Welcome back to the Mid Market Insider!
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Let’s jump in…
Last week we spoke about the challenges in finding the ‘right’ time to sell a business.
We broke it down to 3 factors that could influence your decision to sell:
1. Lack Of Desire
2. The Founder's Dilemma
3. Asset Diversification
This week I want to focus on buying a business.
Why do I want to focus on buying a business?
Understanding the full perspective of the person sitting across the table from you is almost always helpful.
First off, buying a business is just as stressful as selling your business.
As buyers, we’re not just investing capital but taking on dreams, responsibilities and legacies.
There’s the pressure of securing funding, negotiating terms and envisioning a future that aligns with the existing business culture.
And let’s not forget the sleepless nights pondering ‘what ifs’.
In this newsletter edition, I want to explore key factors Four Pillars, and many buyers, focuses on when buying a business.
The three key factors are:
1. Size
2. Industry
3. Geography
1. Size
Many folks think they should start small when buying a business.
But in my opinion, larger companies are more stable and more attractive. In terms of revenues, ideally at least $20 million.
Now I am not talking about just any large company but businesses that have a low profile and appear unremarkable, UNTIL you learn the story and get to know the business.
The more boring and under-the-radar the better. After all, flashy companies attract customers AND competitors.
2. Industry
When it comes to industry expertise, people often fall into two camps:
1. You need deep industry knowledge
2. Understanding basic business fundamentals is enough.
Personally, I’m in camp 2.
In lower middle-market companies, most could benefit by focusing on some of the business fundamentals, while they typically have all the industry knowledge they need.
Additionally, I like to find companies that have some low-hanging fruit to pick in terms of growth.
Now the final criterion is the hardest….
3. Geography
Many buyers focus on staying within a certain geographic area, and I get why.
But prioritizing geography often means sacrificing factors like:
- Size
- Price
- Industry
Now I’m not trying to dissuade anyone here.
But it’s important to understand that focusing too much on location can limit your options.
As you begin your acquisition journey, remember:
Success isn’t about finding a company that ticks every box but finding one that’s the right fit.
🧑🎓 The Lessons:
1. Bigger and boring is better: target stable, larger businesses
For sellers: understand that the buyer population is larger and more sophisticated as company size grows.
2. Business basics trump industry expertise: focus on fundamentals over industry expertise
For sellers: The need for your buyer to be an expert in your industry might be less important than other criteria you have for a potential buyer.
3. Don’t let location limit your options: prioritize fit over geography in your search
For sellers: How close are you to a major metro? Individual buyers typically have greater geographical constraints than do financial buyers like Four Pillars.
📅 Next Week:
Next week, discover how to identify 7 hidden process inefficiencies that could be holding your business back.
Keep Building
Nick
P.S.
If you want to hear more from ‘The Most Boring Guy In Private Equity’ make sure to follow me on LinkedIn and Youtube. I dive into the world of Private Equity, share some tips and tricks for small business owners and most importantly share my knowledge of the industry.
Make sure to follow me so you don’t miss out!
LinkedIn: Nick Mclean
Link to my YouTube channel: https://www.youtube.com/@NickFourPillars
Also, if you want to discuss your business goals in greater detail book your free discovery call:
https://calendly.com/nickmclean/discovery-call
P.P.S
If you want to learn more about this here’s the link to my YouTube video:
What NO ONE TELLS YOU About Business Buying 🤔 (The 3 Crucial Criteria) - YouTube
