Tag: Business Owners

Investing in Private Equity as a Business Owner

Posted on by Brian Colvert

As a business owner, you’ve likely poured time, energy, and capital into building a company from the ground up. You understand risk, reward, and how to make strategic investments that generate real returns. But as your business matures or you begin to explore new opportunities, one powerful yet often misunderstood strategy enters the conversation: investing in private equity.

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Private equity has long been the playground of institutional investors and ultra-high-net-worth individuals. But today, more business owners are discovering that private equity can be a smart, strategic way to diversify their portfolio, generate long-term returns, and stay connected to the world of entrepreneurship, without the day-to-day operations. Today we’ll break down what private equity is, how it works, the benefits and risks, and how business owners can leverage it effectively.

What Is Private Equity?

At its core, private equity refers to investing in companies that are not publicly traded on stock exchanges. These are privately held businesses, often with strong fundamentals and growth potential, that are looking for capital to expand, restructure, or prepare for a sale or public offering.

Private equity investors typically provide that capital in exchange for ownership stakes, then work to improve the company’s value over time. This can involve operational improvements, financial restructuring, management changes, or even merging with other companies. The ultimate goal? To sell the company at a higher valuation and deliver a return on investment.

There are a few key ways investors can participate in private equity:

  • Direct Ownership: Buying a stake directly in a private company, often as part of an ownership group.
  • Private Equity Funds: Investing in a fund managed by professionals who allocate capital across a portfolio of private companies.
  • Fund of Funds: Investing in a fund that itself invests in multiple private equity funds, offering greater diversification.
  • Private Equity ETFs: While technically public, some ETFs offer exposure to private equity firms, though they may lack the returns and control of direct investment.

Why Business Owners Should Consider Investing in Private Equity

Business owners are uniquely positioned to understand private equity because they already live in the world of private enterprise. You know what it takes to scale a business, manage risk, and create value.

Here are several reasons why investing in private equity makes sense:

1. You Already Understand the Landscape

As a business owner, you likely have insight into operations, sales, marketing, leadership, and finance. This makes you well-suited to evaluate potential private equity investments. You may even have an edge in identifying promising companies in your own industry.

2. Higher Potential Returns

Private equity has historically outperformed public markets over the long term. According to data from Cambridge Associates and other sources, private equity has delivered higher average annual returns than many traditional asset classes.

3. Diversification

Most business owners have a significant portion of their wealth tied up in their own company. Investing in private equity allows you to diversify within a space you understand, reducing concentration risk while still staying aligned with your entrepreneurial mindset.

4. Hands-Off Ownership

Not all private equity investments require active management. By investing in a fund or as a limited partner, you can participate in the growth of private companies without the time and responsibility of running another business.

5. Exit Strategy Alignment

Private equity can also play a role when you sell your business. Many owners roll over part of their equity into the acquiring firm’s private equity structure, giving them continued exposure and upside potential.

Understanding the Risks

Of course, investing in private equity isn’t without risk. Here are a few things to be aware of:

1. Illiquidity

Private equity investments are typically long-term commitments. Your capital may be tied up for 5 to 10 years, and you won’t have the flexibility to sell shares quickly like you would with public stocks.

2. Accredited Investor Requirements

To participate in most private equity funds, you must meet certain income or net worth thresholds to be considered an accredited investor. This ensures that you can absorb potential losses and do not require short-term liquidity.

3. Higher Fees

Private equity funds often charge management fees (usually around 2%) and performance-based fees (commonly 20% of profits over a set threshold). These fees can eat into returns if the fund underperforms.

4. Lack of Transparency

Private companies aren’t subject to the same disclosure requirements as public ones. That means you might not get the same level of financial information or regular reporting.

Evaluating Private Equity Opportunities

When considering an investment in private equity, take the time to evaluate each opportunity just as you would any other major business decision. Key questions to ask include:

  • What is the company’s business model and competitive advantage?
  • Who is on the management team?
  • What is the growth strategy?
  • How is the company currently performing?
  • What is the exit strategy?
  • If you’re investing in a fund:
  • What is the fund’s track record?
  • How much experience does the fund manager have?
  • What industries does the fund specialize in?
  • What are the fees and liquidity terms?

Working with a financial advisor who understands both private equity and your overall financial picture can help ensure the opportunity fits into your broader wealth strategy.

Case Study: The Post-Exit Business Owner

Consider the example of a business owner who recently sold a manufacturing company for $8 million. After taxes, legal fees, and setting aside an emergency reserve, they have $5 million to invest. They’re already maxing out retirement accounts and own income-generating real estate.

Rather than putting the full $5 million into public markets, they decide to allocate $1.5 million into a private equity fund that specializes in mid-market logistics firms—a space they know well. By doing so, they:

  • Stay connected to a familiar industry
  • Benefit from professional fund management
  • Avoid operational stress
  • Have the potential to earn strong long-term returns

The remainder of their portfolio is split between municipal bonds, a diversified ETF portfolio, and some philanthropic giving. This approach creates balance while allowing their capital to continue working in the business world.

The Future of Private Equity for Business Owners

Private equity isn’t just for the big players anymore. More platforms are making it accessible to qualified investors with lower minimums, better transparency, and tailored strategies. As a business owner, you can leverage your knowledge and experience to identify quality investments, assess risk, and make educated decisions that align with your goals.

Whether you’re preparing for a future exit, looking to put surplus cash to work, or simply diversifying away from your primary business, investing in private equity offers a compelling path forward.

Final Thoughts

Investing in private equity gives business owners the chance to continue doing what they do best: evaluating opportunities, understanding risk, and building value. It can be an effective tool for diversification, long-term growth, and staying engaged in the entrepreneurial world without the daily grind.

Next Steps

If you’re curious about how private equity could fit into your wealth strategy, we’d love to help. Book a call with us to explore how investing in private equity could support your long-term goals. With the right approach, private equity might be more than just a good investment, it might be your next big move.

Selling Your Business? Valuation, M&A, and Exit Strategies with Chris Blees, CPA/ABV, CM&AA

Posted on by Brian Colvert

If you’ve built a successful business and are considering selling, you likely have a lot of questions. What’s my company worth? Is now a good time to sell? How do I structure the deal to maximize my return? In this episode of The Field Guide, Brian sits down with Chris Blees,  CPA/ABV, CM&AA, an expert in mergers and acquisitions (M&A) and business exits, to unpack the M&A landscape and offer valuable insights for business owners preparing for a sale. Whether you’re planning an exit in the next few years or just starting to think about it, this guide covers market trends, valuation strategies, deal structures, and key mistakes to avoid when selling your business.

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Is Now a Good Time to Sell? The Current M&A Landscape

According to Chris, the M&A market remains strong despite economic shifts and fluctuating interest rates. While high interest rates have softened some areas of the market, the lower middle market (companies valued between $10 million and $50 million) continues to see strong demand.

The reason?

There’s still an enormous amount of private equity capital and corporate cash looking for deals. Large companies and well-funded private equity firms are often cash buyers, meaning they’re not as affected by rising interest rates as smaller leveraged buyers. This means that for business owners in this range, valuations are holding steady, and in some industries, even increasing.

Industries Seeing High Demand and Strong Valuations

Certain industries consistently attract buyers and command strong valuations due to their stability, growth potential, and recurring revenue models. Here’s a closer look at some of the hottest industries in today’s M&A market:

  • Manufacturing  – The manufacturing sector, particularly in niche markets and specialized B2B services, continues to attract strong buyer interest. Companies that integrate technology, automation, or supply chain efficiencies are especially appealing to investors and strategic acquirers.
  • Software & Technology  – Tech businesses, particularly those with SaaS (Software-as-a-Service) models, command high valuations due to their scalability and predictable recurring revenue. Cybersecurity, AI-driven solutions, and cloud computing businesses are in particularly high demand.
  • Medical & Healthcare Services – Businesses in healthcare-related sectors, such as medical billing, outpatient surgery centers, physical therapy practices, and specialized medical device manufacturing, remain hot commodities. With an aging population and continued healthcare innovation, buyers see strong long-term growth potential in these fields.
  • Home & Commercial Services – The services industry, particularly in areas like HVAC, roofing, commercial landscaping, and facility maintenance, has seen a surge in interest. Many of these businesses have transitioned to subscription-based service contracts, which create reliable recurring revenue streams—making them even more attractive to investors.
  • Construction & Trades – Historically, construction-related businesses were difficult to sell due to their reliance on cyclical demand. However, specialized trades with service agreements and maintenance contracts, such as plumbing and electrical services, have become highly sought after.
  • E-commerce & Consumer Brands – E-commerce businesses with strong brand loyalty, direct-to-consumer (DTC) models, and proprietary products are in high demand. Buyers are particularly interested in companies with well-established supply chains and efficient logistics.

One key takeaway from Chris? Companies with strong recurring revenue models tend to sell for higher multiples than those reliant on one-time transactions. Subscription-based services, long-term contracts, and membership models can significantly enhance a company’s valuation and buyer appeal.

Valuation: What Drives Your Business’s Worth?

When it comes to valuing a business, it’s all about earnings and multiples. Most buyers look at a company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and apply a multiple based on the industry, growth potential, and risk factors.

Some key factors that impact valuation include:

  • Profitability and Growth Trends – Buyers want to see consistent revenue and profit growth.
  • Customer Concentration – If too much revenue comes from a single client, buyers see risk.
  • Owner Dependence – If the business can’t run without the owner, valuation takes a hit.
  • Recurring Revenue – Subscription or long-term contract models drive higher valuations.
  • Market Conditions  – High demand in your industry can drive up multiples.

Chris emphasizes that multiple expansion (finding a buyer willing to pay a higher multiple) is often more impactful than increasing earnings alone. Finding the right buyer can double or even triple a business’s value.

How Interest Rates Are Affecting M&A

Higher interest rates generally slow M&A activity by increasing borrowing costs. However, for the lower middle market, where many buyers use cash instead of debt financing, interest rate fluctuations have had minimal impact on valuations.

In contrast, smaller businesses (valued under $5 million) and very large deals (over $100 million) are more sensitive to rising rates because buyers typically rely on financing. If your business falls in the $10-$50 million range, you may still be in a strong position to sell.

Structuring the Deal: Cash, Earnouts, and Hybrid Exits

Every sale is different, and how the deal is structured plays a major role in how much a seller ultimately takes home. Some common deal structures include:

  • All-Cash Deals – The dream scenario, but less common unless the business has strong financials and low risk.
  • Earnouts – A portion of the sale price is contingent on future performance, often used when there’s uncertainty about revenue.
  • Equity Rollovers – The seller retains partial ownership, often leading to a more lucrative “second bite of the apple.”
  • Seller Financing – The seller provides financing to the buyer, reducing upfront cash but enabling a higher overall price.

Chris points out that a hybrid exit strategy—selling 70-80% of the business while keeping 20-30% equity—can be a game-changer. Many sellers who take this approach make more on their second sale than the first, as their retained equity grows in value.

Preparing to Sell: What Business Owners Need to Do

If you’re thinking about selling in the next three to five years, now is the time to start preparing. Here’s what you should focus on:

  • Build a Strong Management Team  – Buyers want to see a company that can run without the owner.
  • Diversify Your Revenue Stream  – Reduce reliance on a single client or revenue source.
  • Clean Up Your Financials – Work with a CPA to ensure accurate, well-documented financial statements
  • Address Cybersecurity & Compliance  – Ensure your business meets all legal and regulatory requirements.
  • Work with a Tax Advisor  – Strategic tax planning years in advance can significantly reduce the tax burden from a sale.

Biggest Mistakes Sellers Make

According to Chris, the biggest mistake sellers make is focusing too much on one aspect of the deal—typically the upfront cash payout. The best deals involve a balanced mix of cash, equity, and earnouts. Other mistakes to avoid:

  • Waiting too long to plan – Selling a business takes time, and waiting until you’re “ready” often means leaving money on the table.
  • Not having a strong management team – If your business depends too much on you, buyers get nervous.
  • Not considering tax implications – Proper tax structuring years in advance can save millions.
  • Ignoring due diligence risks – Buyers will scrutinize legal, financial, and operational risks. Get ahead of them.

Final Thoughts: Is It Time to Sell?

Selling a business is one of the most significant financial decisions an owner can make. The key is preparation—understanding valuation, structuring the deal wisely, and ensuring your company is attractive to buyers.

As Chris explains, many business owners wait too long to start preparing for a sale. The best time to start planning? At least three to five years before you want to exit.

Next Steps

If you’re considering selling your business and want expert advice on valuation, M&A strategies, and tax implications, Chris and his team at Biggs Cofford Capital can help. They are based in Colorado Springs but serve clients across the country. Reach out to them today to get started.

Retirement Planning for Self-Employed Business Owners and 1099 Employees

Posted on by Brian Colvert

Retirement Planning for Self-Employed & 1099 Employees –  Listen to the full episode on the Podcast!

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Today we are addressing a critical topic for self-employed business owners, Independent Contractors and 1099 employees: retirement planning without a company-sponsored plan. In the absence of traditional employer benefits, it’s essential to take proactive steps. We’ll explore various retirement strategies tailored for those who must self-manage their retirement savings, including Solo 401(k)s, SEP IRAs, and other investment options.

Understanding the Challenge of Retriemtn for the Self-Employed

For business owners and 1099 employees, the lack of a company-sponsored retirement plan means taking full responsibility for your financial future. While this can seem daunting, it also offers unparalleled control over how you save and invest your money. You decide the best ways to grow your wealth and ensure a comfortable retirement.

Why Retirement Planning is Crucial

Retirement planning is about more than just setting aside money for the future; it’s about creating a stable financial foundation that allows you to maintain your lifestyle and achieve your goals without relying on income from your business or contract work. Effective retirement planning involves assessing your current financial situation, setting realistic goals, and implementing strategies to achieve those goals.

The Power of Solo 401(k)s

One of the most powerful retirement planning tools for self-employed business owners and 1099 employees is the Solo 401(k). This plan is designed for self-employed individuals and independent contractor and offers several benefits:

  1. High Contribution Limits: Solo 401(k)s allow for significant contributions, combining employee deferrals and employer contributions. In 2024, the contribution limit is $23,000 for employees under 50, with an additional $6,500 catch-up contribution for those 50 and over. Employer contributions can bring the total to $69,000 or $76,500 for those 50 and over.
  2. Roth Option: Many Solo 401(k) plans offer a Roth option, allowing after-tax contributions that grow tax-free. This can be particularly advantageous for high-income earners looking to minimize future tax liabilities.
  3. Loan Provision: Solo 401(k)s often include a loan provision, enabling you to borrow from your retirement savings if needed. This feature can provide liquidity without triggering taxes or penalties, as long as the loan is repaid according to the plan’s terms.

>> Click here for this year’s current contribution limits <<

Exploring SEP IRAs and SIMPLE IRAs

SEP IRAs and SIMPLE IRAs are other viable options for self-employed individuals. Both plans have their unique advantages:

  • SEP IRA (Simplified Employee Pension):
    • Contribution Limits: SEP IRAs allow contributions up to 25% of your net earnings from self-employment, with a maximum limit of $66,000 in 2024.
    • Ease of Administration: SEP IRAs are relatively simple to set up and maintain, making them a popular choice for small business owners.
    • Flexibility: Contributions are flexible and can vary from year to year, which is beneficial for businesses with fluctuating income.
  • SIMPLE IRA (Savings Incentive Match Plan for Employees):
    • Employee and Employer Contributions: SIMPLE IRAs allow both employee deferrals and employer contributions. In 2024, employees can defer up to $15,500, with an additional $3,500 catch-up contribution for those 50 and over.
    • Mandatory Employer Contributions: Employers must either match employee contributions up to 3% of compensation or make a fixed contribution of 2% of compensation for all eligible employees.
    • Lower Administrative Costs: SIMPLE IRAs have lower administrative costs compared to 401(k) plans, making them an attractive option for small businesses.

Diversifying Your Investments

Beyond retirement accounts, diversifying your investments is crucial for financial stability. Diversification spreads risk and increases the potential for returns across different asset classes. Here are some ways to diversify:

  1. Stocks and Bonds: Investing in a mix of stocks and bonds can provide growth and income. Stocks offer the potential for capital appreciation, while bonds provide steady income and lower volatility.
  2. Real Estate: Real estate investments can provide rental income and long-term appreciation. Consider investing in residential, commercial, or industrial properties based on your risk tolerance and investment goals.
  3. Private Placements: For those with the expertise and risk tolerance, private placements can offer high returns. Investing in startups or private companies can be lucrative, but it’s essential to conduct thorough due diligence.
  4. Cryptocurrency: While more volatile, cryptocurrencies like Bitcoin can be part of a diversified portfolio. It’s essential to approach this asset class with caution and only invest what you can afford to lose.

Creating a Safety Net

Building a financial safety net is critical for self-employed business owners and 1099 employees. Here are some strategies to ensure you have a cushion for unexpected events:

  1. Emergency Fund: Maintain an emergency fund with 3-6 months’ worth of living expenses. This fund should be easily accessible and kept in a liquid, low-risk account.
  2. Insurance: Protect your income and assets with appropriate insurance coverage. Consider disability insurance, life insurance, and business insurance to safeguard against unforeseen circumstances.
  3. Regular Withdrawals: Establish a routine for withdrawing funds from your business or investment accounts. This ensures you are continually building your safety net and not solely reinvesting all profits back into the business.

Tax Efficiency and Planning

Effective tax planning is essential for maximizing your retirement savings when you are self-employed. Here are some strategies to consider:

  1. Deferring Income: Take advantage of retirement accounts that offer tax-deferred growth, such as traditional IRAs and Solo 401(k)s. Contributions to these accounts reduce your taxable income in the year they are made.
  2. Roth Conversions: Consider converting traditional retirement accounts to Roth accounts during years when your income is lower. This strategy can result in significant tax savings over time. You can further this strategy with a Backdoor Roth.
  3. Tax-Loss Harvesting: Offset capital gains with capital losses through tax-loss harvesting. This strategy involves selling losing investments to reduce your taxable gains.
  4. Consult a Tax Professional: Work with a tax professional to develop a comprehensive tax strategy tailored to your unique situation. They can help you navigate the complexities of tax laws and identify opportunities for savings.

Setting Realistic Goals

Setting realistic retirement goals is essential for creating a workable plan. Here are steps to help you define and achieve your retirement objectives:

  1. Assess Your Current Financial Situation: Take stock of your assets, liabilities, income, and expenses. Understanding your financial position is the first step in planning for the future.
  2. Define Your Retirement Lifestyle: Consider the lifestyle you want in retirement. Factor in travel, hobbies, healthcare, and living expenses to determine how much you need to save.
  3. Estimate Retirement Expenses: Calculate your expected expenses in retirement, accounting for inflation and potential changes in your lifestyle. This estimate will guide your savings goals.
  4. Develop a Savings Plan: Create a plan to reach your retirement goals. Determine how much you need to save each year and choose the appropriate retirement accounts and investment strategies to achieve your objectives.
  5. Monitor and Adjust: Regularly review your retirement plan and make adjustments as needed. Life changes, market conditions, and new financial goals may require you to update your strategy.

Conclusion

Retirement planning for self-employed business owners, independent contractors and 1099 employees may lack the convenience of a company-sponsored plan, but it offers the advantage of complete control over your financial future. By leveraging tools like Solo 401(k)s, SEP IRAs, and SIMPLE IRAs, diversifying your investments, creating a safety net, and planning for tax efficiency, you can build a robust retirement strategy. Set realistic goals, stay disciplined, and regularly review your plan to ensure a secure and comfortable retirement. Taking these proactive steps will help you achieve financial peace of mind, knowing you have a well-thought-out financial plan for your future.

Next Steps:

Ready to set up your plan or have questions? Schedule a call with us today! 

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