Find the ideal size business to buy

Finding the Sweet Spot in the Lower Middle Market

So you’ve made the decision to exit the corporate world.  Why not? You’re smarter than your bosses, financially secure, confident and living the American dream.  Now you’re ready to jump on board the business ownership roller coaster and start searching for a business for sale.

But what happens next?  How to buy a business? What is the right business for you?  How much of your own equity do you need to invest? Can you secure financing? Where do you find a business for sale?  There are a myriad of questions you need to ask, but who’s going to give you the answers?

Narrowing the target is the first step. What size business is right for you?  A good idea is to think  of your opportunities in 3 “buckets”:

The first is “Main Street”.  Walk down any thoroughfare and you’ll see the definitions. Small businesses like a pizza shop, convenience store, liquor store, dry cleaners and similar retail outlets, restaurants, franchises and service providers. Most are under the $750,000 revenue range.  Investing in one of these is usually just “buying a job” - there is limited upside potential for growing your wealth.

At the upper end are the big boys. Companies with more than $100.0 million in revenues.  A whole different ballgame, where private equity firms and corporate buyers play. A lot to chew if you bite off that option.

In between is what’s known as the “Middle Market”. And within that segment is the sweet spot - the “Lower Middle Market” businesses: those which fall into the $2.0 to $20.0m revenue range and offer solid and reliable earnings that you can manage for growth. Welcome to your potential new home.

Within this segment are a wide range of entrepreneurial challenges and rewards.  In this target group an investor can seek stable revenue and substantial earnings, which allows for debt retirement, reinvestment and wealth building, with minimal adjustment to your current lifestyle.

The price of admission varies, but there are three major steps. One - finding the right business for sale. Two - negotiating a realistic price and three - financing the transaction. Each of these steps can become an insurmountable obstacle, so careful analysis and the right knowledge is critical.  Having been through all three of these steps countless times in my career, I’ve learned what it takes to get it done.

Finding the right business for sale means sourcing current owners who are ready to exit, yet want to ensure their legacy lives on. They’ve spent years building their brand, have solid and projectable revenues and customers and are extremely proud of what they have built.

Once you have found the right business to buy, negotiating the deal is next on the list. It is indeed an art,  and you need to learn the right skills do it successfully.  It often can take many months to close a transaction and you’ll have to skillfully navigate the questions, process and timing to close the deal.  Put yourself in their shoes: the idea of leaving what they created in someone else’s hands is frightening to an owner.  Their business is their life’s work. It can become how they define themselves as a person, so it’s a difficult time for them.  They might get defensive if you aren’t sensitive to this and adapt your communication accordingly.

Lastly, and probably most importantly, is financing the deal.  There are a number of ways to finance the purchase of a business for sale and your choices and decisions highly affect the bottom line of your new company once in your possession so good decisions at this stage are critical.

Finding your niche in this brave new world is surely a challenge.  But isn’t that what you wanted?

To find out what you can how big of a business you can acquire, download the Business Buying Power Calculator here which will prompt you through a series of questions and calculations that will guide you to the type of business you should be targeting.