Why buying a business could be your smartest path to entrepreneurship

While both approaches offer hope to the aspiring entrepreneur, starting a business comes with some hard truths:

• the need to raise large amounts of capital
• a high rate of failure

Guillaume Bédard, Senior Client Partner, BDC Advisory Services, says Canada is not looking enough at an essential alternative to the start-up. He says aspiring business owners would be better off opting for entrepreneurship through acquisition (ETA).

“We’ve spent quite a bit of energy as a country promoting the start-your-own business model,” says Bédard, who is also Chair of the external advisory committee of the Hunter Hub for Entrepreneurial Thinking at the University of Calgary and board member of the Opportunity Calgary Investment Fund (OCIF). “The common misconception is that you have more credibility as an entrepreneur if you start from the ground up.”

But Bédard believes start-ups have been put on a pedestal.

• Start-ups require substantial funding: Many of them turn to venture investors, who demand rapid growth—an expectation that most start-ups struggle to meet. Venture capital focuses on scaling quickly, which differs from the steady and sustainable growth required for long-term success.
• ETAs can provide ideal training: Most retiring business owners (the primary source of ETAs) want to protect the legacy they built and are often keen to mentor those looking to buy them out.
• ETAs offer more sustainable growth with less risk: Entrepreneurs are entering a company that has cash flow, a relationship with its bank and a client portfolio.

What is entrepreneurship through acquisition?

ETA means buying an existing business instead of starting one from scratch. The new owner usually takes over (often from a retiring founder) and works to improve and grow the company. These businesses are frequently small or medium-sized, and the buyers are often individuals looking to become entrepreneurs by acquiring existing businesses.

The model of the ETA was pioneered at the Stanford Graduate School of Business in 1984. That model sees investors providing capital for an entrepreneur to locate, acquire, manage and grow a privately held company. It provides a path to management for individuals with limited capital. The ETA is often used when no one from the inside is ready to take over.

That path to ownership from the inside is known as a Management Buyout (MBO). That’s where a group of employees pool their funds, often seeking some form of outside investment to help cover the entire price of the sale.

Why aspiring entrepreneurs should consider an ETA or MBO

Bédard says that buying a company as an insider or a group of employees is a valuable option, even if they sometimes lack the confidence of the company’s founder.

“While employees may not always see themselves as the owner, they know more than they realize from having worked in the business. Plus, they already have a relationship not only with the owner but also the clients and suppliers, which helps during the transition period.”

Devesh Dwivedi, Lead Business Advisor for BDC Advisory Services, sums up the advantages: “Buying an existing business gives entrepreneurs cash flow, customers and proven operations from day one. That makes it a lower risk, higher impact path than starting a business from scratch.”

Some of the advantages of an employee ownership structure or an individual being mentored by a founder include:

• Higher engagement and performance: Employee-owners are more motivated, accountable and productive because they directly benefit from the company’s success.
• Continuity and long-term stability: The business retains its people, culture and relationships, enabling smoother succession and sustainable decision-making.
• Shared wealth and aligned interests: Profits and value growth are shared among employees, reducing conflicts between labour and ownership, and improving retention.
• Community and local benefits: Jobs and profits stay local, strengthening the company’s resilience and its positive impact on the surrounding economy.

Considerations for recent graduates

Dwivedi recommends that those who aspire to become entrepreneurs first gain practical experience in the industry they wish to enter.

He shares an example of a business owner’s son who, after completing his finance studies, returned to his family’s machine shop. Working alongside his father, he helped acquire and merge other shops. By combining his business expertise with hands-on industry knowledge, he played a key role in growing the family's company.

Strategic uses for existing businesses

Laura-Lee Brenneman, Business Centre Manager for BDC’s Ottawa mid-market financing team, explains that ETAs in particular, and mergers and acquisitions, in general, serve not only as a pathway for aspiring entrepreneurs to acquire their first business, but also as a means for established companies to expand and diversify their operations.

For example, businesses use ETAs to:

• Gain more control over a supply chain (especially due to overseas disruptions and U.S. tariffs).
• Secure skilled labour (e.g., by buying a machine fabricating shop).
• Access new products or markets.
• Improve margins or reduce costs.

Brenneman emphasizes that the goal of acquiring a business should be to amplify your cash flow. “You’re looking at getting access to new products or new geographies, or maybe to improve your margins or reduce your costs because you’re acquiring an entity along your supply chain.”

What are the advantages of ETAs?

1. Lower risk than start-ups

Starting a business from scratch is risky. According to statistics gathered by Made in CA, over one-fifth of small businesses fail within their first year, with about half making it to the five-year mark.

ETAs are different because you’re buying an established business. That means less uncertainty and fewer surprises. “An existing business has proven revenue, customers, a team and cash flow. All of the start-up uncertainty is already dealt with,” says Dwivedi.

2. Less financial stress

Start-ups often struggle to find money. “When someone starts a business, they really have to solve the capital problem,” Dwivedi says, adding that securing that money naturally increases their debts.

Buying an existing business is easier because it already has cash flow and profits. Some financing can be structured as corporate debt. Plus, sellers often help by lending money through vendor financing (also known as vendor takeback), acting like a bank for the buyer.

3. Many businesses to choose from

The high number of businesses with older owners retiring and seeking buyers has put ETAs at the centre of a massive generational wealth transfer. According to a 2026 BDC study, 61% of small- and medium-sized businesses are led by owners aged 50 or older, and almost one in five plan to exit within five years. This demographic shift represents more than $300 billion in revenues by 2030.

4. Safer from obsolescence

Dwivedi notes that buyers are choosing hands-on businesses, such as car washes, HVAC companies and plumbing firms, because they’re unlikely to be replaced by AI. 

Even so, the ETA process often introduces new technology—and added value—to aging businesses, like switching from handwritten invoices to an ERP system.

5. A smoother integration in some cases

Transitions are smoother when buyers already know the company, such as in family transfers or management buyouts, says Brenneman. “They know the customers, the market and the operations of the company. When you have people with intimate knowledge of the business, the integration is almost seamless.”

Bédard recalls his own experience, which echoes Brenneman’s view. “Before joining BDC, I worked for a company whose founders decided to sell to a private equity fund and pursue a new venture,” he explains. This decision hurt morale, leaving employees feeling abandoned.

But Bédard and his colleagues soon saw another option. “We tried to persuade the owners to consider an offer from us, the employees, in the form of an MBO. Since we were already involved in the business, it would have been less risky.” But management turned them down, hoping for a higher bid from private equity. "Not long after, the team spirit was gone,” Bédard reflects, wondering if the company might have fared better with an employee-led MBO.

How do ETAs work?

The search fund and the CEO

Many ETAs start with a search fund. This means a group of investors hires and invests in a CEO who finds a business to buy, with the group acting much like a private equity firm. If the deal goes through, the CEO, as well as the investors, end up owning shares of the company.

“This way, you’ve solved the capital problem. But you’re now, as CEO, the one they’re betting on,” Dwivedi says. He makes the point that the CEO should have experience in that specific industry or, in some cases, be a generalist who is good at adapting to a new industry.

Finding the right business

Dwivedi lists a series of categories that you need to decide on when looking for the right business to acquire:

• industry
• business sector
• deal size
• location
• your fit with the company 

The letter of intent

Another part of the ETA process is the letter of intent. It’s an indication that you’re interested, and you’re signing a form of exclusivity so that the company can openly share the confidential information with you.

Due diligence

Due diligence is an important step, says Dwivedi.

“This is where the seller is sharing more information with you as the buyer about financials, their operations, legal affairs, taxes, commercial leases and HR. It’s done so that you can figure out this company’s value: what working capital is required, what the risks are, and what some of the covenants are that you need to put in place. All that can be found through due diligence.”

What are the differences between acquisition and ETA?

Financing your ETA

Brenneman explains that when you buy a business, part of the price is for tangible assets, such as land and equipment. However, a significant part is “goodwill,” which encompasses the value of people, know-how, patents and customer lists.

There are different ways to finance an ETA:

• Secured loans for land and buildings (like a mortgage).
• Short-term loans for goodwill and working capital.
• Vendor notes in which the seller lends some money—BDC treats these like equity, not extra debt.

Start financing talks early

The sooner you understand your options, the better prepared you’ll be. You can work directly with lenders or through advisors such as brokers or accountants.

Lenders like BDC prefer that clients talk to them early in the process, to help understand what financing is available.  They can be contacted by the entrepreneur directly or by a broker, accountant or some other form of advisor who is working with the buyer.

The lender sits down with the buyer and helps them understand what an optimal financing structure could look like, including secured lending against the real estate, which is a mortgage for the building. BDC, for example, offers secured lending against the equipment.

BDC offers unsecured lending, as well. When it’s a cash flow loan, there’s no hard asset supporting that debt. The Bank can offer the unsecured lending to support the purchase of the goodwill.

What do lenders look for?

• The buyer must be able to afford the debt.
• The business must generate enough cash to cover payments. Expect lenders to review your financial statements for the past five years.

What buyers should find out

Does your lender require personal assets as collateral? Do they recognize vendor notes as equity?

Keep in mind that ownership transitions often miss first-year targets, so choose a lender that offers flexibility if things don’t go as planned.

To finance your ETA, you can do secured financing to acquire the land and the building, and financing with a shorter amortization period for the goodwill or the working capital.

On a management buyout or an intergenerational transfer, the vendor will hold some debt, referred to as vendor notes. BDC, for example, considers vendor notes as a form of equity, while other banks consider them to be additional debt.

The client and the company need to be flush

Banks are looking to maximize the contribution from the buyer. They want to make sure that they can afford the debt. The existing company, for its part, needs to cover the interest and principal. Banks will look back into its finances, usually up to five years.

They also consider vendor notes equity and will not look to collateralize loans with personal assets of borrowers.

BDC’s flexibility

According to BDC, 85% of ownership transitions do not meet their forecast in the first year after the transition. If that does happen, BDC is a patient lender and is committed to the lifetime of the loan. The chartered banks, on the other hand, are committed to the term of a loan.

If you’re making your payments and if you’re actively working with BDC to work through a challenging situation, the Bank is committed to working with you through that time.

Contact experts

Contact your bank early to ensure the deal is viable. Surround yourself with experts, such as advisors, accountants, and legal professionals, and involve them from the start.

Next steps

BDC can partner with you to help you find the right loan. Check your eligibility by logging onto our page, Prepare for the next chapter in your business.