Thinking About Entrepreneurship Through Acquisition? Ask These 3 Questions Before You Buy Any Business

Most people pursuing Entrepreneurship Through Acquisition (ETA) believe the hardest part is finding the right deal.

It isn’t.

The real challenge is understanding what you’re actually buying—especially the risks that don’t show up in financial statements.

ETA buyers are usually strong analytically. They know how to normalize EBITDA, evaluate add-backs, and model downside scenarios. Where many first-time buyers struggle is evaluating operational risk: the real-world consequences of owning a business with employees, customers, vehicles, and physical work.

These are the due diligence questions that separate disciplined ETA buyers from those who learn expensive lessons after closing.

1. “What Predictably Goes Wrong in This Business?”

Every business has failure points. The question isn’t whether things go wrong—it’s whether those failures are understood and managed.

Ask the seller:

• What are the most common operational issues?

• How frequently do they occur?

• What typically triggers them?

• How are they handled when they happen?

If the seller minimizes risk or says “nothing really goes wrong,” you’re not hearing confidence—you’re hearing avoidance.

Strong operators can clearly articulate their downside. Weak operators rely on optimism.

2. “How Often Do Claims, Incidents, or Legal Issues Arise?”

This question makes many sellers uncomfortable. That’s a feature, not a bug.

You’re not looking for a business with zero issues. You’re looking for a business where problems are rare, predictable, and managed.

Dig into:

• insurance claims history

• customer disputes

• employee injuries

• lawsuits or demand letters

Patterns matter more than isolated events. Frequent incidents suggest systemic problems that will consume your time and attention post-acquisition.

Claims don’t just cost money—they create distraction, stress, and operational drag.

3. “How Is Risk Documented and Systematized?”

One of the biggest risks in ETA is buying a business where critical knowledge lives in the owner’s head.

Look for:

• documented procedures

• written standards for insurance and compliance

• repeatable processes for handling incidents

If risk management is informal or ad hoc, you’re not acquiring a system—you’re inheriting chaos.

In your first year of ownership, you don’t want to be rebuilding foundational processes while trying to stabilize the business.

4. “What Labor Model Is Used—and Where Does the Liability Actually Sit?”

Labor model is one of the most misunderstood risk drivers in small business acquisitions.

Whether the business uses W-2 employees or 1099 subcontractors, you need clarity on:

• who carries insurance

• how compliance is verified

• how liability is contractually transferred

Many ETA buyers discover after closing that subcontractor-based models don’t reduce risk unless they are rigorously managed. Uninsured or improperly classified labor can create retroactive liabilities that wipe out months—or years—of profit.

If the seller can’t clearly explain how labor risk is controlled, assume you’ll be responsible for fixing it.

5. “What Pulls Ownership Into the Business When Something Goes Wrong?”

Some businesses are emotionally and operationally draining. Others are resilient.

Ask:

• how customer complaints are handled

• how often ownership gets involved

• what situations escalate beyond frontline staff

High-conflict businesses limit your ability to scale, delegate, or pursue add-on acquisitions. That matters if your ETA thesis involves growth beyond a single location.

Why These Questions Matter More Than Price or Multiple

Most ETA failures aren’t caused by overpaying. They’re caused by underestimating operational friction.

Risk shows up:

• during payroll

• during audits

• when an employee gets hurt

• when a customer is unhappy

• when something breaks

If you don’t understand how a business absorbs these moments, you’re guessing—no matter how good your spreadsheet looks.

Why Many ETA Buyers Transition to Entrepreneurship Through Franchising

This is where many ETA buyers experience a shift.

After evaluating enough deals, some buyers realize they’re spending enormous energy trying to reverse-engineer systems that don’t exist. Risk management, compliance, training, and documentation often have to be built from scratch.

This is why many ETA buyers eventually transition to Entrepreneurship Through Franchising (ETF).

Strong franchise systems:

• have already identified common failure points

• have documented risk-management processes

• standardize insurance and compliance requirements

• educate owners on what can go wrong—and how to handle it

That doesn’t eliminate risk. It makes it visible, intentional, and systemized.

For first-time buyers especially, ETF can offer a faster path to ownership with fewer operational blind spots—without sacrificing autonomy or upside.

Final Thought

Whether you acquire an independent business or pursue franchising, the goal is the same:

Don’t just buy earnings.
Buy understanding.

ETA buyers who ask better questions don’t avoid risk—they control it. And for many, that realization is what ultimately leads them from acquisition to franchising.