Buying or Investing In Private Businesses
The next 10 years are likely to see one of the biggest wealth transfers in our nation’s history
Embarking on the journey to acquire or invest in a private a business is both exhilarating and challenging but now is probably one of the best times to learn about it.
The reason is that many family businesses and baby boomers who are looking to retire will provide one of the greatest business transfers in history (according to research there are about 12 million Baby Boomers looking to sell some or all of their private businesses over the next 10-15 years).
Whether you're a seasoned entrepreneur or a first-time investor, the process demands careful consideration, strategic planning, and diligent execution.
With some quick high level tips, we'll walk you through five essential steps to buy a private business; if buying a whole business is not for you, we’ll also give you a few ways that people are just investing some money in private companies (i.e. not buying the whole business).
First, lets dive into the five steps to take in buying a business.
1. Define Your Search Criteria
Before diving into the world of business acquisitions, it's crucial to define your investment preferences and criteria.
Think about what you are good at, where your past expertise lies, and what you would like to genuinely be doing everyday (or would feel comfortable about managing someone to do it). Then you should go about narrowing down your search criteria based on factors such as industry trends, business size, and geographical location.
From here you will have a good starting point to begin to start looking for your investment opportunity.
2. Source Potential Investments
In today's interconnected world, uncovering potential investment opportunities has never been easier, but also harder. Let’s explain.
Any search can start online with several sources. We would suggest the below can get you started (but there are many more):
The good things about digital platforms are that you will be able to explore a lot of potential opportunities quickly.
These opportunities likely all come with financials (typically you just have to sign and NDA and possibly show proof of funds) and indicate usually that the owner is ready to sell. They also might already be pre-approved for a loan or SBA lending (more on SBA lending here)
The downside of digital platforms is there is usually more competition and lots of eyes on these businesses.
The second way people typically go about finding businesses is either through calling them directly (or walking in to a local business and talking to the owner) or seeing to build friendships with business brokers or lawyers in your area that deal with business sales often.
They oftentimes will be privy to what may be coming but not yet in public view (a quick google search can help you find these people in your area - just send them an email).
3. Conduct Preliminary Evaluations
Engaging in meaningful conversations with business owners is a crucial step in the due diligence process.
There are lots of ways to evaluate a business but you get started learning here. You will want to be able to read financial statements and have confidence in kicking the tires (at a minimum) before proceeding to a letter of intent (LOI).
4. Structure Investment Deals
As you progress in your search for the perfect investment opportunity, it's essential to explore various deal structures that align with your financial capacity and risk tolerance.
This is where things can get complex (we won’t dive deep here) but some simple rules of thumb we like to follow are 1) make sure the seller maintains at least some skin in the game (seller financing- learn more here) and 2) really make sure you have talked to customers, the owner, and feel comfortable that this business can handle multiple economic cycles (i.e. a downturn).
5. Perform Due Diligence and Finalize Terms
Conducting thorough due diligence is paramount to mitigating risks and ensuring the success of your investment.
Websites like SBA.gov offer valuable resources and tools for assessing the financial health and operational efficiency of target businesses.
By collaborating with legal and financial experts, you can finalize agreements, secure financing, and pave the way for a seamless transition into business ownership.
Small Investments vs. a Full Acquisition
If you are not looking to buy the full business, there are still several ways you can invest in private companies without buying the whole businesses (typically you will have to be an accredited investor). Even just investing in private businesses can be a good place for some of your cash, and can help to guard against the daily swings in the stock market.
Below are just a few platforms that will pool investor capital and invest in private business (there are may more - shoot us a note here and we are happy to talk more about it):
Final Thoughts…
In the dynamic landscape of private business acquisition and investment, adaptability and strategic thinking are key to unlocking new opportunities and achieving financial success.
By following the five essential steps outlined in this guide and exploring innovative ways to structure investments, you can navigate the complexities of the market with confidence and clarity to own your very own company.
Whether you're pursuing a full acquisition or seeking to offer strategic investments, the journey to entrepreneurship begins with a clear vision, a strategic plan, and a relentless pursuit of excellence.
Embrace the challenges, seize the opportunities, and embark on a transformative journey towards realizing you or your family’s dreams of business ownership and financial prosperity.
For more you can always send us an email here and we would love to chat live.
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