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.