Course Description and Learning Objectives:

Small business ownership presents extraordinary opportunities for individuals who seek to build wealth, change careers, or become their own managers.

Buying a Small Business is a hands-on, applied course that delves deeply into the challenges, process, and peculiarities of buying a small business. Participants explore the intricacies of planning, evaluating and negotiating to buy a small business from a family-controlled or privately-owned enterprise. Key aspects of financing and equity structure alternatives are explored, in addition to the industry peculiarities of acquiring a small business. “Small Business” can be defined many ways but our definition encompasses all enterprises with revenue or enterprise value of less than $3 million to $10 million. The program is practical in approach and covers a range of critical issues.

The goal of this program is to provide participants with the knowledge and tools to tackle small business acquisitions and investment opportunities. Through an exploration of the key dynamics associated with buying a small business, entrepreneurs gain an understanding of the reality of information gathering, negotiations, capital plan negotiations, and dealing with the potential challenges born out of the process or lack of a process.

How and Why People Buy a Small Business? Should You?

The characteristics of micro cap, or lower middle market, businesses are quite unique. The market itself is highly fragmented consisting of hundreds of thousands of companies worldwide. Many of these businesses are family owned and in most instances you will be dealing with first time sellers. The process of purchasing one of these businesses can be idiosyncratic which begs the question, why do it?

Entrepreneurship Through Acquisition (ETA)

Buying a company with enduring profitability is inherently less risky than attempting to start a business from scratch. Think about it for a minute. The product and/or service already exists and your markets presumably established. The company under consideration should already be producing steady cash flows. This leaves the buyer to focus exclusively on making further improvements to the business rather than having to create a product, a business, and a market.

If it is independence you are seeking, well then buying a business makes you the boss. Therefore, only you can fire you.

Perhaps the most important aspect of ETA is the opportunity for economic upside that it represents. Unless you are the founder of a startup and manage to retain significant ownership over time, there are few other ways to be able to control how the business operates and reap significant rewards for your hard work.

Who are Buyers?

Buyers of small businesses come from all walks of life. Someone with an entrepreneurial mindset, but lacking a novel idea is a prime candidate. Potential buyers may also be those looking for a new challenge, starting a second career, or recently let go from their job. Recently, "search, " as it is referred to in MBA programs across the U.S., has become one of the most sought after post graduation endeavors. Though still a cottage industry, firms that pool investment capital from wealthy individuals and invest it teams of MBAs who embark upon a search for a target company to buy, have sprung up across the country.

What a Buyer Wants?

First and foremost buyers are looking for financially viable businesses. A good target should have sufficient operating income to service the debt that is often used to purchase the business, allow the buyer to make a reasonable salary while creating value, and provide a return-on-investment commensurate to the risk being taken.

Next, most buyers want to pay, or put up, as little money as possible to complete the acquisition. Often lacking the capital necessary to purchase the business outright, buyers rely on a combination of equity investors, bank debt, and seller debt. Over time cash flows from the business are used to pay down the debt and return capital to the investor group with a premium in order to attain a large ownership in the business.

Who are Sellers?

There are many and varied reasons a business is for sale. In most cases the owner is retiring, but there are also cases where poor health, death, divorce, or financial distress are reasons for the sale. If not readily apparent, the reasons will typically show up during due diligence. The types of business that fit our model are mostly services, distribution, and manufacturing businesses and sometimes specialty retail businesses as well.

What a Seller Wants?

Oftentimes the seller is looking to retire after years of building the business. Their valuation expectations and calculations can be all over the map, but are often more than the market is willing to pay. Some will wince at the idea of getting paid over a period of time in the form of a seller note preferring to get all the cash up front. Then there are those who have obtained good financial counsel and want to structure the deal in a way that allows them to pay the least amount of taxes at the closing.

Is Buying a Small Business Right for You?

While I am a big proponent of ETA, it isn't for everyone. Buying a small business might mean relocating and perhaps living nearer to the business in an area that may not have everything that you are looking for in a home location. If you have a family, or significant other their buy in to the process and the commitment required to successful search, buy, and run a business is a must. You have to have the financial resources to make it through the search for a business and to invest something into the business as well. As with all significant decisions, you have to be motivated to start and finish the search and have ambitious goals and the stamina to build value in the business.

Persistence and positivity are key characteristics of searchers as it typically takes 18-24 months to find and successfully complete a search. Having a reasonable amount of managerial skills and experience is also important along with strategic and communications skills necessary to run a business. Your powers of observation and listening will also be put to the test as information necessary to make critical decisions will often come in parts and reveal itself in less than obvious ways. Due diligence is a puzzle of many and varied pieces.

My experience in coaching many searchers is that they often underestimate the time it takes to find a reasonable target company to buy and the loneliness of the search process itself. If you are someone who must have a sense of affiliation and a community then search and running a small business may not be for you. If you think you are ready for the adventure then jump in to this course with both feet.