Entrepreneurship is often associated with the startup: an idea, a business plan and the work of turning something new into a viable company. But veterans interested in business ownership do not necessarily have to start from scratch.
Entrepreneurship through acquisition, commonly called ETA, centers on purchasing and operating an existing company rather than launching one. That can mean stepping into a business with customers, employees, operating expenses and infrastructure already in place.
The U.S. Small Business Administration points to those factors as potential advantages of buying an existing business. The trade-off is that buyers need to understand exactly what they are taking on.
Due Diligence
An established company comes with a history—and that history deserves close examination. The SBA recommends reviewing the full picture before purchasing a business, including contracts, leases, existing cash flow and inventory. Buyers should also investigate licenses, permits, zoning requirements and other factors that could affect operations.
Then there is the question of value. Several methods can determine what a business is worth, including approaches based on earnings, cash flow and assets. A thorough, objective investigation is critical before committing to a purchase. The SBA also recommends considering professional assistance from an attorney and accountant.
Buying a business can eliminate some of the work involved in starting one, but it doesn’t eliminate risk.
Financing the Deal
Financing is another major consideration. The SBA’s 7(a) loan program can be used for complete or partial changes of ownership, as well as for working capital, real estate and equipment. The maximum 7(a) loan amount is $5 million, although eligibility and the appropriate financing structure depend on the business and borrower.
Prospective owners should consider not only what they can afford to purchase but also the capital required to operate the company after the sale.
Veteran Resources
Veterans and military families interested in acquisition also have resources specifically geared toward this form of entrepreneurship. Owners In Honor, a nonprofit focused on veteran-connected business ownership and succession, provides education and resources for veterans, service members, military spouses and Gold Star families interested in acquiring businesses.
The organization is bringing that conversation to Southern California during National Veterans Small Business Week, Nov. 9-13. Its Acquisitions & Exits: Day Zero events are scheduled for Nov. 9 at UCLA and Nov. 10 at San Diego State University. The events introduce veteran and military-connected participants to business acquisition and ownership. For future events and information, visit ownersinhonor.org.
For someone who wants to become an entrepreneur, the first question doesn’t always have to be, “What should I start?” It may be worth asking, “What could I buy?”
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