Right sizing the first purchase

October 05, 2024

by a searcher from University of Pennsylvania - The Wharton School in San Francisco, CA, USA

Perhaps it is already discussed but thought I ask - how does one right size the first purchase? Do you maximize leverage or is value the driver?

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Reply by an intermediary
from Florida State University in Tampa, FL, USA

That's a complicated question for me. When I make an acquisition, it depends on a lot of factors- cost of debt, comfort and experience with the type of business, experience of partners with the type of business, a lot of factors about the business such as team, level of owner participation, growth, competition, % revenue from paid marketing, revenue sources, etc. A lot of factors go into valuing a company, which is primarily centered around reliability of future earnings. Valuation, valuation continuity under my ownership, and other mentioned factors will directly affect my comfort level with debt.

Reply by a searcher
from University of Glasgow in Edinburgh, UK

I believe both leverage and valuation are important - the former to ensure you are optimizing the use of your available capital, the latter to ensure you don't add more debt to a business than the cashflow can sustain, The other element is finding a business of sufficient size that it has enough employees to operate somewhat autonomously - in that context, it's likely that going smaller will make things more difficult for you.

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