Starting a Business: Acquiring Small Businesses with Existing Managers

If you have the capital or can secure financing, one approach to starting a new venture is by acquiring an established business. Particularly, obtaining a franchise with a current operating manager and staff can be a viable strategy. This article will discuss various methods for identifying and acquiring such businesses, as well as providing insights into the benefits and strategies associated with this approach.

Identifying Opportunities

If you're considering purchasing a small business that already has a functioning management team, you have several routes to explore. For instance, you may find a franchise that is currently managed and staffed. In some cases, the current owner may be looking to unload the business due to retirement or other personal reasons.

Another option is to cooperate with business brokers who specialize in connecting buyers with operating businesses for sale. These brokers can help you navigate the marketplace and find a suitable match that meets your criteria and financial capabilities.

Investing in Business Development Companies (BDCs)

A valuable alternative is to invest in Business Development Companies (BDCs), which are publicly traded entities that focus on financing and investing in small and mid-sized private businesses. By purchasing shares in a BDC, you can gain instant exposure to a portfolio of multiple operating small businesses. The Securities and Exchange Commission (SEC) provides a list of 14 BDCs, which you can access here.

BDCs provide you with an efficient way to expand your portfolio of investments and diversify your risk, as you aren't solely reliant on the success of a single business. Additionally, you can study the strategies of successful BDCs to learn how they assess and acquire businesses. This knowledge can be invaluable as you make your own investment decisions.

Selecting the Right Business Type

A good rule of thumb when making an investment is to invest in what you know. This strategy can help you manage risks and minimize the learning curve. For example, if you have a background in real estate, purchasing an apartment building with an existing manager in place could be a prudent choice.

Moreover, there are certain types of website businesses that can operate as automated businesses, such as online information sales or course subscriptions. These businesses require minimal hands-on management and can generate passive income, making them attractive to investors focused on stability and scalability.

Conclusion

Acquiring a small business with an existing management team can provide a robust foundation for your entrepreneurial journey. Whether through direct acquisition or investment in BDCs, you have several strategic options to explore. By understanding the benefits and risks associated with these approaches, you can make informed decisions and increase your chances of success.

Remember, the key to a successful business acquisition or investment is thorough research, understanding the industry, and making well-informed decisions based on your expertise and financial preparedness.