sailing,
Florida 33716
|
Whether working with me to buy a business in Florida, or
leveraging the skills of another professional, putting time in to developing an
evaluation criterion should be a buyer’s initial step in their acquisition
process.
For a complimentary consultation
For more information call me at 888-925-5055 ext.206
