David C Barnett Small Business and Deal Making M&A SMB How Much Money Do I Need To Buy A Business
Dec 4, 2024
The discussion centers on how much capital is really needed to purchase a business. Key financial metrics like seller's discretionary earnings and down payment percentages are examined. It emphasizes the importance of being financially prepared, especially when acquiring lower middle market businesses. A new training module on raising private capital is introduced, illustrating unique strategies for navigating business acquisitions in the Main Street market. Insights from hundreds of past clients offer practical advice for aspiring business buyers.
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Cash Needed to Buy a Business
- In the US, have about 50% of the target business's SDE in cash.
- In other countries, have 75-80% of the SDE available in liquid cash.
Source of Equity
- The money doesn't have to be all yours, but it needs to be equity.
- Lenders often restrict payments to equity investors, especially at the deal's start.
Benchmarking and CapEx
- Benchmark the business size or cash flow you want to acquire against your resources.
- Consider CapEx adjustments to the SDE when pricing businesses with higher CapEx needs.