Why don’t people just buy their own businesses with an SBA loan? You can escape being a W2 slave with a dick head boomer boss and gain much more equity upside when owning your own business.
You can go on bizbuysell and purchase a business with close to $300k in SDE and finance 90% of the purchase thru SBA.
Grow the business. Then sell to PE. Don’t understand why nobody ever talks about this on here. The search method.
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You can also go bankrupt, and lose all your assets as SBA loans must be personally guaranteed.
Well ya any business can go bankrupt ha. And what if you don’t have many assets?
As in you go personally bankrupt because of the PG. Some debt (eg private equity backed companies), the guarantor doesn’t extend beyond the company’s perimeter, so the company going bankrupt doesn’t touch your personal assets.
It's certainly a compelling opportunity. If I were American and had access to SBA financing, I'd personally be all over it!
However, the reason you don't see more people going down this path (though I wouldn't downplay its emergence), is that these are fundamentally two very different jobs: private equity investing versus operating a small business. There are many posts on this forum with respect to that topic if you're curious to collect some different perspectives.
Ultimately, both paths can generate meaningful wealth creation. On a risk-adjusted basis, PE will generate more. But that doesn't matter if you're not passionate about PE. Different strokes for different folks.
Why risk a ton of your own money/ assets to make money when you presumably have already developed the skillset to earn a salary on someone else's money
Because you’ll forever have a boss and be a bitch to someone else. You’ll never reach true freedom? Pretty easy concept to understand
Fair enough. I actually interned at one of these search funds while I was a freshman, it's certainly compelling for the right person but the process of finding the company is tedious AF. You're working with extremely unsophisticated brokers/ sellers who are unfamiliar with a ton of things you'd typically take for granted. I've seen some of the ugliest CIMs ever with financial data that changes with every new version. In addition, I legit couldn't really relate to these blue collar sellers and always felt like they were ripping us off somehow because we didn't understand the industry well enough.
I defo agree with you about being my own boss eventually but personally, I would look into raising a fund or even just investing my own money full time before being the CEO of "Joe Smith Plumbing and HVAC." If you're interested however, look into searchfunder dot com.
I'm trying to buy a small business right now. I think it is compelling. However, here are some thoughts
Maybe I'm thinking too small -- I'm trying to buy a business for $1-2M on a completely self-funded basis. I know there's been posts where people are aiming a lot higher and raising outside capital and I'm sure they have a different take than this
I also think you are missing an essential consideration: the type of people who have this level of financial sophistication tend not to want to do the actual work of owning a small business.
Buying small businesses in such a manner doesn’t really leave you with the ability to have a COO-type. That means you have to do that work. That work is absolutely dreadful for all the finance bros the OP’s comment is directed towards. It is generally only the high finance types that have the financial sophistication for this type of thinking and being good at finance and being able to run a small business are two totally different things
Some businesses might be difficult. But find the right one with an old lazy man just dragging the business along and it’s easy.
Jeez you are brainwashed the fact you brought up nice dinners. SMH man. That was sad.
partner in PE-growth: what's your reason for not having already gone down this path, if you seem to like/believe it so much and defend it at every turn/against every comment??? rather than typing unsophisticated responses to people's well-thought-out answers, you should show us by your every example and action that this is a great path. let us know when you churn out a couple dozen $millions!
Because owning a small business is often miserable for finance bros like most of those on this site
Short answer: risk aversion.
Because running a business is REALLY HARD.
I know so many retarded finance bros with an SBA loan that bought shit businesses and are wiped/debt slaves now.
It's not easy and it's not fun.
Don't buy some unscalable turd with a ton of PGd debt.
Yeah I'm tired of these search fund glamor posts that pop up on WSO. So many people I know who are debt slaves and barely meeting their mortgage payments.
Do you mind sharing the types of businesses they acquired that ended up being turds? Out of curiosity.
Agreed. Pls share turd businesses.
Just gotta find the right scalable business
The few successful ones I've seen in recent years had some PE backing. NextGen Growth Partners is a perfect example. Their first searcher had an 8 figure exit according to someone I know there.
Have heard the Wharton search fund professor speak (had a successful exit) and it sounds like he found a really good company / product that was just ran like a family business. The foundation of that business was phenomenal and is extremely rare for a searcher to get that lucky to get in at a company like that.
Searches can take 2-3 years too. Personally that's really tough. In that case, build slowly via bootstrapping / as a side hustle seems like a safer bet. Less risk and if it does gain traction, take out loans / attract local angel investors to help accelerate growth. All my relatives who've been successful as entrepreneurs did this (have 3 relatives who own / have sold multi-million dollar companies). No one acquired.
In the process of buying a services business right now. IB/PE/HF background, this will be more of an absentee play with my wife handling most of the day-to-day management (not a FT job) of the existing team. I think it’s a super interesting niche, existing owners built a great reputation and want to monetize to devote time to their other business that has higher capex. It has some cyclicality but also built in hedges and most of the revenue is in a pretty inelastic sub-market.
Ballpark $450k sde, basically zero working cap, capex of $100k but can recoup most through asset sales over time. <3x sde deal. Will go 90% LTV and post debt service will be ~$150-160k of FCF day one. Will expand vertically and geographically while optimizing costs (not a ton there but some opps). Also looking at some horizontal opps but won’t rush any growth outside of the base business. PE already sniffing around it too so should be able to exit pretty easily if we can execute on our plan.
I looked at a good amount of opps and most of the construction, landscaping, etc businesses have very few barriers to entry other than relationships (some harder to develop than others). Looking at a backyard construction business that is lower $ but has some interesting angles, owner turns away a ton of work (like a lot) and still is $250-300k sde with zero capex/tiny overhead. Would be 2.5xish sde (and may be like 2x up front with 0.5x seller note or earn out) with 80-90% LTV and pay back in a year. Challenge is that it’d be just buying the brand (which might be ok because his work has been almost exclusively word of mouth to date and could do quite well with a social media presence) and contractor relationships, has basically no repeat customers, likely does quite poorly in a recession, and it’d be a full time job. Feels like it’s the wrong time to buy it but this space in my area is really in need of consolidation so I’m keeping an eye on it. Kicking myself because there was a larger version of this same business at the same multiple earlier this year that I was too late on. Would’ve been almost $1MM sde and $500k FCF. Could’ve paid back in like 6 months.
What exactly is this business?
Home staging
Speaking here as both CFO of several true small businesses and as a former SBA lender:
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