Small Business Acquisition

I’ve been involved with acquisitions, big and small, on both sides of the table.

With small businesses, especially lifestyle businesses, these are some typical factors and scenarios:

Factors that will shape the deal:

  • Your goals for exit (financial, personal and schedule freedom, ongoing participation, etc.)
  • A specific “magic number” financial goal that will enable the future you desire
  • Your timeline for exit
  • Your market size (be as specific as possible)(industry association press releases, manufacturers’ press releases, market analysts reports and trade press stories are great sources for market sizing information) You’ll need to come up with specific $ sizing amounts for the applicable current and projected market segments. At a minimum, you need an “order of magnitude” number for your current and projected markets size, e.g. $2m, $20m, $200m, $2b.
  • Market growth rate (see previous point on good sources)
  • Your current revenue run rate (current revenue rate projected over 12 months)
  • Your trailing 12 months revenue (if you have annual revenues over $10m it greatly enhances your chances of acquisition by putting you into a large, general pool of viable businesses)
  • EBITDA run rate (current EBITA projected over 12 months)
  • Trailing 12 and 36 month EBITDA
  • Gross margin %
  • Comparable acquisitions in your market or adjacent markets
  • Top five companies most likely to acquire your company
  • The one company you think would be the best fit to acquire your company and why
  • Provisional or issued patents for any of the products
  • Trademark, trade secret or any other form of Intellectual Property (IP) protection on any of the products or designs
  • Barriers to entry that prevent your existing or new competitors from entering your market by duplicating your designs / products or designing around any of your IP protection

The Best Type of Corporation

Which type of corporation is best: LLC, S corp, C corp, etc.

First, an important disclaimer: I am not an accountant. I am not a lawyer.

This is a topic that affects your tax liabilities and your legal status so you need to educate yourself on the basics of this topic as well as discuss this in detail with an accountant regarding the tax implications and an attorney regarding the legal ramifications.

* * * * *

There are three main types of corporate entities that you will consider as an entrepreneur, all of which provide liability isolation but each with different tax consequences:

  • C corporation
  • S corporation
  • LLC and its variants

The best type of corporation for your business depends on many factors. In a very broad sense, if you are planning to seek outside equity (stockholder) investors to fund your business, then a C corporation will probably be best. A C corporation will be a requirement for any institutional investor and most angel investors. If you are planning a small-scale, lifestyle business and just need some liability protection, an LLC can be very inexpensive to create and maintain, while retaining simple, low-cost tax preparation and accounting costs.

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