Is overpaying better than not buying at all? - Searchfunder

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by a searcher from University of Leeds
in Florida, USA

1yr ago

Is overpaying better than not buying at all?

I’d be interested in people’s thoughts: looking to acquire a small business (hundreds of thousands asking price) and due to geographic constraints struggling to find something suitable. The one option we have found is construction related and the seller is looking for 3x multiple on SDE (a little of which is questionable), whenredactedseems much more in line with historic and current sales. The location is perfect though and they are offering to do seller financing after 10-25% down. Are we foolish to go-ahead with the deal, when the alternative is loss-of earnings (from not buying a business) and possibly giving up the search? Has anyone else overpaid for convenience?

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reply by a searcher 1yr ago
from University of Leeds in Florida, USA

Appreciate it David, if we are controlling the terms or if we are not? Totally agree that the price may be high, but the terms favourable and make it workable. I think that's what you mean?

reply by an investor 1yr ago
from Karel De Grote Hogeschool in Belgium

I don’t think overpaying is always a dealbreaker, especially if the terms are friendly like seller financing with a low down payment. A 3x multiple isn’t outrageous on its own, but if parts of the SDE are questionable, you might be closer to 4x in reality once you adjust, which starts to get a little uncomfortable for a small construction-related business. That said, location matters a lot. If it’s perfect for your life, your network, or your ability to operate well, that can absolutely justify a premium. Just be clear with yourself that you're paying for that convenience, and that the business itself still needs to perform. The cost of not buying is real too. Lost income, burnout, and just the emotional toll of a long search with no end in sight. But on the flip side, buying the wrong business or overpaying by too much can lead to even more stress and potentially a costly outcome. One thing I’d ask yourself: if this exact business were located somewhere else, would you still be considering it? If the answer is no, then it's worth really thinking through whether location alone is worth the price bump. I’ve seen a few people overpay slightly and still do well because they executed strongly post-close. But I’ve also seen deals where the buyer felt stuck and rushed it, and they regretted it within a year. Just make sure you’re clear-eyed about the risks and have a plan to grow into the valuation. Hope that helps, and good luck. You’re not alone in this dilemma.

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