Entrepreneurship Through Acquisition (ETA) is a business strategy where individuals or groups acquire existing small to medium-sized enterprises (SMEs) to manage and grow them, rather than starting new ventures from scratch.
This approach offers a strong path to business success by taking over established businesses with proven cash flows, customer bases, and operational structures.
Key Aspects of ETA:
- Acquisition Focus: ETA involves purchasing an existing business, allowing the entrepreneur to bypass the challenges, risks and uncertainties associated with start-ups.
- Operational Involvement: Post-acquisition, the entrepreneur typically takes an active management role, implementing strategies to enhance and expand the business.
- Financial Structure: Acquisitions are often financed through a combination of buyer’s equity and external funding such as SBA loans. We can provide the financing for the business acquisition.
Trends and Insights:
- Demographic Shift: A growing share of seasoned professionals pursue the ETA path to business ownership. Experienced managers often have the necessary capital and expertise to successfully acquire and run a business.
- Investment Criteria: ETA entrepreneurs prioritize businesses with stable demand, recurring customers, and a good potential for growth. These criteria help to select companies that offer a solid foundation and opportunities for value addition.
- Economic Impact: ETA plays a significant role in economic revitalization by facilitating the transition of businesses during ownership changes, especially in cases of retirement or succession issues. ETA ensures continued operations, preserves jobs, and stimulates economic growth.
Entrepreneurship Through Acquisition (ETA) provides a good alternative to traditional start-up entrepreneurship. It enables individuals to acquire existing, profitable businesses to achieve success. An existing successful operating business is more likely to continue to succeed and grow in the years after acquisition with continued good management.
The continuing retirement of the Baby Boomer generation is set to significantly impact the business landscape, particularly concerning Entrepreneurship Through Acquisition (ETA). As Baby Boomers – individuals born between 1946 and 1964 – reach retirement age, a substantial number of the small to medium-sized enterprises (SMEs) they own are becoming available for acquisition.
Key Statistics:
- Business Ownership: Baby Boomers own approximately 2.3 million small businesses in the United States, accounting for a significant portion of the nation’s SMEs.
- Retirement Wave: An estimated 10,000+ Baby Boomers will retire daily in 2025 and the years following. That retirement trend is expected to continue, leading to a steady number of businesses of all types for sale.
- Economic Impact: The anticipated sale or closure of these businesses could affect up to 1 in 6 employees nationwide, underscoring the importance of successful ownership transitions.
- Transfer to 2nd Generation: Only about a third of small to medium-sized enterprises (SMEs) transfer to the 2nd generation. Most SMEs are either sold or closed down. There are many opportunities out there to find and buy an existing successful SME. Let Trust Financing Solutions work with you to find and finance your business acquisition.
Opportunities for ETA:
The “Silver Tsunami,” a term describing the mass retirement of Baby Boomers, presents a unique opportunity for aspiring entrepreneurs:
- Established Enterprises: Acquiring existing businesses allows entrepreneurs to bypass the challenges of starting from scratch. You get established customer bases, brand presence, business systems and cash flows.
- Favorable Market Conditions: With the high number of businesses in the market for sale, buyers can find good matches and favorable terms and valuations.
- Knowledge Transfer: Retiring owners often provide mentorship and support during the transition, offering valuable industry insights.
Challenges to Consider:
- Valuation and Financing: Determining fair valuations and securing financing can be complex, especially for smaller transactions.
- Succession Planning: Many Boomer-owned businesses lack formal succession plans, necessitating careful planning during acquisition.
- Industry Dynamics: Understanding the specific industry and market conditions is crucial for a successful transition.
The retirement of Baby Boomer business owners is creating a substantial inventory of SMEs available for acquisition. This offers a promising opportunity for entrepreneurs to buy an existing successful business. ETA enables the business buyer to take the reins of an established business and continue that legacy of success.
Rather than face the high risks of trying to create a business from scratch, ETA permits the buyer to take the ownership – and the cash-flow – of an existing operating business that has already successfully established its operations, customers, market presence and business systems.
Trust Financing Solutions can provide the financing for ETA, from buying the business to providing that critical Working Capital loan needed to transition the operations to the new owner.
Call us and let’s get to work together.
#EntrepreneurshipThroughAcquisition #SilverTsunami #BusinessSuccession