1: Select a Business

*Note: This page is only applicable to individual buyers.

Summary of the Process

Below, we discuss the importance of acquiring a business that matches your interests and skills. We also offer tips on minimizing risks and making the leap when you find a business you like.

Strategically Minimize Risk

Consider the following strategies to minimize risk when selecting a business:

Capitalize on Your Previous Experience

If you possess industry knowledge and skills related to the business you are considering, your learning curve will be shorter, which saves time and limits risk. But, your knowledge can become a handicap if it prevents you from delegating. You should focus on working on the business rather than in it. For example, if you have a background in construction and you acquire a construction-related business, you may spend the majority of your time in the field on jobs as opposed to building and marketing the business. Leverage your knowledge to maximize the value you provide to the company, such as in sales or marketing. You should also be willing to delegate routine tasks that don’t directly contribute to generating revenue and that can be adequately performed by staff.

Leverage Your Existing Skills

Some skills are transferable to other industries. You can minimize risk by targeting a business in which you leverage your existing skills instead of moving into an industry or business where you must acquire new skills.

Focus on Your High-Value Skills

It’s often ideal to focus on performing tasks that generate revenue. Revenue-generating skills are in high demand and come with a high price tag – generally, they’re related to sales, marketing, or networking. You’re more likely to be successful in a business where you have – and love performing – the skills that directly contribute to success.

Maintain a Financial Cushion

If you’re capitalizing the business with debt, it’s wise to maintain a moderate financial cushion in the event of a downturn. This includes emergency funds and a strong debt-coverage ratio. A healthy debt-coverage ratio varies, but the wider the gap between the business’s monthly cash flow and your debt payments, the lower the risk and the more likely you’ll be able to weather unexpected events.

Pursue Your Passions

It’s ideal if the business you’re considering operates in an industry you are passionate about. If you are passionate, it’s more likely you’ll be willing to see it through when the going gets tough. Suppose you’re a former food scientist considering a business in the food processing industry versus one in logistics. If the food company hits a rough patch, your passion will more than likely give you the confidence and buoyancy to persist.

Balance Risk and Opportunity

Consider the following tips to balance risk and opportunity:

Mitigate, Don’t Eliminate Risk

Your goal as a business owner should be to mitigate risk, not to eliminate it. If you prioritize security, you may sacrifice the freedom and opportunity that often accompany risk. Being an entrepreneur is inherently risky – you must be prepared to accept uncertainty in any business in which you choose to invest.

Embrace Risk to Capitalize on Opportunity

First-time business owners may be more averse to risk than experienced ones. Experienced entrepreneurs may be more accustomed to making decisions based on “gut feelings” or incomplete information. There’s no perfect business – as an aspiring business owner, you must learn to embrace both the opportunities and the risks.

Face Your Fears and Take Calculated Risks

Buying a business comes with an unavoidable degree of risk and, therefore, uncertainty. Some buyers are willing to face their fears and make the leap despite this. Others become immobilized and are never able to take the plunge.

Face Fears Head-On

Fear is the biggest obstacle for would-be entrepreneurs. A successful entrepreneur must learn to deal with uncertainty and make judgments without knowing what the future may bring. Entrepreneurship is not about eliminating risk but rather learning how to face and manage it head-on, which includes learning to make decisions based on conflicting or limited information.

Realize There’s No Perfect Business

At some point, the time and energy you spend searching for the “perfect” business or conducting due diligence will lead to diminishing returns. After all, the resources spent looking for the “perfect” business could be used to improve an “imperfect” one. After all, imperfect businesses can be improved, and this offers entrepreneurs the opportunity to learn, grow, and do better the next time.

Lost Opportunity Cost

What’s the cost of delaying your decision by one year? If you become immobilized by your fears while searching for a business and hesitate to make decisions within a reasonable timeframe, you may struggle as an entrepreneur – not to mention risk losing the company that caught your eye in the first place.

Acquiring a Business is a Reversible Decision

Your decision to acquire a business is reversible, and you can sell a business later if you find it isn’t an ideal fit. If you maintain revenue and profitability, you’re unlikely to experience a significant loss when you sell. You could buy a business, run it, then sell for a profit in the same amount of time it takes another buyer to “watch the market” and “plan the perfect time to jump.” The knowledge and experience you acquire during this process can also allow you to proceed more intelligently the second time around.

Entrepreneurship is a Journey, not a Destination

Some people attempt entrepreneurship and ultimately decide it’s not suitable for them, and that’s fair. Your entrepreneurial journey allows you to learn and grow, and the sooner you begin, the sooner you can decide if entrepreneurship is for you.

Discover Yourself

Becoming a successful entrepreneur isn’t solely about outcomes. It can also be about discovering who you are and who you’re capable of becoming. A major benefit of buying a business, even if you ultimately decide entrepreneurship isn’t for you, is that you won’t wonder what “might have been.” You took a chance, learned something valuable, and can choose to return to your previous career.

Learn From Experience

“Success is not final, and failure is not fatal: it is the courage to continue that counts.” – Winston Churchill

The biographies of successful entrepreneurs reveal a consistent pattern. Often, they experience a winding, stop-and-go rollercoaster ride to success, filled with ups, downs, and everything in between. But the trajectory inevitably trends upward over time. Think of it like the stock market’s performance over time – lots of peaks and valleys with an upward trend in the long run. To become a successful entrepreneur, you must realize that you will make many mistakes along the way. The quicker you make mistakes, the quicker you will learn and master entrepreneurship.

Learn from Mistakes

Entrepreneurs learn from their mistakes and become more savvy as a result. Their outcomes improve, and they emerge as more successful entrepreneurs. This knowledge builds cumulatively until the entrepreneur reaches peak effectiveness, accomplishing goals with greater ease. The key is to learn from your mistakes and start smarter and stronger after each miscalculation. Unfortunately, this judgment can only be learned the hard way — through experience. Computer scientist Jim Horning put it best. “Good judgment comes from experience. Experience comes from bad judgment.”

Learn from Leaders

Reading biographies or autobiographies of successful business people, such as those listed here, can offer you insights and inspiration. You’ll notice a common pattern on the road to success marked by unpredictable peaks and valleys. The road to success is never smooth. Ponder the journeys of the following successful people:

• John D. Rockefeller – Dropped out of high school before becoming the world’s first billionaire
• Sam Walton – Founded Walmart after losing the lease on his Ben Franklin store
• Warren Buffett – The world’s most successful investor’s holding company, Berkshire Hathaway, started out under Buffett’s ownership as a failing textile business
• Oprah Winfrey – Attributes her success to lessons learned from a traumatic early life
• Ray Kroc – Struggled as a milkshake machine salesman until hitting it big with McDonald’s in his early 50s
• Bill Gates – Says his failure to develop an Apple competitor, Android, cost Microsoft $400 billion
• Jack Welch – Went through numerous setbacks while growing GE from a $14 billion company in 1981 to a $410 billion company by 2000

I’ve learned that mistakes can often be as good a teacher as success.