Chad Hilderbrandt·October 9, 2023

How to Buy a $3m Business with No Books | Chad Hildebrant Interiew

Chad Hilderbrandt left a 17-year finance career (Standard Chartered, HSBC, Deutsche Bank, and a private equity firm) plus a stressful side portfolio of multifamily rentals to buy a private-label candle manufacturer near Jersey City for roughly $2.3-2.4m, at just over 3x SDE (SDE approaching $1m on just-under-$3m revenue). The defining feature of the deal was the seller's complete lack of usable books -- financials were literally scrawled on a manila envelope -- which scared off financeable buyers and SBA lenders but which Chad, drawing on his structuring background, solved by manually rebuilding three years of P&L from ~36 months of raw bank statements, spending roughly 100 hours over many months. That work, plus a failed early attempt at a 50/50 co-ownership structure with the seller, stretched the negotiation to nearly a year, and Chad ended up self-funding a 40% equity check against a seller note covering the other 60% (with a creative 7-year amortization/4-year balloon structure) plus a separate 5-year fixed-price call option on the real estate rather than buying it outright. Post-close, he describes burning himself out working up to 15-hour days through his first holiday season, over-investing early effort in formal procedures instead of hands-on learning, and misjudging several 'obviously broken' processes (like fragrance shelf order) that turned out to have hidden logic. The episode is a detailed case study in buying a deliberately 'hairy,' unfinanceable small manufacturing business by using deep personal diligence as a moat, plus reflections on transition management, employee psychology at handover, and the operator lifestyle trade-offs with family.

Deal facts

purchase price: ~$2.3-2.4m for the business (excluding real estate); asking price initially just over $3m including real estate
multiple: just over 3x SDE (a relatively low multiple)
sde ebitda: SDE approaching $1m
revenue: just under $3m
financing structure: No SBA/bank financing (business was not financeable due to lack of clean books). Buyer put in a ~40% equity check (cash) and seller financed the remaining 60% via a large seller note (7-year amortization schedule but with the remaining balance due/callable at year 4, splitting the difference between buyer's preferred 7-year term and seller's preferred 4-year term). Also negotiated a 5-year fixed-price call option on the real estate (~$700k) rather than buying the real estate outright.
notes: Deal took about a year (9-12 months) of negotiation and 'died' about five times. Business had no real books - seller provided financials scribbled on the back of a manila envelope. Buyer manually rebuilt 3 years of P&L by converting ~36 months of PDF bank/credit card statements into spreadsheets and categorizing every transaction line by line (~100+ hours of work). An early proposed structure where buyer and seller would be 50/50 co-owners (seller staying on, financing the other half) fell apart over lawyer-driven governance issues (no tiebreaker, fear of being fired by the other partner) and was abandoned in favor of a full buyout with a much larger seller note. Sales were declining during the negotiation (partly post-COVID normalization, partly seller pulling back near retirement), which buyer used as leverage on seller-note terms though he says in hindsight he should have also renegotiated price.

Why this business

Chad wanted a business he could personally understand and get his hands dirty in (ruled out things like HVAC/plumbing he'd have to learn from scratch), wanted manufacturing specifically for its process-orientation and hands-on nature, and liked that this candle manufacturing business had a broad, low-concentration customer base with high repeat/reoccurring revenue (private-label candles for hotels, resellers, and boutique brands) rather than one-off project work. He deliberately sought out a deal with 'hair' on it (the total lack of clean financials) because he believed messy, scary-looking deals attract less competition and more pricing leverage, and his finance background gave him the specific skill (rebuilding books from bank statements) to solve that particular problem better than most other buyers could.

What's working

High repeat/reoccurring revenue from a broad customer base of hotels, resellers, and boutique brands buying private-label candles, without needing to acquire new logos constantly
Manually rebuilding the P&L line-by-line from raw bank statements gave him deeper financial visibility into the business than most buyers (or even the seller) typically have
Large equity check (40%) and big seller note kept debt service and interest burden low, giving significant cash-flow cushion and peace of mind through slow seasons
Negotiated a 5-year fixed-price call option on the real estate instead of buying it outright, preserving flexibility (he can even sell the property before ever owning it) as the business outgrows the space
Spent several days working undercover on the factory floor during the search process, which let him evaluate the staff and build early trust and understanding of operations
A tight WhatsApp group of fellow searchers/operators (met on Twitter) he talks to almost daily has been one of the most valuable resources through search, negotiation, and operating
The company's website is unintentionally 'messy' (many pages, lots of clicking) which happens to drive strong organic SEO -- ranks near top of Google for 'private label candle manufacturer' -- so he's had to be cautious about 'cleaning it up'
Positioned in a sweet spot in the industry: bigger/more flexible than Etsy-style hobbyist candle makers, with much lower minimums and more customization than the mega automated manufacturers

What's hard

No usable books going in -- seller handed over financials scrawled on the back of a manila envelope; buyer spent ~100 hours over months manually converting ~36 bank/credit-card statement PDFs into a categorized transaction spreadsheet to reconstruct 3 years of P&L
Deal negotiation dragged on for about a year and 'died' roughly five times; an initial 50/50 co-ownership structure with the seller fell apart over lawyer-driven governance fights (no tiebreaker, fear of the other partner firing staff)
Sales were declining during negotiation (post-COVID normalization, Ukraine war jitters, and the seller easing off as he neared exit), creating uncertainty about whether it was a temporary blip or a real trend
In hindsight, he wishes he had made the seller note partially forgivable or renegotiated price further given the revenue softness, but was too deal-fatigued after 7-9 months to push harder
Wasted significant time and energy in the first three months trying to write formal 'key operating procedures' instead of just learning the business hands-on, especially since he took over right at the start of the busiest holiday season
Worked extremely long hours (up to 15-hour days, some weekends) in year one and got seriously burned out by year-end, despite thinking his prior busy career had prepared him for it
Underestimated the friction, hiring lead time, and training time involved in optimizing roles the seller had been doing (e.g., one person covering two or three jobs)
Made changes too fast in some cases without understanding the underlying logic behind seemingly chaotic processes -- e.g., alphabetizing 150 candle fragrances, which employees pushed back on hard and which turned out to be only marginally better since staff had memorized non-alphabetical positions
Employees feared job loss/changes on day one and some sought raises almost immediately; had to manage expectations without knowing what he didn't yet know about the business
Significant time away from his wife and three young kids compared to his prior work-from-home period; felt shame admitting how many hours he was working

Notable quotes

The most interesting deals we ever worked on were the ones that had a lot of hair on them... when you can find the right hair and you can find something interesting, and you can find hair that you're actually comfortable with or you feel you can mitigate appropriately, then that creates an opportunity for you where it's less competitive and you can... you've got much more pricing leverage.

He gave me his financials on the back of a manila envelope... it's scribble, it's like, this is what I think the business is, and I'm like, okay, let's get started.

I probably ended up writing a 40% equity check, which is more than I wanted to write, most of my liquidity... and I think paying a lot down, not having to pay that interest, it did give me quite a bit of peace of mind, especially during slow seasons.

I was doing 15 hour days... and I remember saying to myself, okay, if I get burnt out, I'll pull back, and in retrospect that's a really bad idea, because once you get burnt out, it's too late, you're already burnt out, that's not a switch you just turn off.