How to define the best target criteria for buying a business

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Fatemeh

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This is the fourth article in our “What to Consider Before Buying a Business” series. If you’ve been following along, we’ve covered the foundational steps to help you navigate the business acquisition process. In Part 1, we introduced the strategic foundations of acquiring a business. In Part 2, we explored how to choose the best market before buying a business, and in Part 3, we tackled the critical decision of whether to buy or build. Now, in Part 4, we focus on target criteria definition, a crucial step that helps you identify acquisition opportunities that align with your goals.

For immigrant or expat entrepreneurs, defining your target criteria is especially important. Entering a new business environment can feel overwhelming, but a well-structured set of criteria will serve as your guide, ensuring you focus on opportunities that match your financial capacity, long-term vision, and risk tolerance. Whether you’re targeting a restaurant, a real estate investment, or a tech startup, this blueprint will help you filter options effectively and minimize risk.

If you haven’t already, check out the earlier articles in this series to build a solid foundation for your business journey. Let’s dive into how to create a winning target criteria definition for your acquisition success.

Start with your investor profile before defining target criteria

Before diving into target criteria definition, it’s essential to evaluate your investor profile. Your financial capacity, risk tolerance, and access to funding play a pivotal role in shaping the kinds of businesses you can realistically target. For immigrants, this step is particularly important, as financing options and market-specific restrictions can differ greatly in a new country.

By understanding your investor profile, you’ll create a clear foundation for defining criteria that align with your unique circumstances and long-term goals. We might write about how to define your investor profile in more detail in a future article. But for now, let us take a look at the most important aspect of investor profile: financial capacity

Understanding financial capacity

Your financial capacity is the cornerstone of your investor profile. It determines the scale and type of businesses you can pursue and ensures you’re targeting acquisitions that align with your budget and ability to manage risk. Key questions to consider include:

What’s your total budget? Include personal savings, access to loans, and potential external financing.
How much risk can you tolerate? Consider your comfort level in weathering uncertain economic conditions.
Do you have financial reserves? Ensure you have the resources to sustain operations through potential downturns or transition periods.

Target criteria: Revenue and profit benchmarks

Revenue and profitability are critical components of your target criteria definition. While revenue provides a snapshot of the business’s size, profitability determines its sustainability and value as an investment. What to Look For:

Revenue: Focus on annual revenue trends over the past three to five years. Steady growth signals stability.
Profitability: Look at profit margins (e.g., EBITDA of +15%) to gauge operational efficiency.

Example: A tech startup with $3M in annual revenue and a 20% profit margin may be more attractive than a real estate business earning $10M but operating at just a 5% margin due to high maintenance costs.

By including revenue and profit benchmarks in your target criteria definition, you can prioritize businesses with sustainable financial performance.

Target criteria: Market share and competitive position

Market share provides insight into a business’s strength and stability within its industry. As an immigrant, understanding local competition is crucial to identifying businesses that are positioned to thrive. Key considerations include:

Does the business rank among the top competitors in its industry?
Does it have strong customer loyalty or a unique value proposition?

Example: If you’re considering a restaurant acquisition in New York City, a location with strong customer reviews and consistent foot traffic in a competitive neighborhood will be more valuable than one struggling to differentiate itself in a saturated market.

Including market share analysis in your target criteria definition ensures you identify businesses with a strong competitive position.

Target criteria: Growth potential

Growth potential is a key determinant of long-term success. Your target criteria definition should include indicators of a business’s scalability and ability to adapt to future trends. What to Look For:

Market Growth: Does the industry have a positive growth trajectory (e.g., 6% annual growth in tech)?
Scalability: Can the business expand geographically or diversify its offerings?

Example: A SaaS company with a scalable product has greater growth potential than a single-location retail store in a saturated market.

Evaluating growth potential ensures that your acquisition aligns with your long-term goals and ambitions.

Target criteria: Ownership structure and transition plans

Assessing ownership structure is a vital part of your target criteria definition, as it directly impacts the transition process after acquisition. Key considerations include:

Is the business single-owner, family-owned, or backed by investors?
Are the current owners planning to retire or exit immediately?

Example: A family-owned restaurant with no clear succession plan may present challenges during the handover, whereas a tech startup led by a motivated founder could offer ongoing support post-acquisition.

Defining ownership-related criteria ensures a smooth transition and minimizes operational risks.

Target criteria: Key capabilities and assets

Unique capabilities or assets often determine a business’s competitive edge. Including these in your target criteria definition ensures you focus on businesses with intrinsic value. What to Look For:

Intellectual property (e.g., patents, proprietary software).
Prime locations or real estate holdings.
Established supplier relationships or operational systems.

Example: A tech company with patented software offers a stronger competitive advantage than one relying on publicly available tools. Similarly, a restaurant with a prime location in a bustling area holds higher long-term value than one in a quieter neighborhood.

Example target criteria by sector

Here’s how target criteria definition might look for specific industries:

Criteria	Real Estate	Tech & IT	Restaurants
Revenue	+$5M annually	+$3M annually, strong SaaS base	+$2M annually, steady growth
Profit	+10% EBITDA	+20% EBITDA	+15% EBITDA
Market Share	Top 3 in region	Leading in niche tech category	Popular chain with loyal customers
Growth Potential	+4% annual market growth	+15% annual market growth	+5% annual growth in new locations
Ownership Structure	Single-owner or family-owned	Founder-led or VC-backed	Family-owned or franchise
Key Capabilities	Prime properties	Patents, proprietary software	Strong supplier network

Conclusion: Defining your target criteria for success

Defining a clear target criteria definition is the foundation for a successful business acquisition. This fourth article in our series builds upon the earlier steps, helping immigrant entrepreneurs focus their search, minimize risks, and identify opportunities aligned with their goals.

If you missed the earlier articles in the “What to Consider Before Buying a Business” series, revisit Part 1 for an overview, Part 2 for market selection strategies, and Part 3 for deciding whether to buy or build. Stay tuned for the next article, where we’ll dive deeper into evaluating acquisition targets in detail.

With the right target criteria definition, you’re not just identifying businesses—you’re laying the groundwork for a thriving venture in your new home.

Before you go

If you haven’t already, we strongly suggest you to read the other parts of the Business beyond border: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7
As a (future) business owner, we suggest you to read about Top CEO secrets to success by McKinsey
Read about how your competitors might use Black PR to diminish your success