Entrepreneurship by Acquisition - Part 1

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.

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Contact Cecil Williams

 For more information call me at 888-925-5055 ext.206