What should I budget for a self-funded search?

March 19, 2024

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Boston, MA, USA

How much are people expecting to have saved up for the search/dead deal costs?

Excluding living expenses, how much are you trying to have in reserves?

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Reply by a searcher
from University of Maryland at College Park in New York, NY, USA

I'd budget 5-10% of purchase price for deal costs. The meter starts to run with an attorney and accounting pros. You should be able to find a competent attorney who charges 1% of the deal which is attractive for small deals with payment at closing which is nice. Also, smaller transactions say under $5mn price IMO don't justify $25,000 QofE's. Also easier to skip the QofE if its just you and the SBA. However, if you have professional investors in the cap stack, you may need to do a more formal vetting to meet their criteria. That's something to discuss with them. You need to proof sources of revenue and costs, understand customer concentration issues. You should be able to do it yourself. You better do it yourself -you are on the hook, not your hired help! Now a much larger deal, multiple products, investors a sponsors must do more and the deal size justifies that. I found on smaller deals its possible to get good accounting talent by the hour ($250-$400). These people will serve as your wingman to dig thru stuff and share their concerns. Nope that doesn't have a QofE stamp on it but it may be all you need and all a small first deal justifies. Good hunting!

Reply by a searcher
from Columbia University in New York, NY, USA

I’m still working and haven’t officially launched my search yet, but as some have mentioned above it seems like you really have to budget for your own personal burn rate for 1-2 years of your search time. That number will of course depend on where you live and what kind of lifestyle you want/need to maintain. Aside from that, it seems like the initial costs to set up a search are fairly light - maybe some expenditures on a website, LLC setup etc. The legal and QoE diligence costs are all real and there are good estimates in other comments for what people have seen, but I am personally viewing these as part of the transaction costs that get paid at close (the sources of those funds will be your debt and equity investors.) I guess it would be smart to budget for the case in which you have broken deal costs and then decide to wrap up searching without ever closing, and so would have to pay those fees out of pocket. So maybe that gets you to - 2 years of living expenses + ~$50k cushion for set up costs and risk of broken deal fees? Curious if others agree.

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