Recently, I had the opportunity to attend a working lunch with a business professor at East Carolina University to help shape topics and curriculum for first-time business buyers. This initiative is designed to support retiring and transitioning military professionals across eastern North Carolina as they explore entrepreneurship.
As a proud Pirate, I love giving back to my alma mater, but I’m equally passionate about helping the next generation of business owners. This experience reminded me of the many conversations I’ve had with aspiring entrepreneurs over the years. Often, they approach me with excitement, followed by similar questions:
- “Where do I start?”
- “How do I find the right business?”
- “How do I buy it?”
- “How much will it cost me?”
One thing I always emphasize: Buying your first company is a big deal. It requires preparation, strategy, and a clear vision.
The Reality of Business Ownership
Owning a business is challenging. Consider these statistics:
- Of the 33 million small businesses in the U.S., only 7% reach $1 million in revenue, and just 4% grow to $10 million.
- 65% of businesses won’t exist in 10 years.
- Only 40% of businesses are profitable.
The real question isn’t whether you can succeed in a booming economy—it’s how your business will perform during downturns, pandemics, or other disruptions.
If you’re considering business ownership, here’s my blueprint for success:
1. Start with Self-Reflection
Before entering the market, take a step back and evaluate yourself. Draw three columns on a piece of paper and list the following:
- Skills: What are you naturally good at—sales, finance, operations, or leadership?
- Passions: What industries excite you? What gets you out of bed in the morning?
- Market Alignment: Where do your skills and passions intersect with market opportunities?
This exercise ensures you target businesses where you can add value and stay motivated. Success often follows when your work aligns with your strengths, interests, and experiences.
2. Build Your Deal Criteria
Define your “buy box” — your ideal target business. Consider:
- Revenue and EBITDA size. (Tip: Reach out to an SBA lender and get pre-qualified to know your budget.)
- Industry and location.
- Growth potential and competitive position.
A clear buy box ensures you evaluate businesses aligned with your goals and financial capabilities.
3. Leverage Financing Options
Financing your first acquisition doesn’t have to be overwhelming. One of the first steps I recommend is exploring a Small Business Administration (SBA) loan. SBA loans offer favorable terms and lower down payments (usually 10% of the selling price), making them ideal for first-time buyers. A pre-LOI SBA loan pre-qualification letter enhances your buyer profile.
Other financing options include:
- Seller Financing
- Equity Partners
- Conventional Bank Loans
- Revenue-Based Financing
- Earnouts
As a rule, first-time business owners should aim for a 2-to-1 debt coverage ratio—spending no more than half of a business’s earnings on debt service. This financial cushion provides stability during tough times.
4. Master Due Diligence
Once you’ve found a business you want to acquire, it’s time to negotiate the price and establish a letter of intent (LOI), which outlines the terms of the deal. Consider hiring an attorney to review the paperwork, including non-compete agreements, leases, and closing documents. In addition, build a deal team consisting of an M&A advisor, CPA, and other trusted experts to conduct due diligence. Key areas to evaluate:
- Financials: Verify revenue, expenses, and profitability. Watch for one-time anomalies and trends.
- Operations: Assess leadership, processes, and scalability.
- Customers: Understand the customer base and retention rates.
- Risks: Identify liabilities such as legal disputes, customer dependency, supply chain vulnerabilities, and real estate issues.
Due diligence protects you from surprises and ensures you’re acquiring a stable, scalable business, reducing your risk.
5. Transition and Growth
Closing the deal is exciting and worth celebrating—but it’s just the beginning. The weeks after closing will be intense, filled with learning and relationship-building. You’ll be pulled in many directions, but focus on these priorities:
- Retaining key employees.
- Strengthening customer relationships.
- Identifying quick wins to improve efficiency and margins.
The actions you take within the first 90 days set the foundation for long-term success, positioning the business for growth and aligning it with your vision.
When carefully planned and executed, buying a business can lead to success and build generational wealth.
Visit WilmingtonBiz to see the article there.