Around the Web: A Week in Summary
A recent article from the M&A Source entitled “Gold Rush: New Entrepreneurs Seek Search Funds to Finance Takeovers of Baby Boomer Businesses” explains how new entrepreneurs are looking for funding to take over businesses as the baby boomer generation starts to retire. There is currently an entrepreneurial generational gap with far less young entrepreneurs than there are baby boomers looking to sell. Healthy financial trends paired with recent tax reforms have contributed to making ideal conditions for the new generation of small business owners.
This new generation of entrepreneurs is coming from recent MBA graduates who are choosing to acquire a business instead of heading to Wall Street. Most notably, they are doing things differently when it comes to financing by turning to the search fund model which is seeing unprecedented growth as of late. This process known as entrepreneurship through acquisition (ETA) is also becoming increasingly popular in business schools which are now offering ETA programs.
It is believed that this trend is going to continue and that the timing is right. More schools are increasing awareness about it and the model will get easier as more baby boomers retire and sell their businesses. As more big money sources see this model gain popularity, there will be more money to support this growth as well.
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A recent article posted by Chase.com entitled “Prepare your business for the next generation” gives three strategies to use when succession planning for a family business.
- Teach skills and explore interests – Start teaching your family members the skills and operations of the business early on such as having high school-aged kids work at the business during the summer. This way they learn and see how the business operates. This will also help you to see if they have the interest and the skills needed to run the business in the future.
- Establish policies early on – To avoid tension between family members, create formal rules around ownership decisions and how profits will be shared. The sooner you do this, the less likely it is to cause any disagreements later.
- Avoid blame – Bringing in an outside manager or selling to a third party is also an option and this can help avoid blame between family members. You have to do what works for the family and the business, even if it means selling to a third party.
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A recent article on the CBB blog entitled “Buying a Business – Make Your Acquisition A Good Investment” describes the importance of future growth potential when buying a business. Many people tend to focus on historical performance of the business but the key is too look at what the business could be capable of under new management. A successful acquisition depends on how much you can improve the business and generate a premium on your investment.
There are several factors to consider when determining the potential of a company, such as if there is a certain skill set that current management is lacking, are there additional markets to be pursued, will demand for the product or service grow, or would additional hires impact growth? Having a clear view of the future for a business is one of the most important insights you can use for making a good decision when it comes to acquisitions.
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