What are risks of buying "too small"?

September 22, 2025

by a searcher from University College London, University of London in Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

Hi all, Most advice for traditional search fund acquisitions are typically at a minimum of $1-2million EBITDA. What are risks of going smaller than this size?

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Reply by a searcher
from Columbia University in Miami, FL, USA

I’m currently under LOI on a very small deal - a South Florida–based home services business with a purchase price of $275K and about $200K in SDE. While it’s not what I initially set out to pursue, it makes sense for me personally. I’m self-funded and could pursue a deal up to $5M with SBA financing, but I chose to go smaller for a few reasons: 1. Financing & Risk Profile I’m putting down 25% and seller financing the rest with a balloon by year 4, which means I’ll be debt-free at that point. This lets me grow the business, add people, and build systems without signing a personal guarantee for SBA financing. For me, the lower leverage and faster debt paydown translates into less risk. 2. Industry Fundamentals The industry has excellent characteristics: highly recurring revenue, low customer concentration, and minimal working capital needs. It’s one of the most resilient and attractive small-business models I’ve evaluated. Given it's such a great model, buying in this space is very competitive. To buy a company that has all these qualities at $1M+ EBITDA could easily mean 5X multiple, especially in my geo of South Florida. In order for an SBA loan to math, multiples right now can't go above 3.75 unless you want to bring more equity to the deal. 3. Licensing Dynamics As of June 2025, new SBA SOPs make it much harder for non-license holders to acquire license-dependent businesses. In my case, the seller is willing to rent his license as part of a consulting agreement, giving me time to become licensed myself. With SBA financing, the seller would likely need to personally guarantee the loan for two years, a non-starter for many sellers. This creative structure works around that. 4. Growth Opportunity The business has clear, low-hanging fruit: no website, no marketing, and even unbranded uniforms. With my background in digital, technology, and sales, I see a direct path to professionalize and scale quickly.

Reply by a searcher
from The University of Chicago in Boston, MA, USA

Some good initial thoughts above. There are some very strong businesses in the $500k-$1m EBITDA range, but your key person risk goes up exponentially as size decreases. It may be the owner, but often is other staff that may or may not be excited to have a new boss. The other issue is financing. There is a much more accessible set of investors and lenders as you move from $1m to $2m EBITDA. Below $1m your options will shrink.

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