Risks - Buying a 1 person business - solo owner/operator

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by a searcher from Purdue University
in Chicago, IL, USA

3yrs ago

Risks - Buying a 1 person business - solo owner/operator

Businesses owned and operated by a single person and the associated risk doesn't get much attention.

I've seen it a few times, mainly with home service based businesses where work can be subbed or contracted out.

Curious if anyone has experience - good or bad here.

This presents a whole host of unique challenges. Any specifics you'd recommend looking out for in DD?

Updating: Thanks for the concern. This is a very real situation where I'm looking at a one man GC that subs out work on roofing, siding, gutters, and windows. He's doing half a mil SDE regularly by himself. Scaling this business with more staff and expanding geo is an attractive prospect. But this is definitely the career sales leader in me speaking...

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reply by a lender 3yrs ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Sorry I am a bit late to the party. This can be a bit challenging. You need to verify that there is a real business there beyond the person. You also need to ensure the person cannot just go and recreate the business somewhere. else. Often times the business has little value once you strip that owner out of the equation if there really is not much else there. We analyze a lot of businesses. If you need help from a financing perspective we would be more than happy to look at it and let you know what more specific concerns or risk we see. You can ping me here or directly at redacted Good luck.

reply by an intermediary 3yrs ago
from Rutgers in Cherry Hill, NJ, USA

I just closed on a similar type transaction a month ago as the broker. To simplify my response, I think there can be good deals found especially since you should be buying at a deeply discounted multiple. It takes a lot of diligence on your part (not so much a team) so pursuing the deal costs almost nothing except for your time to investigate. I want to know how much the seller is key to (1) the revenue generated, (2) operational skillset that leaves after the sale, and (3) any relationships, internal or external, that are sticky to the seller not the company. The other company I sold with a solo operator was a real estate services business that operated like a tech company. All sales came in from the website (all strangers), no customer concentration, staff were 1099 techs, and the owner's skillset was not unique to him. To boot, it was very scalable. It was a fun one to work on. The new owner is running it from out of state. I wouldn't necessarily walk away from it. Qualify the deal as best you can.