Small Business Portfolio Margins

A framework for understanding how small business portfolios operate financially and their typical margin structures.

Portfolio Business Structure

• Holdco model owns multiple different types of businesses
• Revenue range typically over $100M combined
• Employee count around 750 across portfolio companies
• Mix of different ownership stakes (30-60% ownership common)

Margin Structure

• Small businesses typically run 15-20% EBITDA margins
• Key considerations for margins:
  • Must pay off debt service
  • Decision between taking profits vs reinvesting
  • Each business has different margin profiles

Cash Flow Strategy

• Most profits get reinvested rather than distributed
• Reasons for reinvestment:
  • Better returns from internal growth
  • Funding new acquisitions
  • Building assets within existing businesses

Business Type Examples

• Coding bootcamp

  • Services business with low capex
  • Consistent cash flow
  • Life-changing impact on customers
  • Low 8-figure revenue

• Fireworks business

  • Multiple tens of millions in revenue
  • Challenging cash flow cycle
  • High upfront inventory costs
  • Concentrated sales periods (July 4th, New Year's)
  • Break even point typically 7-8pm on July 4th

Operating Philosophy

• Flexibility in strategy between businesses
• Some businesses are "compounders" for long-term growth
• Others generate consistent cash flow
• Balance between:
  • Taking profits
  • Reinvesting for growth
  • Building long-term value