Don't Be Tempted: 8 Signs of a Bad Business
Open on YouTube ↗This episode is an educational/advisory installment rather than a standard buyer-operator interview. Host Will Smith speaks with Ryan Doyle, an active self-funded searcher about one year into his search with no deal yet closed, and Heather Anderson, Co-Director of Sponsor Finance / Search Fund Lending at Live Oak Bank. Together they walk through eight of Ryan's fifteen identified 'time killers in search' — recurring deal characteristics that waste a searcher's time and should trigger a quick exit from a process. The eight covered are: (1) valuation outside the 2-4x SDE range (especially COVID-inflated earnings presented at face value); (2) 'stupid margins' — implausibly high margins (50%+) indicating owner-dependency and a job-not-a-business; (3) going too small (sub-$500k SDE), which introduces fragility and expensive capital; (4) bolt-on versus platform — businesses marketed as platforms that are actually one-man shops; (5) PE-competitive industries where searchers can't win; (6) unattractive markets relative to where the searcher wants to live; (7) red flags such as unreported income, aggressive add-backs, and toxic seller culture; and (8) businesses whose cash flow cannot support SBA leverage. Heather adds a lender's perspective throughout, noting Live Oak's $1M minimum enterprise value, the bank's role as a de facto second pair of eyes, and cautionary tales about industry ethics and quality-of-earnings failures. Ryan's background is 15 years in Wall Street finance (PE, boutique investment banking, rating agency); he targets services businesses in coastal Southeast U.S. at $500k-$1.25M SDE.
Deal facts
- notes
- No deal completed. Ryan Doyle is an active searcher; no acquisition has closed. Heather Anderson is an expert/lender, not a buyer. Episode discusses deal evaluation heuristics including: standard structure of 10% down + 10-15% seller note + SBA loan; SBA loan viable range roughly 2-4x SDE; Live Oak minimum enterprise value $1M; Ryan's target SDE range $500k-$1.25M (sweet spot ~$750k-$1M); max SBA-supportable multiple roughly 4.5x.
Why this business
Ryan Doyle came from 15 years on Wall Street (PE, investment banking, rating agency) and was inspired by reading 'Buy Then Build' on a flight. He realized SBA financing made acquisition entrepreneurship accessible with capital within his reach. He targets services businesses — residential services, light manufacturing, commercial services — with recurring revenue, stable margins, low capex, and fragmented markets in coastal Southeast and Dallas/Houston markets where he and his wife want to live.
What's working
- Proprietary outreach yielding better traction in tier-two and tier-three metro markets (e.g., Sarasota) where sellers are less pestered by searchers and PE
- Maintaining a deal database tracking why each deal was killed, which surfaced the recurring patterns that became the time-killer framework
- Dual-channel sourcing (roughly two-thirds proprietary, one-third broker) to keep the funnel active during slow periods in either channel
- Ryan's deep financial background helps him quickly normalize EBITDA and detect pricing anomalies (e.g., COVID-inflated earnings presented at face value)
What's hard
- Getting deals under LOI on proprietary outreach is harder than anticipated — requires extensive seller education on basic acquisition concepts plus building trust as a steward
- Emotional investment in deals that ultimately die is difficult to manage
- Competitive markets (Charlotte, Charleston) showed enormous valuation disparity — an identical business in Charleston traded at 7x versus 4x in Sarasota
- Brokers sometimes use searcher offers to shop to PE-backed platforms or keep listings at inflated prices for months without budging
- Most listed businesses are priced above the 2-4x SDE range searchers target, and many are COVID-inflated at normalized multiples of 8-9x
- The search itself has been about a year with no closed deal yet — described as 'a needle in a haystack, a numbers game, a bit of a grind'
Notable quotes
It's as advertised — search is tough. It's not easy. Finding a needle in a haystack, a numbers game, a bit of a grind, but with lots of ups and downs.
The smaller the business, especially that size, you're introducing a lot more risk. We're already kind of in a really small business that is inherently risky, and then when you go down market to that size, these are pretty fragile businesses.
Stupid margins — you'll see kind of in the summary blurb that there might be only two million in revenue and the owner is either wearing a lot of different hats, running, driving a lot of the business, there's very little infrastructure in place, so it just introduces a lot of key man risk.
Buy a job is just not a good financing scenario for a bank, and so stupid margins really is a really good sign that you're probably buying a job.
As a lender we do not have upside. All we have is downside. We're going to either get paid back at a particular interest rate that's already been set and determined, or we're going to lose money. So we're all about not losing money.