If you are have been operating for years, the thought of buying a business may cross your mind. This article provides a deep-dive into the considerations around acquiring a business. It is part of a broader series by Whispered on Career 2.0 options.
“I’ll just buy a nice cash-flow business.” Everyone
This sounds like a great idea and there are numerous success stories. Several of Whispered’s founders invest in search funds. But there are a number of considerations before you take the step to buy a business.
Searching for a Business
To buy a business, you first need to find a willing seller of a good business.
How to fund your search: You can either self-fund or do a search fund. Search funds offer several benefits and will allow you to acquire a larger business but also mean you will have less flexibility on the type of business you acquire. See good article on pros and cons of search funds.
It is hard to find a quality business for sale: Given how many execs and search funders are searching it is hard to find a great business to buy. If you know an owner you can negotiate with directly, that is amazing. If not, typically ⅓ of search funders fail to make an acquisition and the average time to acquire a business is 23 months.
Searching is a very different skill than operating: Searching for a business involves cold-calling thousands of business owners, who get these calls daily.
Valuations are challenging: Owners have worked their lives on their business, they aren’t going to give it up cheaply. Even for ones where owners need to sell, there are M&A bankers who , there are not great businesses available to buy. Every business represented by M&A bankers is seen by hundreds of other buyers.
Are you ready to relocate? If you are living in a high-profile city, there are even less businesses for sale, given other execs are also looking. Sometimes the best businesses are located far away. Have the hard discussions with your family in advance. If you are going to limit your search area
What type of business to buy? The best businesses to acquire are simple to operate and have recurring revenue. See a great list here of key qualities you should look for.
Funding an Acquisition
Once you find a business, you will need to finance the acquisition.
Seller Financing: In the ideal scenario, you can get the seller to loan you the money to buy their business but this will likely not be more than 20%. And if there are others competing for the business, the seller will likely seek to limit this.
Equity: You can fund the rest of the purchase or raise capital from connections (or a search fund investor)
Running a Business
The considerations here are so varied depending on the business you buy. If you get to this stage, congrats and remember that you have likely invested a large chunk of your net worth in the business so you’ve got to make it work!
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