In my previous article, I shared my thoughts on why entrepreneurship through acquisition (ETA) can be a more profitable, less risky path than building a startup.

We discussed the many options for buying a business as the baby boomer generation – which owns the majority of businesses across the US – is looking to retire and sell their companies to the next generation.

Once you decide whether to support your efforts through a research fund or self financingit's time to think about what kind of business you want to buy and how you can find and buy it.

Related: Do you want to start a business? Consider buying one instead – Here's why.

Where to start

The most important step is to determine which industry or market you are interested in or believe you can contribute significant expertise to.

If you are using one research fund structure, your options may be limited by the parameters set by your investors, as they will have opinions about the best targets, especially in areas where they are most comfortable.

If you're self-funded, the sky's the limit: You can look within your comfort zone or take a risk on a company that will stretch and challenge you, but may have greater financial returns.

Where to look

You might be surprised to hear that finding these new business opportunities can be challenging if you don't know where to look.

Here are some ways you can search for the best results.

1. Networking: If you're self-funded and focused on a particular industry or geography, you can look to your network to see what might be out there. There's no shame in opening your own LinkedIn rolodex and sensor extraction. Most people want to help, even if it's as simple as passing on the information they have.
2. Service providers: Accountants are usually the best source for off-market deals since they are most familiar with business owners' financial plans. If you can find an attorney with experience in this area, they can also be an excellent resource.
3. Regional investment banks: The sole purpose of this group of financial institutions is to help prospective entrepreneurs find businesses to buy. Initially, you can only use agreements approved by others. Build relationships to see deals before others.
4. Direct contact: This is your place proper care skills come into play. As it turns out, you are identifying and calling businesses directly to ask about their status and if they might be interested in selling. It's effective, but it takes a lot of time, and you're also talking to people who might be looking at other searchers.
5. Industry associations/groups: This method is best suited for industry-specific research. You can contact the leaders of the associations or the network within the group.

Related: 63 small business ideas to start in 2024

What you should look for to buy a business

With so many options out there, it's hard to narrow down your search.

I recommend looking for opportunities in more traditional industries such as PROdUCERindustrial services or even IT businesses serving traditional sectors. You'd be surprised how many profitable companies you'll find here that people tend to overlook.

You'll want to investigate industries that interest you and those with strong growth potential that you can unlock by bringing your skills to the table. If you have previous experience, this is even better, as you will be better able to understand market trends and map the competitive landscape.

Discovering valuable details

Unfortunately, your search becomes more difficult as you select your company of interest.

You can get most of the high-level information you need by logging into one divided. This usually includes revenue numbers, growth, profitability, number of employees and valuation range. The process includes contacting the business, an inbound call to gauge interest, signing an NDA, raising finance, determining an estimate and submitting an LOI, conducting due diligence, drafting purchase documents and closing the deal.

Alternatively, you can set strict search parameters to find only businesses that meet your criteria. This will help you stay disciplined throughout the search process and avoid wasting valuable time on business owners who are just “testing the waters.”

Possible search parameters can include specifics EBITDA target multiples or valuations, growth levels, specific assets, debt levels or any other valuable data points.

Key Person Risk

If you are satisfied with the financial position, it is time to investigate the business operations and assess the strength of the management team.

Key person risk is the most significant threat in buying a small business. Many businesses cannot function without a CEO or someone on the executive team. Often, the CEO is the primary relationship keeper for suppliers, customers, and others. So when they leave, those key relationships may do the same.

You should try to identify this as soon as possible, so that you do not waste precious time only to find out that there is a lot of danger for the main person.

Related: 7 steps to start a small business

Understanding the company and its people

This is also a great chance to see what aspects of their current operation are working, what isn't, and what new ideas you might be able to implement that can build on the foundations of the business.

Take time to understand people and culture. Do the values ​​and vision of this company match yours? Are they even close? It's not wise to buy a company you don't believe in, even if the business is vital.

Work closely with owners to understand the motivations and morale of their employees. Spending this time can give you a good sense of the culture.

Financing potential deals

Once you're satisfied that you have the best company lined up for purchase, it's time to secure the proper funding to bring it home.

If you've gone the search fund route, now's the time to talk to your investors about putting some money into the deal. In 90% of cases, it will be a combination of the investor own capital plus credit. If you're considering loans, talk to loan officers or bankers before you find anything. Find out how they sign and what they look for, so you know how much you might owe if you find something in their parameters.

Like many entrepreneurs, you can invest your own finances in the purchase or borrow from family or friends to help you get started in the short term.

What's next?

With your research complete and your purchase complete, it's time to focus on the next phase of your ETA: transfer of ownership and running the business as your own.

In my next article, I'll outline the critical factors of a smooth transition and how to make sure it goes well for you, the previous owner, and the company. We'll also consider how to approach running this new business the way you want, while still honoring the legacy you've inherited.