The Biggest Myth About Purchasing and Operating SMBs

investor profile

July 07, 2022

by an investor from Harvard University - Harvard Business School in Toronto, ON, Canada

The single biggest myth among prospective acquirors states that the smaller the business in question, the easier it is to purchase and operate. This myth seems to be particularly pervasive among those who are looking to acquire and operate a company for the first time.

In this week's blog post, I will attempt to explain why the exact opposite statement is likely true: That smaller companies are actually much harder to both purchase and operate when compared to their larger SMB peers.

If you are specifically targeting a company with, say, <$1M in EBITDA, I'd encourage you to read this post before proceeding any further. I welcome all thoughts, comments, and/or areas of disagreement.


Busting the Biggest Myth About Purchasing and Operating Small Companies




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commentor profile
Reply by a searcher
from Purdue University in Los Angeles, CA, USA
Great post, thank you for sharing. I ran into the tension pointed out by Thomas' during my first serious attempt at acquiring a business. My sense of urgency to find/close on a business and the excitement to have finally come across a business that seemed solid, met most of my search criteria and seemed like it would be fun to run was outweighing the fact that the numbers were a bit lower than I had ideally wanted. The seller ended up rethinking and took the business off the market during due diligence, which was disappointing at the time but I'm relieved I didn't get stuck with the challenges I would have faced to grow it significantly with minimal working capital or cushion room.
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Reply by a searcher
from University of South Alabama in Birmingham, AL, USA
My thoughts have been that it's easier to run a larger business since there is a better team and more structure. But there is value in getting in the game quicker right? There's just so much more competition looking for $1M EBITDA businesses that it could take awhile to close. And time is of the essence especially for self funded searchers. Where as a $700k EBITDA business might be enough to get started and potentially grow it to a $1M EBITDA business in a couple years.

Just my current thoughts. Would love some feedback if anyone agrees/disagrees.
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