NOT YOUR TRADITIONAL SEARCH - OPERATE FIRST THEN BUY
A few years ago I read the book "Entrepreneurship through acquisition" and was forever smitten by the thought of this path to entrepreneurship. My road to this acquisition started at the end of a 7-year tour of duty with a venture-backed startup that by and large was a flop. Disenchanted with the startup life, I sought and landed a role as President with a small privately held company in an industry that I spent the vast majority of my career. Over the course of 1.5 years, I was able to operate the business and learn how things actually ran - since I was reviewing financials, selling and signing contracts, and running operations I was afforded with luxury of knowing where all the skeletons in the closet were hiding.
Operating the business made this process so much easier. Due diligence was a breeze and lining up traditional financing via an SBA 7a (shout out to Live Oak Bank!) we incredibly simple. I think this was an easier path because I could intelligently discuss the business strategy, risks, and opportunities with potential lenders. Many of the traditional due diligence items went away because I had experience with the key points. Seller financing, in this case, was pretty straightforward - having known the owner for almost 2 years gave us a level of trust that was required to get the deal done.
We closed the transaction at the end of 2020 and I've been operating the business for the past 5 months. Here are some takeaways.
1) Spend time on the LOI - get the deal terms right and the purchase agreement will go a bit smoother. You'll want your attorney and CPA engaged at this point.
2) Think long and hard about NWC and how it will affect your ability to operate the business. Depending on the cash cycle of the business, this can make or break you. My business is somewhat cyclical so this is really important
3) Set up a credit line at the outset to allow you the flexibility to manage the cash in the business
For me, this was the best way to acquire a business and a great way to take some "risk" out of the equation. Being later stage in my career, taking a year or two off to search really didn't work for me. So, my advice for all you late-career searchers would be to find a business that you can hop on board to operate. This will let you get a sense of the business, and build business-specific operating experience. Another benefit was that when we announced the sale to the employees it amounted to a non-event - there were a lot of congratulations, but everyone was pretty happy and comfortable with the new owner.
I hope this sparks some ideas on another way to search and buy a business. It worked for me and it can work for you. Best of luck!