Do what you know. Later, after you've made several Quantum Leaps and become more comfortable with the acquisition process, you'll see common characteristics, and be able to handle acquisitions regardless of the industry, much as I do now. (…) You want to make your acquisitions in an industry which is fragmented, and dominated by mom-and-pop companies. You want an industry that's large enough to handle your acquisition aspirations. If you're planning to purchase one of three companies that serve what is essentially a limited market, such as buggy whip repair or carbon paper manufacturing, you have nowhere to expand.
You want industries that enjoy a 20% to 40% margin. In my own experience, these include such wisely diverse industries as retail jewelry, landscaping, building maintenance, publishing, home improvements and trailer parks. If you get into a business with 3% or 5% profit margins, you'll take forever to build your dream. Narrow your focus. (…)
The size of business you want to acquire depends on the size of your goal, and the clarity of your vision. (…) Your acquisition must be in order of a large manufacturing firm or distribution business that will catch the eye of investment bankers.
How big a company? As a general rule, you as an owner can reasonably expect to receive income, before debt service, of about $25,000 from intangible services or consulting fees of $50,000, since there is no inventory, and usually no equipment beyond office furniture; about $25,000 from retail sales of $100,000; and the same from manufacturing equipment, depending on the degree of automation and cost of materials.