During your search, and once you are operating the business you have purchased, you should be “reasonably” compensated for your efforts. Certainly, not at the highest level of your friends in other careers, but enough to support yourself and your family.

The challenge is determining how much to extract from your search and/or the business since it will impact the “returns” for you and your investors. The less you take out, the more quickly you can improve your longer-term financial returns.

Covering your living expenses

You can expect to be living lean while searching and while running your business. Perhaps not living on Raman noodles the entire time, but not likely salting away much for savings, nor taking frequent destination vacations, and maybe even delaying the purchase of a home. (See Blog post Cost of Searching)

Hearing that your peers or business school classmates are earning higher salaries than yours can feel frustrating, but your lower salary level should be viewed as “deferred compensation”, as you are creating value in the business that will later accrue to you. The EBITDA multiple that will be paid for the business upon exit will multiply your own “investment” back into the business. This “multiplier effect” can be substantial.

Searchers who decide to launch a search later in their career may find that it is difficult to cut back their living expenses, due to family obligations or simply “spending creep”. Debby and I consciously downsized our home and mortgage payments when we relocated to the Boston area 4 years before starting my search. One searcher told me “at 35, I needed more salary to cover the lifestyle I had created for myself and was not willing to live on less”.

As the business grows and matures, you may receive bonus distributions for performance, but these will need to be supported by cash flow from the business, are generally paid after distributions to investors, and will be identified as “add-backs” later down the line. In the waterfall of obligations, the bank obligations are met first, followed by meeting your seller note payments, then investors, with you at the tail end.

Compensation while searching

Investors in a funded-search expect compensation to be part of your fund. Salary generally represents 55% for solo and 65% for duo searchers. An additional 8% for payroll taxes and 10% health care results in the bulk of the searcher’s entire raise. A survey of 25 recent traditionally-funded-searches averaged $425K for a solo search and $620K for two searchers. There is generally little or no investor push-back or negotiation on these terms which are set out in the searchers PPM (Private Placement Memorandum).

Salaries for these searchers averaged $115K/year for solo searchers and $100K/year for dual searchers. This seems to reflect the reluctance of dual searchers to burden their eventual return calculations with the extra cost of having a partner. The highest salary level was $160K/yr and the lowest was $70K/yr. In some instances, searchers have requested a continuation of their funding beyond the 24-month target if their expenses have been below budget. In a few rare cases, searchers have requested an additional “raise” from investors to extend their search for an additional 6-12 months.

In a sponsored search, where there is a single investor and generally only one solo searcher, the salary levels are reported to be closer to be between $80K/yr and $90K/yr. Self-funded searchers pay themselves no salaries during their search process and instead draw from savings, family, or their significant other during their search.

Compensation while running the company

Surveying 20 Searcher/CEO’s in 2017 as to their starting salary after purchasing their company yielded a range of values, with an expected significant difference between “funded” and self-funded searchers. For funded searchers the average salary was $160K/yr, with a median of $150K/yr and a range of $120K/yr to $250K/yr. For these “funded” searcher/CEOs, there seemed to be no significant correlation between salary levels and EBITDA, company size, or geographic cost of living.

In contrast, in the 9 self-funded searchers, EBITDA size did correlate to salary levels with an average of $88K/yr, a median of $80K/yr, and a range of $30K/yr to $150K/yr. More importantly, these CEO’s are able to “pass through” more expenses into their business achieving tax savings. Some have company autos and are more liberal in their entertainment and travel expenses for company business.

Incentives for Searcher CEO’s

Many of the funded searchers reported no incentive compensation while running the business, while some had a variety of rewards based on positive EBITDA performance. One had up to 30% of base tied to EBITDA performance. Others had specific fixed payments ranging from $15K/yr to $50K/yr at the Board of Director’s discretion.

These compensation levels were generally negotiated at time of closing, with a lead investor or the Board of Directors and annually thereafter. In many instances, investors feel that the searcher/CEO should be aligned with the investors and deferring their upside to the future. Some CEO’s don’t share the same outlook and feel that shorter term incentives that impact their pocket book are more motivating to them as they work to achieve earnings and revenue growth.

Self-funded searchers had very little incentive compensation, preferring to leave their “value” in the business rather than paying it out annually. In only one instance did the searcher have a discretionary BoD annual distribution. Their higher equity base provides them enough incentive.


Entrepreneurship through Acquisition by almost any measure is not the shortest path to riches from a compensation comparison basis. Even the incentives are relatively low on an annual basis! Instead, as would be expected, the searcher/CEO is rewarded with equity gains, which can be unlocked by the eventual sale of the business or a refinancing to pay-out investors.

The patient CEO who performs over time can be rewarded handsomely with the “long tail” of this “value created” over the years. In addition, the searcher will have gained the intrinsic value of hard-earned CEO experience over this period, which as they say, is “priceless”.

Search on!

Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I regularly update individual blog posts, add to the Reference section and Search tips, so visit the website regularly.

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Random Quote

45-“Strategic partners” are very important to the business searchers.You want to rely on some trusted providers to support your business, you can’t do everything yourself!(See Blog Post-Strategic Partnerships)

42-Start early on legal documents, they often delay closings while under LOIBoth the searcher and the seller are plowing new ground and it takes a while to comprehend the meaning of all of the legal details .(See Blog Post-Getting to closing)

63 Searchers make promises they can meet to build trust with sellers. It is important to provide incremental opportunities to show that you can be counted on to deliver.(See Blog Post-Building Trust with Sellers)

34 Searchers who get access to employees before closing are more likely to close. Once the seller begins to confide in their employees about the sale of the business and introducing you as the “new owner”, they are more likely to proceed to finalize the transaction than to change their mind at the last minute.(See Blog Post-Getting to Close)

07-You are not a PE firm, don’t act like one!
Potential sellers resonate with your taking over their legacy, a PE firm is simply adding to their portfolio. Make sure your website looks personal and non-intimidating.

04-Fight Seller Fatigue in Due Diligence!
Sellers get worn out in this process. It is highly emotional for them, probably their first time at relinquishing their “baby” to someone else. During LOI stage, make it a practice to communicate with them, in person or by phone, every 2 days.

53-Holding monthly “all-hands” meetings indicates your transparency. Trust employees with what is going on with the business and they will trust you more .(See Blog Post-Communicating with Employees)

06-Use metrics to drive decisions
Track what is most important for your search – getting in front of prospective sellers to make offers to buy their business. Track the number prospects, IOI’s, LOI’s and set goals for yourself! If you measure it, you can improve it.

22-When in conflicts arise, remind professional advisors they work for you.
Inevitably, you will disagree with some advice you are getting. After checking multiple sources, do what feels right to you and move forward. You will have to “live” with your own choices, not the professionals!(See Blog Post-Professional Support)

18-Every day that goes by during Due Diligence raises the chance that you won’t close!
Time is of the essence when it comes to moving from a signed LOI to closing on your business. Seller fatigue sets in as the closing date gets extended and the seller constantly re-evaluates their motivation to sell. Only you can push the process along.(See Blog Post-Due Diligence)

44-Plan ahead, give thought to the small details of how you present yourself as the new owner. The first introduction to the employees of the business has a huge impact so you want every word to be rehearsed!(See Blog Post-Taking over the business)

50-Don’t expect immediate “loyalty”, the previous owner earned it, it takes time. You will need to earn the trust of your employees by your actions, not your words. (See Blog Post-Seller Tranisition)

35-Searcher CEO’s need to be prepared to walk away from volume orders if margins will decline. It takes a forward thinking CEO to seek out higher margin, value added opportunities to grow profits, not revenue.(See Blog Post-Wearing the sales hat)

09-Learn from others – read case histories
Over 40 case histories have been written about funded and self funded searchers in a variety of industries and historical settings. Each have great “lessons learned” and are worth the $10 cost to read them. Searchers are learners!

39-The business seller is “hiring” you to run their business. The owner trusts you enough to turnover the “legacy” of their business to you. (See Blog Post-Searcher Profile)

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