Buying a Business Costs Money

It's obvious but true. And a fact sometimes lost on those new to the search. Put aside your transaction expenses. Let’s just focus on the equity. You need to put money down. 10% if relying on an SBA loan. Want to buy a $5MM company? That’s $500,000. Perhaps you can get the seller to agree to a seller note on standby for the term of the SBA loan (which will allow you to treat it as equity for SBA purposes). You still need to inject 5%. Again, want to buy a $5MM company? That’s $250,000. Many people don’t have that kind of money sitting in a bank account. So they sometimes either look investors or seek out partners. And that’s fine. Just make sure you understand what you’re getting into. While each investor is different, most are concerned with IRR and a minimum return on invested capital. They will want some veto rights over major decisions, and may offer relevant expertise, but they will otherwise leave you to run the company. They are investing, in part, in you and your skills as an operator. Partners, on the other hand, typically want a greater say in how things are done. They will have their own ideas and will want to implement them. That’s great if you see eye to eye. But not so great if you have a disagreement. So choose wisely.