What do you wish you had learned before launching?
April 30, 2019
by an intermediary from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Nashville, TN, USA
If there was one thing you had wish you had learned or studied before launching your search - what is it?
from University of Virginia in Tampa, FL, USA
Match your search to your personal and financial goals / constraints. Have a spouse/family in a specific geography and need to find a business there? Likely you’ll need to self-fund your search, be flexible on industry and be comfortable with a smaller sized business. Need income while searching? Then you’ll need to be traditionally funded, which means you should be ok moving anywhere around the country post-closing. Prefer to be the sole/majority owner, or do you have a “big fish in small pond” preference? Buy a smaller business with SBA 7(a) and own a controlling interest. The traditional model means you’ll be a “hired gun” with accompanying perks/benefits, but your equity percentage is limited. Know if you are a "growth/sales" personality or a "efficiency/back-office" personality and make sure your post-closing role will match your personality.
There is no right way for everyone, but there is a right way for you. Know yourself, then customize your search to match.
Talk to your spouse and make sure he/she is ready for the ride.
Have your 30-second elevator pitch down pat, you’ll give it a million times. If your parents don’t get it, neither will sellers.
And have your M&A lawyer, CPA, lender(s) and advisors/investors all ready to roll, you have to be able to move fast.
from Boston College in San Diego, CA, USA
On the cash piece, I knew the old trope that "cash is king" but never considered it from an operator's perspective - e.g., $200k of EBITDA in a given month does not mean you will have $200k of cash at the end of the month. Depending on the business model you may have more, but on the other hand if you have increases in working cap (A/R goes up or a vendor requires a big down payment on equipment or software order) and/or CapEx, you could end the month with nothing. So until I was in that situation, I didn't really appreciate the importance of cash. Now we track our cash levels on a daily basis and when we do additional deals we typically calculate how much cash we'll need for the deal and 1.5x it.
For size, my firm started off with too small of an acquisition because we thought we could quickly grow into a sustainable size. We did grow, but the growth was costly and we didn't have the cash flows to fund it the way we would have liked. In hindsight, it's obvious that a larger company has more stable and reliable cash flows and a little more room to breathe - probably one of the reasons the relationship between EBITDA and purchase multiples is not linear.