My Small Business Investment

My Small Business Investment

Hello again, folks! Thanks for checking out The Green Swan. Today we will be delving into some detail on the small business investment opportunity that my siblings and I are pursuing. I mentioned this previously in My Investment Portfolio post, but didn’t get into many of the details since it was still early. Today, I’ll address it in more detail and also give you the opportunity to respond with comments and questions.

My family has always had a bit of an entrepreneurial spirit and history which goes way back. My great grandpa started an insurance company which has now been in the family for three, going on four generations of ownership. When I was still growing up, my Dad started up a local bank with three other colleagues which grew into a small regional bank before getting bought out not long ago. Two of my brothers had started a financial services business together five years ago which has been successful. And that is just the immediate family, there are numerous other examples in the extended family.

Financial Overview

What I will be investing in is an established, albeit not the best managed, industrial services company (I’m intentionally being vague, sorry). The acquisition is about $1 million in total and it generates around $350 thousand in EBITDA (earnings before interest, tax, depreciation and amortization – a metric commonly used to measure profitability). Our early estimates are that we can grow this business from initially providing an estimated return in the low-teens as we see a decent amount of upside. Generally speaking, we are very excited about the opportunity and upside potential.

We have been in the process of re-organizing the existing business my two brothers own as part of this deal. There will be a holding company that each of us four own a piece of, which will own both the existing business and this new business opportunity. The existing business is also a services company, but in a different field. So while I am buying into the business in conjunction to the new opportunity, I will be an owner of the broader businesses, with the intent to do more acquisitions in the future. Below is an overview of the org structure.

Small Business Investment

Business Overview

Enough with the high level finances, onto the business. I mentioned earlier that the IndCo has not been properly managed. The reason is because the current owner (I’ll refer to him as Bob) has had some very serious health issues in the last few years and has put the business on auto-pilot. As we have diligenced the business further, it also doesn’t appear to he was necessarily the best business operator. Now, because of those health issues, he is basically forced to sell the business.

There are a couple specific and identified actions we plan on taking upon completing the acquisition to drive revenue growth. Bob has even indicated these actions would be a good strategy and something he knew he should have done, but his health issues have been in his way of focusing on the business.

Some of the strategies we plan on putting in have been already taken and proven effective by a business in the same industry, but in a different geographic market (FriendCo). We know this because the owner of FriendCo is friends with Bob, and as future owners we have all now been introduced to each other. We expect this to be a very beneficial and collaborative relationship going forward. If we can drive IndCo growth similar to the performance of FriendCo, we could potentially triple the business based on our current geographic market size and other factors.

The business itself is in a stable industry and market. It is a regional driven business located in a large metropolitan area. Because of the nature of the business, you need to be local to be player, which provides a bit of a barrier to entry. IndCo is not a cyclical business either, meaning we would expect business to be good and stable even in a declining economic environment.

Needless to say, we found this a very attractive acquisition opportunity. Many others did as well. Fortunately, we were able to get Bob to sign a Letter of Intent (LOI) very early after he put it up for sale, effectively blocking out competing bids (and there have been plenty).

Legal and Administrative Aspects

I’ll keep this brief because this is nobody’s favorite topic. We have thoroughly vetted this business. We have used an attorney throughout the whole process to help with the legal aspects. The attorney we have used is an acquaintance of our family so we know and trust him and he has been very helpful.

With regards to combing through the finances, we’ve mostly done that ourselves and I would like to think we are fairly qualified to do so. Among us four, we have significant experience in multiple facets of the finance industry and includes a CPA, CFA and MBA.

We have also completed significant due diligence with Bob including site tours and inspections. I feel comfortable in saying we have checked all the boxes as it relates to legal and administrative aspects of the acquisition.

Business Management

One of my siblings will be in charge of running the operations of IndCo. While none of us four have prior experience in this industry, we are confident we will be able to get up to speed in order to effectively run the company.

There is an extensive industry training program that my brother will be participating in which includes hundreds of hours of pre-training and a 14-day in person training. In addition to this, the Bob will remain with the Company in a consulting role for 18 months.

My Main Concerns

My primary concern is going into business with family. A lot of folks can probably relate to this concern because there are plenty of stories and examples of this not working out in the end. I also have a couple examples that were in the forefront of my mind when making this decision. These examples include my grandpa and his brother going the last 25+ years of their lives not speaking due to the insurance business they inherited from my great grandpa, my Dad and a few of his business partners no longer on the best of terms, and another example in the extended family where the business was sold because the owners were in disagreement.

These examples are hard to ignore since they are all so close to home for me. However, my brothers and I are ultimately comfortable with this risk because, first and foremost, we view this business as a fun opportunity for us to all be involved with and work together on. A return on investment is obviously an objective, but it is not a top reason any of us are involved. And given how close all of us are, we are fairly confident that a business will not get in between us.

Another major concern of mine is being able to get my money back out. After all, I want to retire early! While the day may come where I want to cash out, there is no defined timeline and I may not ever want out. My investment in the business equates to about 1-2 years of incremental work to offset any potential loss which isn’t the end of the world. And quite possibly, I could even use the business investment as an exit strategy from the corporate world as I could conceivably move into a part time role for a salary (me and one other brother will be equity owners solely whereas the other two will be equity owners and employees).

In the end, I wouldn’t ever expect me “cashing out” would result in us selling the business. Instead, it would be a matter of my brothers buying my ownership interest from me. They are aware that I may want to do this in the future and are accepting of that, and I know from a financial standpoint that they would have the ability to do so.


So I hope this was a helpful overview of the small business investment opportunity for my siblings and I as well as an overview of the considerations we made prior to investing. The deal is actually expected to close on August 1st, but everything has been progressing as planned and everyone (buyer and seller) is motivated to close as soon as possible.

Let me know what you think of the investment. Do you consider something like this to be too risky or would it be right up your ally? Any additional considerations you think we should have made? Any other questions or comments on the process? Let me know in the comments below.

For more on my small business investment, check out The Green Condor!

Thanks for taking a look!

The Green Swan

Work Harder, Work Smarter, Retire Earlier and Find Your Beach






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  1. Wow, that’s a big step you’re making there GS. It sounds like you’ve all done your homework and are going into this new venture with your eyes wide open. I especially like the part about buying into an established, stable market type business which sounds like it’s only suffering from a bit of neglect. Plenty of scope to get it back up to its former glory and build it bigger and better.

    Great points regarding the uncertainty of being part of a family business. That would be a major concern as it has the potential to seriously harm family relations if it starts going pear-shaped or in a direction you don’t agree with.

    I would suggest having some pretty good agreements in place that can be called upon as a fall-back position if needbe. Better to sort these things out while everyone are best friends than try and resolve it when the situation is stressed.

    Hopefully, you’ll share with us what the business is in coming months. And good luck with the new venture.

    1. Thanks Martin, I appreciate the comment. I was thinking along the same lines as you with regards to putting into place a construct to allow for dispute resolution. With the help of our attorney, we have put together a very thorough arrangement in our Operating Agreement which addresses many potential issues including the death of a member, a divorce of a member and his spouse, how major decisions should be handled (majority vote-type clause), as well as the process of buying more equity and selling equity. While we are all in agreement and on the same page in how we’d like to handle any of the above issues, it is always good to have them on paper just in case.

  2. Interesting. Good luck.

    I like they fact that you are investing in a establish business, with a track record. Although I would expect that it would cost you a bit more to get in.

    Partnerships are always scary, certainly good to have others to help run the business, offer help, ideas, etc. But when it’s family I think you can often blur the lines between business and personal. Good luck managing that fine line.

    1. Thanks Brian. I agree and hope we know what we’re getting into. That’s a big challenge with family businesses. The good thing is my two brothers who have been running FinCo have had no issues. But I realize that’s easier during good times than bad.

  3. Very interesting! I don’t know much about small business investing so I don’t have a lot to offer in terms of input but I definitely learned more about the topic from your post. I will say my husband’s brother & brother-in-law have worked together building a successful small business for the past 15 or so years and continue to have a very good relationship (only one is the owner, though). One recently purchased a home next door to the other, if that tells you anything.

    1. Wow that sounds like quite a success between those two, that’s great to hear and encouraging for me and my brothers. Thanks for sharing.

  4. Sounds like an interesting venture – good luck with everything!

    Most of my siblings are still pretty young, but we started a family LLC a few years ago and are contributing slowly to build up enough for house flipping or rental properties.

    Keep us posted!

    1. Thanks AE! That’s pretty neat you and your brothers are planning that, you’ll have to keep us posted once you begin buying/flipping.

  5. Wow – those are great examples of entrepreneurism in your family! It was sad to read about your grandpa and his brother though. That is close and I am sure that had an effect on you. It sounds like you have done extensive research on this opportunity and you recognize a lot of the potential problems you could have. I think the fact that you have already discussed them is key. I hope you continue to share more about this venture (understanding you need to keep details private) as time goes on!

    1. Thanks Vicki! Yeah it was tough and very sad for the family, but it served as good lessons for everyone. Fortunately nothing that extreme has happened since and we hope to not repeat it.

  6. Love the entrepreneurial spirit in you family! Re: doing business with your family, only you can answer that. Far too many variables for any of us to providing meaningful guidance, but it sounds like you’re proceeding with caution and will make the right choice for your situation.

    Do you feel that any of Bob’s neglect has caused damage that will be tough, if not impossible to overcome? i.e. have you lost market share that will be difficult to recapture?

    Lastly, have you considered the worst-case scenario? Can you afford to lose everything should things not pan out?

    Looking forward to future updates! Best of luck to you and your brothers. I hope you make enough from the deal to buy a color television!

    1. Haha thanks Ty, I hope so too :).

      Yes I have considered the worst case. If I lose everything it will require just under two years of working in order to reach FI. Not great, but something I can live with.

      Regarding the loss of market share, it will be our biggest challenge. I think we can win it back, but time will tell. In a future post I hope to share a bit more on our strategy to do so and the progress we’ve made.

      Thanks for the comment and questions!

  7. I think this sounds like a good opportunity, GS, despite the risks you cited. I would feel good about the quality, experienced team you have in place. I also feel that the quality of the individuals matters a great deal in family-business relationships, and by all accounts, it sounds as if those you will be working with are kind, honest, ethical, and hard working people.

    I’m definitely interested in reading more about this as time progresses!

  8. The multiple is fairly reasonable so that helps cut down on the risk. The biggest worry I would have is the fact that none of you have experience in that industry but it sounds like you are setting up a few things to mitigate that risk.

    Just be sure to have a way to get out of the deal if/when you eventually want to get out. I have heard enough stories of people ho don’t think that far in the future and it causes issues when one person finally wants to cash out.

    1. Hi Thias, yes that is a very valid concern. The other point that helps mitigate this risk, besides those mentioned in the post, is the fact that all other employees including management will be retained.

      And Yes, we have put in place a mechanism to fairly allow anyone to exit and it is built into our operating agreement. I just now detailed this in response to Tristan’s (Dividends Down Under) comment.

      Thanks for the questions!

  9. Hey GS, sounsd like you have everything in hand, good luck.

    Other than my comment in your other post, about hoping it works out with family, I hope you have some idea of how you would value leaving your entity. I’m assuming you all own shares in this venture? The question would be, how to value the shares when someone wants to leave. The seller wants as much as possible, and the buyer wants to pay as little as possible. Have you drawn up an agreement how you would value the shares in the future? (Eg 3x EBITDA). Will you be paying dividends?

    Obviously if you’re selling to a third party then it’s easy as it’s worth whatever the third party will pay.


    1. Hi Tristan, you bring up a very good point. This is a particularly important point for me since I am the only one of us four who would be considering an early exit from the venture.So we have devised a way to keep things fair. First is the starting point value that we are all starting at (a certain multiple of EBITDA) and each quarter going forward we will update the value based on performance of the company as well as factors that would increase or decrease the multiple (i.e. increased competition or more favorable industry outlook, etc). This value will be updated quarterly, whether someone is planning to exit in the near term or not. And we will not only use this ongoing estimated value for the basis of someone wanting to exit, but also in the future if we do another acquisition and need additional capital invested in the business. So everyone is motivated to be fair here.

      Regarding dividends, no there is no plan to pay dividends. We will prioritize cash flow for debt repayment and then additional acquisitions.

      Thanks for the questions!

  10. Interesting investment, thanks for sharing. I worked in an industrial group at an investment bank and worked with a lot of industrial services companies. Although your buying a smaller asset, it looks like you got a good deal buying it at just below 3.0x EBITDA. If you can triple the size of the business in sales and have margin improvements, you could have $1 million+ in EBITDA over the next five years. At that point, I would believe you can get a higher multiple when you sell out (4.0x – 6.0x, maybe more). It really depends on the improvements made and what opportunity set is going forward. That’s what makes this situation difficult, if you sell out to your family, you would have to justify the higher valuation without making them uneasy, in my opinion. I t looks like other people have mentioned already, but perhaps once you pay down the debt and facilitate growth and maintenance capex needs, you could turn to distributing a dividend.

    1. Hi Chris, thanks for stopping by. I agree that greater scale and strength in the market should lead to a higher multiple. I think that will have to be a conversation that comes up in the future. What would really help justifying the higher multiple is if I can point to other comparable companies with higher multiples, preferably in the exact same industry.

      Thanks for the comment!

  11. Late to the game here but this caught my eye. Great post! My brother is extremely good at home projects, and has a flexible job. Discussing going into the house flipping market as he lives in a College town where people make great money doing this. But…working with a little brother has its trappings…baggage from childhood…older sister telling him how to do things…I think it will be a great partnership but everyone I talk to thinks they need to play, “Devil’s Advocate.” Sounds like you all have thoroughly planned it out, I can’t wait to follow your journey!

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