3 filters to help you eliminate prospective businesses faster
Your time is valuable. Your search options vast. An efficient search process matters.
While there is no shortage of deal flow in the SMB space, a significant portion of that deal flow is made up of relatively un-buyable businesses.
A good searcher must develop search filters that equip her to quickly recognize which prospective businesses are not worth her valuable time conducting due diligence. With an initial screening structure, a searcher can tell whether to proceed with further due diligence or scrap a deal as quickly as possible.
1. It’s been listed in the past 90 days
Good businesses sell quickly. Developing a successful search is largely dependent on your ability to identify quality businesses as soon as they hit the market. From our experience, businesses that have been on the market for more than 90 days rarely end up being sold without an adjustment to the seller’s price expectations or the underlying offering. The most successful searchers develop or outsource processes allowing them to identify and quickly vet acquisition targets as soon as they become available.
2. A reasonable multiple indicates a good deal as well as reasonable seller
Be aware of the multiple ranges within the industries you are searching. If a multiple is too low, the business can likely be ignored. No owner is interested in extracting anything less than fair value from their business. If the multiple is too high, you’re likely dealing with an owner who possesses unreasonable expectations and is not prepared to let go of their business. Develop a firm understanding of multiple ranges and utilize that knowledge as one of your first filters when analyzing a business.
3. You have adequate knowledge and experience with this type of business
Before spending time vetting a business in a new industry, ask yourself if you have the skill base to manage this type of business. What are the characteristics and skills that a CEO in this industry must possess? Do you have these skills, and if not, is there a path through which you will be able to develop these skills? In a foreign industry, a river guide is often important. Do you have a network of knowledgeable professionals capable of and willing to provide mentorship when needed?
Equire is a marketplace for entrepreneurs to find and invest in traditional SMB's with $700k to $7m EBITDA. The Equire DealSource service helps Entrepreneurs find companies to acquire and operate, and the Equire DealFund service then helps entrepreneurs efficiently obtain capital from accredited investors to close their acquisition. For more information please visit equire.co or email firstname.lastname@example.org.