It's hard to believe @SMBootcamp_ just finished its 16th cohort!

Four years and 300+ searchers later ... here is what’s really happening in self‑funded search right now ...

Here are 6 key takeaways from our most recent LIVE bootcamp (20 attendees, 7 states)): Operators are piling in.  

~1 in 4 attendees already runs a profitable business and came to learn M&A for inorganic growth. They will be preferred by brokers & sellers – yet another competitive challenge for first time buyers.

🚨 It's been a perfect storm for SMB acquisitions 🚨

SBA loan interest rates have risen like crazy (e.g., 5% to 11%). But valuations have NOT come down!

So if your SMB deal doesn’t initially pencil (i.e., bank and investor returns are too low), you can still make it work 👇🧵 1a. SBA lenders underwrite to DSCR (debt service coverage ratio): EBITDA divided by loan payments to the bank and seller note. Higher is better for DSCR. Negotiate a longer term (maturity) or amortization period (rate of paydown) and your loan payments go down, so DSCR goes up.

Why can't I use conventional debt on my SMB acquisition???

Here is an example: (BTW, @KHendersonCo and I recorded a mini pod about The "Market" for Investor Terms which also covers the topic of searcher economics - link to ppt slides and pod recording are in my profile).

SMB acquisitions are the most powerful wealth-generating vehicles on earth

Yet only 1% of people know how to buy one

So here's a playbook anyone can copy (with little $ down to boot): Let's cover some guidelines first:

• Credit score >= 700
• Healthy risk tolerance
• Can front a 10% down payment (or find an investor who can)

Now we're ready to buy an SMB

Are you “planning” to search to buy an SMB? Or stuck in the "I'll start tomorrow" phase?

Or worse yet, telling yourself you will search when the time is right?

Do these QUICK 10 things to get started TODAY: 1. Create a search name. Do NOT include the word “capital” unless you want to be asked where your capital comes from. You are not a capital group. Ask me how I know 😂

A big reason search/ETA takes so long is not being crystal clear at the start about your "Big 3 & Little 2 Criteria" - leads to tire kicking, wasted time on deals that aren't right for you, and giving brokers/sellers the impression you are a rookie buyer. The Big 3 criteria are: [focused on self-funded ETA]

1. Size range (by SDE, EBITDA, purchase price, etc.)
2. Geographic focus
3. Industry preferences

We think you can be super specific on 2 out of 3 of these. For @PursuantHoldCo originally, it was $500-1M SDE, 90 miles from Tampa, industry agnostic.

Interesting opportunity for an entrepreneurial searcher/operator who has more hustle than capital and willing to move quickly on a deal here in Tampa... SMB target is Tampa, FL based multifamily RE services co in need of entrepreneurial buyer/operator. Deal is a "forced" sale that needs to close relatively quickly. Off market. ***Purchase price is 100% earnout (no cash, no debt)*** Buyer needs to dedicate 24/7/365 time/attention.

Been getting the 'how do you buy a portfolio of micro SMBs?' question a lot recently, esp from 1st time searchers. My answer: simple math makes it hard, but if you can play the long game, it gets easier. (math below is rounded + TONS of assumptions = keeping it simple) $500k SDE x 3.5 SDE multiple = $1.75M purchase price. Using 90% SBA loan (ignore seller note) = $1.575M loan @ 5% = $200k/year debt service. So, $500k SDE = $300k of FCF after debt service.

Hardest thing about buying your first SMB? Deciding which biz in your pipeline is “good enough.” There are a million criteria checklists (e.g., HBS Guide) and rules of thumb. But nothing beats experience (and quality advisors/mentors) to help you make the really hard decisions… Maybe it’s a pesky customer concentration issue, a biz with CapEx needs when you wanted something asset light, a price that’s a half turn too expensive, or a seller that wants to roll a little equity when you want to own 100%. When do you bend your own rules to get a deal done?

Working on buying SMB w/ $1.5M EBITDA. As I work through financing, it’s pretty clear that the $1.5-2M of EBITDA range (give or take) is a sweet spot for SMB buyers b/c it’s an “in between” size for usual buyers. Too big for “job buyers” and too small for other folks (PE, SBIC). For “job buyers” … after adding $250k deal expenses (SBA fee, lawyer, QofE, etc) and a $250k working capital cushion, the project cost is $6.5M. Subtract $650k seller note and $5M max SBA loan and the deal requires an $850k cash injection.