Entrepreneurship Through Acquisition

You don't need to start with a brand new idea. You don't need to reinvent the wheel. To be an entrepreneur, all you need is a business.

Entrepreneurship Through Acquisition (ETA) has been gaining popularity, so much so I took a new full course at business school on it this past year. It allows people with the entrepreneurial mindset to skip the guessing of building a startup and buy a working, profitable business.

I genuinely believe now is the best time to do so. The small business owner/operator population in the US is aging rapidly. Every year thousands of small businesses go up for sale or close down because the owners do no have any succession plan. These are great business opportunities that more people looking to escape the 9-5 or become entrepreneurs should consider.

My favorite entrepreneur is Brad Jacobs. He's built multiple billion dollar businesses doing this on a much larger scale (United Waste Systems, United Rentals, XPO, GXO Logisitics, RXO, QXO).

His strategy is simple:

• He chose industries that were fragmented, meaning lots of small operators with no dominant player.
• He bought businesses that were already making money.
• He integrated them and improved operations across the platform.
• Then he scaled organically and through more acquisitions.

Private equity has created billionaires doing very similar industry roll-ups. 60% of all US car washes are private equity owned.

Now obviously these guys have a ton of capital to use but lets look at how this could be done at a much smaller scale.

Example:
A real window cleaning business for sale on BizBuySell has $200,000 EBITDA asking $400,000 (2x EBITDA multiple)

Here's how you could structure the deal to strategically and intelligently minimize your upfront capital and maximize cash flow.

Buyer Cash 10%- $40,000

Seller Financing 10% – $40,000

SBA 7(a) Loan 80% – $320,000

SBA Loan

Term: 10 years

Rate = roughly 10.75%

Annual Debt Service = $52,300

Seller Note

6% interest

Standby / No payments for 24 months (SBA standard)

Then ammortized over 5 years

Year-1 Cash Flow

Operating Assumptions (Conservative)

EBITDA Growth- 3%

No multiple expansion (2x)

Business remains owner operated

EBITDA Projection

Ok lets say after year 5 you want to exit and do something else

Exit multiple of 2.25x

Exit price = 231,855 * 2.25 = $522,000 (rounded)

SBA Loan Balance

Starting: $320,000

Ending: $205,000

Seller Note

Fully paid off year 7 so year 5 balance around $15,000

Total debt at year 5 = roughly $220,000

Net Exit Proceeds

Total Return Summary:

Cash invested: $40,000

Cash out: Annual FCF 147,700 * 5 = $738,500

Exit proceeds: $302,000

Total Value to you: = roughly $1,040,500

Multiple on Invested Capital (MOIC)

26×

Now this all looks good on paper, but we all know in the real world shit can hit the fan fast. Hidden expenses, dependecy on current owner, cash flow problems, money needs to be reinvested to grow, taxes, exit issues, etc etc etc

But if you can find a good industry, find a small profitable business, do your due diligence, structure financing correctly, it is not impossible for people to buy small businesses and create wealth.

A lot of these calculations were "back on the envelope" but you get the point. Just a quick example to show what can be done