How to Do Private Equity: The Small Version You Can Run

Private equity means buying a whole business (or most of one) with a mix of your own money and borrowed money, making it earn more, then selling it or keeping the cash it throws off. Big funds do it with billions. An ordinary person can run a small version: buy a profitable local or online business with an SBA loan or seller financing, pay yourself, and pay down the debt. The skill that matters is buying at a fair price and checking the profit is real.

Most people meet private equity as a villain in a news story or as the job their smartest classmate took. Underneath the jargon the idea is plain. You buy something that already makes money, you use the business's own cash to pay back what you borrowed, and every year the share of the business you own outright gets bigger.

That is also why people with no finance background buy laundromats, HVAC companies and small software tools. They are doing private equity with one deal instead of forty. This series explains how the professionals do it, then shows the routes a normal person can actually take, with the numbers, the loans and the risks.

What is private equity, in plain English?

A private equity firm raises money from investors into a fund, uses it plus bank debt to buy companies that are not traded on a stock exchange, tries to grow their profit for three to seven years, and then sells them. Holding periods have stretched lately: Bain says companies are now held around seven years at exit, up from five to six years between 2010 and 2021.

The returns come from three places:

• Earnings growth. The company makes more profit than when it was bought, through more sales, better prices or lower costs.
• Debt paydown. The company's cash pays down the loan used to buy it, so the owners' share of the value grows even if nothing else changes.
• A higher sale multiple. Buying at five times profit and selling at seven times is a gain on its own. Professionals call this multiple expansion. It is the least reliable of the three, because the market decides it.

A small business buyer uses the same three levers. The difference is scale, and that the buyer usually runs the business personally.

How do private equity funds make money?

The firm (the general partner) is paid twice. The SEC describes the usual structure as a yearly management fee, for example 2% of the money committed, plus a performance fee based on the profits made above a certain benchmark, for example 20%. That second fee is called carried interest, or carry, and together they are known as "2 and 20". A CFA Institute Research Foundation review notes the carry usually comes after "an 8% hurdle": investors first get their money back plus 8% a year, then the firm takes its share.

Investors (limited partners such as pension funds, endowments and wealthy families) commit money for 10 years or more and cannot easily sell. Their returns follow a J-curve: fees and early costs push the fund below zero in the first years, and gains arrive only as companies are sold. The same review found that for funds raised between 1981 and 2000, it took more than seven years for the average fund to return capital.

The industry is huge and currently stuck. Bain counts $1.3 trillion of unspent buyout money and 32,000 unsold companies worth $3.8 trillion, and McKinsey puts the median buyout price at a record 11.8 times EBITDA in 2025. Returns have lagged public stocks lately; the investing guide has the figures.

Why does debt make private equity work, and what does it cost?

A buyout is bought mostly with borrowed money, and the company it buys pays the loan back. PitchBook says debt can make up 50% to upwards of 75% of the money used in a buyout, though recent deals have used less: Bain describes "leverage ratios of 30% to 40%" at today's borrowing costs of 8% to 9%.

Debt magnifies everything. Here is a hypothetical small deal to show how. A business with $250,000 of seller's discretionary earnings (SDE) leaves $160,000 a year after paying a manager $80,000 and reinvesting $10,000. It is bought for $750,000, three times SDE.

The borrowed version earns three times the return on your cash, and turns a bad year into a loss you cover personally. That is the whole trade in private equity, at any size. Big funds feel it too: Bain says deals bought at current prices need 10% to 12% yearly EBITDA growth to reach their targets, against about 5% in the 2010s, because debt is no longer cheap. You can change every number in the table with the business acquisition calculator.

Which question are you asking?

Start with the guide that matches where you are.

What does the small version look like?

The version open to most people is buying one small, profitable business and running it, usually called entrepreneurship through acquisition. In the US, the median business sold through brokers in the third quarter of 2026 went for $350,000, on $156,000 of cash flow, according to BizBuySell. Businesses under $1 million sold for an average of 2.3 times cash flow.

A typical first deal is paid for with:

• Your cash: at least 10% of the price for an SBA 7(a) acquisition loan in the US.
• An SBA-guaranteed bank loan: up to $5 million, repaid over at most 10 years.
• Often a seller note: the seller lends you part of the price.

You then do what the funds do: keep the customers, tighten costs, raise prices where you can, and let the business pay down the loan. In five to ten years you own it outright, or you sell. Some buyers add a second and third business in the same industry, which is a small roll-up.

The other routes:

• Raise investor money to buy a bigger company through a search fund. Stanford's 2026 study found search funds returned investors an aggregate 33.9% a year, but only 58% ever bought a company.
• Invest in private equity funds or listed PE shares without running anything. The investing guide covers accredited investor rules, ETFs and fees.
• Work in the industry. The careers guide has the pay and the paths in.

If you would like help choosing a first side business while you build savings for a bigger move, RichTactic Pro has a 30-day plan for every route on the site, message templates and a private group. It costs $99 once, against $2,000 for Contrarian Thinking's Acquisition Foundations course and $12,500 for Acquisition Lab. It can be that cheap because it is digital and each plan is written once for every member, and we would rather you win with your first route and come back for the next. It is for people ready to do the work, with a 30-day money-back guarantee.

Who is this for, and who should skip it?

This series is for people who want to own an asset that pays them, and who are prepared to do slow, unglamorous work to get one: reading tax returns, calling lenders, walking away from deals they liked. Buying a business is a job with a loan attached for the first few years. The reward for doing it well is income you own, a business you can sell or hand on, and the standing that comes with having built something people rely on.

It is not for anyone looking for a shortcut, or for money they cannot afford to lose. If the down payment would be your emergency fund, your retirement savings or a loan from family who need it back, wait. An SBA loan means signing a personal guarantee, so a failed deal can follow you home. The risks guide goes through who should not do this at all.

The cost of waiting is real too. Every year spent selling your hours to someone else is a year of profit that went to the owner instead of you. If you want out of renting your time forever, learning to read a deal is a skill that pays for the rest of your life, whether you buy this year or in five.

Your first step today

1. Write down how much cash you could put into a deal without touching your emergency fund.
2. Open the business acquisition calculator and change only the SDE until the cash left for you covers the life you need. That is the size of business to look for.
3. Read how to buy a small business and save five listings in one industry you understand.

What size of business did the calculator say you need, and could your savings cover a tenth of its price?

This is general information, not financial, legal or tax advice. Figures are from the sources linked and the dates given, and rules change. Talk to a lender, an accountant and an attorney before you commit money to any deal.