What We Look for in a Deal
Hey there entrepreneurs,
Welcome to the Better Business Brief, where I share takeaways from:
- running a business I’m building to sell for millions
- my consulting with business owners building to sell for millions
- tips and tricks you can use to do the same
Having been working over the last year and a little change on helping people sell their business, both through consulting and through my associate business broker work, I have learned a lot about deal structures and how businesses are bought and sold. This has allowed me to more easily look at a transaction with a critical eye. To add to that, with the building of the private equity fund I’ve been working on, I’m partnered with people who have done over 500 deals, including many acquisitions of their own. Through this, I’ve gotten a good idea of what an acquisition needs to look like (for us at least).
So today, in less than 5 minutes, I’ll give you:
🔍 Our 5 Non-Negotiables in a Deal
🧠 Why Each Helps Make a Better Deal
🧐 How to Spot Each in a Business
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We have made these rules so that we do not make acquisitions that will cause issues for us. Ultimately, having guardrails helps you be more clear about what is and is not a deal, and what will be good for your plans and not good for your plans.
So the first one is:
We only acquire businesses that are already benefiting from existing demand. Think of something like a plumbing company—customers need immediate solutions and really have no choice but to get a fix if they have plumbing issues, so demand is constant. This makes revenue generation easier because the business doesn’t have to convince customers they need the service. This makes sure there will be consistent cash flow and minimizes the chance the business will fail. Simply spot businesses like this by looking for ones that solve problems that people have no choice or little choice about solving.
We focus on businesses with a track record of 5+ years of consistent success. The best predictor of future success is past success, so this gives us confidence that their past performance will carry forward. The failure rate of small business startups is high, so we figure we’re better off going with non-startups. You can spot this usually right away, and do your due diligence by looking into corporate filings of the business to see if it has been around as long as it claims to be.
3. Flexibility on Deal Terms (Seller Financing & Equity Retention): |
We look for flexible deal terms - mainly some seller financing and some equity retention. Seller financing allows us to spread the purchase over time, improving our returns by using the business’s cash flow to pay for itself. Equity retention keeps the seller invested a little, making sure that they have reason to help us with a smoother transition. This just makes it more realistic to be able to afford a business while still getting returns for an investor. You can spot this simply by asking whether someone selling their business is open to selling it in installment payments, and whether they are willing to keep a small chunk of the business to help with some consulting.
We look for businesses that can survive and thrive regardless of economic downturns. These are usually ones that have been around for a long time (decades and decades or more) and are very boring. An example would be something like a funeral company. As morbid as that is, it’s a business that’s never going away. This just helps guarantee steady cash flow, even during market changes, which protects you against revenue dips. You can find these businesses among essential, everyday services that people need no matter what—like home repairs, maintenance, or healthcare-related fields.
We look for businesses with simple, untapped opportunities for improvement, like introducing a basic marketing strategy or prices that are way behind the times. We know that making these small changes would have an outsized impact on profitability. This allows for quick wins that immediately boost revenue, offering a faster path to better returns. Look for businesses where the owner is a little older, and isn’t leveraging modern technology. You often see this with ones who are retiring, and don’t want to spend the time and energy learning the new ways. If you can look at the business and immediately know what’s “missing”, that’s a good sign.
Those 5 non-negotiables have been game-changers for a lot of the deals I’ve seen and been a part of. The more I dive into acquisitions, the more I find strategies like these that make the process smoother and more profitable.
If you’re curious about how we go deeper on this when we’re actually closing deals, I recently made a video walking through exactly how we evaluate these 5 things. Check it out here: https://youtu.be/e3AbQhuv_ow.
Be great. Keeping growing and aspiring. And as always: I hope you got something from this.
If you did, share it with a friend who may too, as this is the best way for me to grow it and make this better.
They can even sign up here :)
Happy value-building to all of you!
See you next time for Better Business Brief,
-Brody
