At an onsite visit, you usually have the opportunity to talk directly with the owner about the business and its challenges and opportunities. The visit works best if it is a free-flowing conversation in which you learn a lot about the business that goes beyond the initial information you received while filtering. The conversation will sharpen your

Second, it establishes a network of investors interested in providing equity capital for an eventual acquisition once you find the right business to buy. Third, sellers often ask prospective buyers to demonstrate that they can afford to buy the business; a search-fund group of high-net-worth investors is strong

Arrive on time This simple act communicates respect for the investor with whom you are meeting and quietly demonstrates that you are an organized person. One longtime investor in private companies commented: “If someone isn’t able to arrive in my office on time, why should I believe they are capable of more difficult tasks?” Of course, no one

Second, the prospect was an established business roughly in the size range that Randy was interested in; a purchase at 4x 2011 EBITDA would be $4.0 million, an amount he believed he could finance with a combination of bank debt, seller debt, and investors’ equity.

Since recurring customers are the foundation of an enduringly profitable small business, we suggest that your first deeper filter be whether its customers buy from your prospect again and again.

Part of the purchase price is also usually tied up in escrow accounts, and some of it might be in the form of an earn-out,

Cyclical businesses: If your customers are able to defer purchasing from you when their business gets soft, your revenues will drop like a stone. Because you will be responsible for regular payments on your acquisition debt, this volatility creates a big problem.

If, as we will recommend, you pay for your new business in part by borrowing against it and in part with equity, your return on equity will be even higher and well above investment returns available elsewhere.

before interest, taxes, depreciation, and amortization (EBITDA). That’s a concept we’ll explain more fully in chapter 11, but think of it as similar to the company’s pretax operating cash flow.