Business Buyers come in all sizes and shapes. There may be business buyers, individual buyers, partner buyers, buyers administration and most first time buyers. First time buyers usually do not know what kind of business they are looking for or how to go about the process of finding, evaluating, negotiating and closing a purchase of a business.
Assuming that the buyer knows himself and knows what kind of career and salary he is looking for an efficient determination of the nature of the work he needs to focus to a quick decision. But it’s not as simple as choosing a storefront, a gas station or a restaurant. Real entrepreneurs who can handle long hours and constant micro-management can be adapted very well to buy the smallest of small businesses.
However, an important segment of the business buyers can not see themselves running businesses local high street. I certainly was not when I started buying companies. So what is it we are looking for a business?
The next level of the street is what I call leaving a “real” business or an adequately staffed and sales must provide one worker for himself or otherwise unavailable. In fact, the company “run itself” without the owner be involved? If the answer is yes, then it is not only a real business, but it can be classified in other ways, such as investment, business or absent, or even my favorite term, leveraged buyout or LBO.
An LBO is simply a buyout using the financing of any kind on the basis of the strength of the balance sheet and asset base. It may include some form of funding or many, and use lenders, investors and the seller. This puts a lot of main and service companies in that category as they do not force their balance sheets. But if a company using an LBO structure may be purchased then this in itself the company would qualify as a viable candidate to consider for most small business buyers. Indeed, it will be easier for the corporate purchaser can to complete LBO and are on a slightly larger now than trying to scrape money for a smaller without the benefit of any financing.
To provide some real world examples in this context, I would be a reasonable revenue and earnings range of a typical LBO candidate a level up from the main street, but would also be under the radar of larger buyers and private equity to establish.
The lowest range includes the largest universe of companies to buy without dipping into a company size that is too small to breathe the buyer or too weak to be financed. The perfect LBO candidate will retain enough assets in the business to approximately cover the down payment for the purchase. This is when the buyer will know the deal is the right size. But there is no magic deal size and even generate sales of as low as $ 1.0 million or less can provide significant cash flow and large salaries of most buyers.
At the other end of the spectrum, companies with more than $ 1.0 million in profits will be mostly out of reach for the first time buyer because the deal will likely require a lot of invested capital. However, there is a sweet spot at the bottom where small buyers can do some quick math and determine the need for capital, the deal will not break their budget.
First time buyers go through a buyout or two of the deal size could easily change. They may very well be able to get and be able to structure larger buyouts and raise significant amounts of capital to complete future orders the next level.