HBR Guide to Buying a Small Business

Time your presentation Early in the meeting, ask your prospect how much time they have. You should be flexible enough to adjust the arc of your story line to whatever time you are given. And you may have to keep readjusting: If the prospective investor asks questions, you may have to shorten your presentation again, whereas if they seem engaged and

We know someone who has been doing this part time for years, and the effort has never come to anything.

small firms of the size we discuss in this book regularly sell for three to five times the company’s annual profits.

For directly sourced prospects, it is trickier because you won’t know much about the business during your first few conversations with the owner. But you can still suggest a general valuation range: “I’m looking to buy a business at 3x–5x pretax EBITDA.”

While there is no magic formula to get the right price for your company, most small businesses sell for between three and five times their adjusted earnings

But it’s not time to abandon the prospect yet. Looking closely at our history of operating results (refer back to table 13-1), we can see that the reason the IRR is low is that the cash flows are low relative to EBITDA because of the high capital expenditures. Earlier in this chapter, we noted that low cash flow is a reason to reduce the offer pric

Finally, you’ll need a database system that allows you to keep track of your phone calls, emails, and leads and the companies you have pursued. Simple web-based systems are available for just a few dollars per month through companies like Zoho.com; these are sufficient for a single searcher using brokers to source deals. A bigger search process—suc

The IRR of 18% is well below the acceptable range of 25%.

We appreciate all of these desires to mix a professional career with a larger passion, but passion for a business is an elusive concept at best and, at worst, will cause you to overlook problems with a business and overpay.