You Bought Small Businesses. Now You Can't Exit
The one thing to remember
A business can be healthy and still be hard to sell if it was optimized for owner cash flow instead of the buyer universe you expect at exit.
What happened
The narrator describes an unnamed buyer who acquired three small home-services businesses: an HVAC company, a pest-control company, and a commercial landscaping company. The businesses became cash-flowing and operationally healthier, but when the buyer tried to sell Columbus HVAC to fund a larger Cincinnati acquisition, bids came in below expectations. Buyers discounted the company for thin management, limited geography, flat revenue, and SBA financing constraints. The buyer ultimately stopped treating a sale as mandatory, worked with advisers, and pursued an evergreen fund structure with outside investor commitments instead.
Who's telling it: the narrator, telling a second-person account of a small-business acquirer The story is told by a narrator in second person from the buyer’s perspective; the sellers, employees, lenders, brokers, and rejected buyers do not give their side directly.
Timeline
- Thesis
The buyer wanted to move beyond an $81,000 operations-manager salary and began studying small-business acquisitions.
- Sourcing
He found Dale Merritt’s Columbus-area HVAC company, whose owner wanted to retire.
- Financing
He bought the HVAC company for $680,000 using $136,000 down and an SBA loan at 7.5% over 10 years.
- Integration
The buyer discovered he had effectively bought the seller’s job and spent months inside the business rebuilding operations and service agreements.
- Operations
He later bought a Louisville pest-control company for $610,000 and a Nashville-area commercial landscaping operation for $540,000.
- Operations
By year seven, the three companies were producing just under $390,000 of total portfolio cash flow net of everything.
- Exit
The buyer listed Columbus HVAC, expecting roughly $808,000 to $924,000 gross based on 3.5x to 4x SDE.
- Exit
Individual SBA buyers and private-equity-backed buyers offered lower prices or demanded seller notes and earnouts.
- Exit
The broker told him the business was durable and real but not built for institutional exits.
- Financing
After consulting a CPA and securities attorney, he set up an evergreen fund structure and raised $1.8 million in commitments.
stage where a mistake was made
What went wrong 5 issues
Built for cash, not exit
The businesses were healthy, but they did not match what private-equity-backed buyers wanted. The buyer expected an institutional-style exit, while the portfolio was better suited to long-term cash flow.
Mistake made at Thesis → showed up at Exit
“PE groups want geographic scale, revenue above $5 million,”
Warning signs
- The portfolio was durable and cash-flowing, but it was still a set of small local service businesses rather than a scaled platform.
How to prevent it
- Before buying the first company, the buyer should have defined the intended exit buyer and the minimum scale, geography, and management structure that buyer would require.
- Each year, the buyer or broker should have compared the portfolio against institutional-buyer criteria before assuming a 3.5x-4x exit multiple.
Thin team limited value
When private-equity-backed buyers reviewed Columbus HVAC, they discounted the company for thin management, concentrated territory, and flat revenue. Those operating choices had made the business stable, but they reduced its exit multiple.
Mistake made at Operations → showed up at Exit
“Management team is thin, service territory concentrated in three zip”
Warning signs
- The buyer personally rebuilt operations and only later stepped back, suggesting the company had limited management depth.
- Revenue had been flat for two years, which made the business look less scalable to roll-up buyers.
How to prevent it
- By year three, the buyer should have hired or promoted managers for operations, dispatch, sales, and finance so the company could survive an ownership transition.
- Before going to market, the broker and buyer should have prepared an exit-readiness plan addressing management gaps, territory concentration, and flat revenue.
Resale math capped bids
The buyer expected a higher valuation, but the most interested buyers could not afford it under SBA debt-service math. The buyers who might pay more were not excited by the company’s scale and structure.
Mistake made at Financing → showed up at Exit
“SBA debt service doesn't leave room for generosity.”
Warning signs
- The first two individual buyers offered only 2.8x and 2.9x because their SBA financing could not support a higher price.
- The buyer had experienced the same cash squeeze after the first acquisition, clearing less than his old salary after debt service.
How to prevent it
- Before listing the business, the buyer and broker should have modeled likely bids from both SBA buyers and institutional buyers rather than anchoring on the desired multiple.
- At acquisition and during operations, the buyer should have tracked how much debt service a future SBA buyer could support at different prices.
Owner bandwidth was stretched
The portfolio grew, but the buyer’s time became the constraint. This did not kill the businesses, but it increased personal strain and likely slowed the development of a deeper management structure.
Mistake made at Operations → showed up at Operations
“You are now splitting your weeks.”
Warning signs
- The buyer was personally traveling among Columbus, Louisville, and Nashville while also handling emergencies, hiring, and equipment issues.
- The narrator says those were the hardest years of the buyer’s marriage, indicating the operating model depended heavily on personal sacrifice.
How to prevent it
- Before buying the second and third businesses, the buyer should have required a named general manager and weekly reporting cadence for each location.
- The buyer should have set a maximum travel and operating-load threshold, then delayed new acquisitions until the existing companies could run without his constant presence.
Invented a forced sale
The buyer treated an exit as necessary to finance the larger Cincinnati deal, even though no contract required it. After talking with a CPA and securities attorney, he shifted to an evergreen structure and raised commitments instead.
Mistake made at Financing → showed up at Exit
“made up the deadline.”
Warning signs
- The buyer assumed Columbus and possibly Louisville had to be sold to free up $1.8 million to $2.0 million in equity.
- There was no outside investor agreement or fund life requiring a sale.
How to prevent it
- Before deciding to sell, the buyer should have listed all financing options for the Cincinnati acquisition, including investor equity, acquisition debt, and holding-company structures.
- The buyer’s CPA or attorney should have been consulted before launching the sale process, not after the sale process failed to meet the target price.
Prevention checklist 0 done
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Thesis
Sourcing
LOI
Due diligence
Financing
Closing
Operations
Exit
Transcript 414 lines · 2121 words · auto-generated captions
It starts with one deal.
Obviously, it always does.
You are 34, operations manager at a
logistics company in Columbus, Ohio.
$81,000 a year and
Okay, fine. It's a good salary, but
there's a ceiling. You can see it.
You've been able to see it for 2 years
and you just
can't
stop looking at it.
So, you do what people like you do. You
read everything, books, forums,
newsletters from search fund guys at
schools you never went to.
You save for 3 years, $210,000 in cash.
SBA 7A loan pre-approved up to $750,000.
You are ready, or you think you are
ready. The business is an HVAC company
in the Columbus suburbs.
Dale Merritt, 61 years old, built the
thing himself over 23 years.
His knees are destroyed. His wife has
been asking about Sarasota for 4 years,
and there are no kids who want any part
of it.
He is asking $720,000.
You get him down to $680,000.
$136,000
down, the rest through SBA at 7.5% over
10 years.
The business is throwing off roughly
$148,000
in seller's discretionary earnings.
You run the numbers.
After debt service, about $64,000 a
year,
you are clearing $84,000,
less than your old salary.
That's the part they don't tell you in
the podcast.
Nobody says that out loud. And here's
the other thing nobody says.
Dale didn't just sell you a business, he
sold you his job. The day the paperwork
closes, that job is yours.
All of it.
The first 8 months are
You don't have a clean word for it. You
are in that company every single day,
riding along on service calls, answering
phones when the dispatcher doesn't show.
You learn the difference between a heat
exchanger and an evaporator coil, not
because you wanted to.
Because a customer is screaming at you
on a Tuesday afternoon, and you have to
understand what she's saying before you
can help her.
You are not the owner who steps back and
manages from above.
You are the guy. You are in the attic.
You smell like refrigerant. You rebuild
the service agreement program from
scratch.
140 new maintenance contracts in year
one.
And that single thing, that one stubborn
move, stabilizes the recurring revenue
enough that you can finally, somewhere
around like month 18, actually hire
someone you trust and step back a
little.
By year three, a GM you trust, Dale's
dispatcher who thankfully stayed, and an
SDE that's grown to $196,000.
You're drawing $90,000 as a management
salary.
Net of debt service, about $132,000
hits your account across the year.
It's not It's not what you imagined, but
it's yours. That part is real.
So, you buy a second one.
Pest control company in Louisville,
42 recurring residential routes, three
commercial accounts, $610,000,
similar SBA structure.
And again, you show up. 4 months riding
routes with the technicians every week,
learning which chemicals go where, which
customers are nightmares, sitting across
from guys at lunch and asking questions
until they get tired of being polite and
start actually telling you the truth.
The owner, Gerald, stays on for 6
months. You insisted on that.
Gerald is the kind of guy who's been
overpaying his chemical supplier for 15
years because, quote, "We've just always
used them." You renegotiate the
contract. $14,000 a year, just like
that,
without changing a single product.
Year five, three companies.
Columbus HVAC, Louisville pest control,
and a commercial landscaping operation
outside Nashville.
Eight crew members, 62 commercial
accounts,
that you buy from a couple who'd been
trying to retire for 3 years.
$540,000.
You are now splitting your weeks.
Columbus Monday to Tuesday, Louisville
Wednesday, Nashville on the phone
constantly.
Your wife will tell you if you ask her
that those are the hardest years of your
marriage.
She is right.
You know she is right. You don't say it
enough.
You are not rich during this. That needs
to be said clearly. You are cash
flowing. You have SBA debt on three
companies. You're paying yourself
$130,000 combined across the whole
portfolio.
Everything above that goes back in.
Working capital, equipment, and the
emergencies that somehow always find the
wrong month.
A compressor blows, a truck needs a
transmission you weren't budgeting for,
a technician quits, and you spend 6
weeks and $4,200 finding someone who
almost fills the gap. There is no month
where the money just sits somewhere
doing nothing.
This is the decade nobody makes a
YouTube video about, the long middle.
Not failing, not winning.
Just
building with your head down.
Quietly.
By year seven, and this is where the
picture actually starts to shift.
The first two SBA notes are more than
half paid down.
Columbus is generating $231,000
in SDE.
Louisville's route count has gone from
42 to 71, partially through a bolt-on
acquisition you did in year five for
$88,000 cash,
and it's producing $178,000
a year now.
Nashville added a snow removal division
in year six.
That smoothed out the winter dip.
It's throwing off $162,000.
Total portfolio cash flow net of
everything, just under $390,000.
10 years of your life.
That number represents 10 years.
And then, not because anything is wrong,
that's the thing. The businesses are
genuinely healthy.
You start thinking about selling.
There's a commercial HVAC services
company in Cincinnati.
$4.8 million in revenue.
$820,000 in EBITDA.
18 employees. A real brand across three
counties.
Asking price is $3.4 million.
It's a different category entirely.
To get there, you need to free up $1.8
to $2.0 million in equity.
The math only works if you sell
Columbus.
Maybe Louisville, too.
Columbus is the obvious one. 10 years of
clean books. Stable management. 340
active service agreements.
You put it with a broker in spring.
At 3.5 times to 4 times SDE on $231,000
in earnings. You're looking at somewhere
between $808,000
and $924,000
gross.
After the remaining SBA balance,
about $190,000,
and the broker's fee, you net $560,000
to $680,000.
Combine that with Louisville, and you're
there. Seven inquiries in 6 weeks. You
feel good about that.
For a minute. The first two are
individuals. SBA buyers. Young, hungry.
The way you were. They come in at 2.8
times and 2.9 times.
You counter, they walk. You're not angry
about it. You understand the math better
than anyone.
SBA debt service doesn't leave room for
generosity. You've lived that math.
The next group is who you've been
waiting on.
Private equity backed home services
roll-ups.
Platform capital. Cheaper cost of
equity.
Three conversations that go somewhere.
One group sends an LOI. 3.1 times SDE.
$716,000
gross.
After the broker's 10% and the SBA
payoff, you're looking at roughly
$455,000
net.
That's not That's not the number.
You negotiate for 3 weeks. They won't go
above 3.2 times.
Their argument is clean and honestly
kind of fair.
Management team is thin, service
territory concentrated in three zip
codes, revenue flat for 2 years.
All true.
You made those trade-offs deliberately.
Stability over growth, but in their
model those same choices read as risk.
Neither of you is wrong. You just can't
get to the same price.
You walk away.
Two more conversations after that. One
buyer wants a seller's note for 30% of
the purchase price.
Another wants 35% structured as a 2-year
earnout tied to revenue targets.
You have spent a decade building
something predictable and clean, and
somebody is asking you to bet a third of
your exit value on numbers you won't
control anymore.
Both conversations end the same way.
The broker, and she's good, she's not
sugarcoating this. She tells you
straight.
What you've built is excellent for what
it is.
Durable, cash flowing,
real,
but it's not built for institutional
exits.
PE groups want geographic scale, revenue
above $5 million,
management depth that can absorb an
ownership transition without flinching.
You don't have that. The buyers who can
pay full multiple aren't interested. The
buyers who are interested can't pay full
multiple.
The gap isn't huge, but it's enough.
Cincinnati is gone. You sit with that
for 6 weeks.
Quiet.
A little embarrassed maybe, though you
wouldn't say that to anyone.
And then, slowly, not like a revelation,
more like something you'd been circling
for a while,
you start asking a different question.
Not, "How do I exit?"
but "What am I actually trying to build
here?"
You call a CPA who works specifically
with small business holding companies.
She's the one who says the words
evergreen fund.
And honestly, the first time she says
it, you just nod like you know what it
means. You don't.
Not really, but you listen.
Here's what she explains. A traditional
private equity fund runs on a clock.
The manager raises money from outside
investors,
limited partners, LPs,
deploys it into acquisitions, and then
has a hard deadline, usually year 7 to
10,
where everything has to be wound down
and every dollar returned to investors
with a profit on top.
That's not a preference.
That's contractual.
It's why PE buyers are always in a
hurry.
They're not buying your HVAC company
because they love HVAC.
They're buying it because the fund clock
is ticking,
and they need to deploy, hold 4 years,
and sell at a higher multiple before the
deadline hits.
The exit isn't something they want. It's
something they're legally required to
do.
An evergreen fund is built differently.
You still raise capital from outside
LPs,
individuals, family offices, operators
who want exposure to real cash flowing
businesses without the volatility of
markets.
But, there's no fixed end date, no
mandatory liquidation.
Instead of returning money through a
sale someday, you return it
continuously.
Quarterly distributions paid directly
from the operating cash flow of the
businesses in the portfolio.
Your LPs don't wait for an exit to get
paid. They get paid every quarter from
the $390,000 your three companies
already produce each year.
The businesses are the return. The whole
point is to hold. And here's what that
does to the Cincinnati math. It
dissolves the problem entirely.
You don't need to sell Columbus or
Louisville anymore.
You raise the equity from LPs who want
in on the deal.
$1.5 million from four or five investors
under the evergreen structure, layered
with an acquisition loan for the rest.
You buy Cincinnati, it joins the
portfolio.
Now Cincinnati's cash flow feeds the
quarterly distributions, too.
The portfolio grows, the distribution
pool grows with it. Nobody is waiting on
a single exit payday years from now.
The payday is every quarter from real
businesses in real cash compounding.
And you realize sitting there, probably
looking slightly stunned,
that the pressure you've been living
under for 6 months wasn't real.
You invented it.
You borrowed a mental model designed for
fund managers with contractual
liquidation clauses,
and you applied it to a situation where
none of those constraints exist.
There is no LP agreement demanding you
exit. There is no fund life cycle. You
made up the deadline. And then you spent
half a year straining against something
you'd built in your own head.
So, you let it go. Not dramatically,
just
let it go.
3 months with a securities attorney.
You can consolidate all three businesses
under a single holding company.
You establish the evergreen fund as a
separate entity,
the vehicle that acquires new businesses
using LP capital going forward.
You set a distribution policy.
80% of net portfolio cash flow goes to
LPs every quarter.
20% stays in a reinvestment reserve for
capex and future acquisitions. Then you
run a quiet fund raise.
Former colleagues, a retired operator
you met at an industry event 2 years
ago.
A family office that's been looking for
exactly this kind of vehicle, consistent
cash yield, no forced exit, real
businesses. Within 4 months you have
$1.8 million in commitments.
Cincinnati is back on. That patience, it
turns out, is the asset nobody priced
into your portfolio.
People still ask you at events over bad
conference coffee when you're planning
to sell.
You tell them, when the right buyer
shows up at the right number, I'm not in
a hurry.
And you mean it now, which is different
from before when you were just saying
it.
The advantage you have, the actual
structural advantage, not just a mindset
thing,
is that every PE-backed buyer in the
room is running against a clock.
You are not. They have to exit. You
don't. You didn't get stuck. You got
selective.
10 years of building taught you the
difference.
That's the part that was never in the
budget. And it turns out to be worth
more than anything else in the
portfolio.
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