Often, when small, family-owned businesses hear the term “private equity,” their minds often go straight to Larry the Liquidator, Danny DeVito’s sharp-tongued character from Other People’s Money. It’s an image of ruthless investors swooping in to dismantle companies for profit.
But the reality is much different: private equity buyers typically focus on achieving growth, not destruction. They often bring in capital, resources, and expertise to strengthen companies by developing strategies, expanding relationships with customers and vendors, and easing the burden of back-office operations.
Private equity buyers are now a significant presence in the M&A arena, particularly when it comes to founder-led and family-owned companies. Despite this growth, several misconceptions persist in influencing how owners perceive potential buyers. Knowing what’s true and what’s myth can help business owners make informed decisions when the time comes to consider a sale.
Misconception 1: “Private Equity Just Wants To Cut Costs To Flip The Company”
This perception is one of the most common and most often inaccurate. While PE firms focus on improving efficiency, the majority are looking at long-term value creation through revenue growth, rather than rapid cost-cutting.
Private equity groups typically invest in businesses with the goal of helping them grow. They do this through time-tested managerial best practices, a quantitative lens, and insights from other industries. For sellers, that often translates to upgrades in technology systems, more insightful analytics, new leadership hires, and the ability to expand through acquisitions.
The typical PE fund holds a company for 5-6 years and target returns of 20-35% per year. To do so, they need to increase the value of the company approximately 2-3x, while also paying down debt. As a result, the majority of PE firms are focused on profitable growth, not cost cutting. They identify the highest ROI investments in sales, marketing, equipment, and team that drive revenue without sacrificing profitability.
Misconception 2: “They’ll Fire My Team After The Closing”
Owners often fear that once a deal is finalized, their loyal team will be swept out the door. To be clear, once you sell your business to someone else… it is no longer your team. In reality, though, this fear is overstated. Private equity firms view strong management teams as a significant asset that they want to retain.
If the founder plans to stay on, buyers usually encourage them to remain active in leadership, often rewarding them and their team with equity participation for the next phase of growth. If the owner is ready to step away, buyers generally prefer a thoughtful transition period. In many cases, they look first to promote from within, keeping continuity for employees and customers alike.
People typically view retaining and motivating the team as essential for securing the investment and upholding the company’s performance.
Misconception 3: “Private Equity Only Cares About The Bottom Line”
Now, let’s be clear: profit matters to PE firms, as it should to you. That’s part of doing business. But the idea that private equity is only focused on cutting costs, regardless of the consequences, doesn’t hold up when you look at how these firms actually operate.
Long term private equity success depends on results. Not just this quarter, but over years. If a firm gets a reputation for gutting companies, for chasing short-term gains at the expense of long-term value, that catches up with them. They stop getting invited to the table. Sellers talk and reputations stick.
Most firms understand that you don’t build lasting value by hollowing out what made a business successful in the first place. Strong customer relationships. A leadership team that knows the business inside and out. Employees who stay because they believe in the mission. You weaken those, and you’re not setting anyone up for success.
That’s why, during diligence, good firms take their time. They talk to people. They listen. They look for ways to build on what’s working; whether that’s improving operations, expanding the product line, or helping the business compete in new markets. Because the goal isn’t just to own a company. It’s to leave it stronger than they found it.
Misconception 4: “Private Equity Has No Idea How To Run A Company In My Space”
Another misconception is that private equity firms lack the expertise to “run my business”. The key misunderstanding there is that PE does not “run your business”. They own it, but they are not owner-operators. In reality, many buyers partner with seasoned operating executives, often former CEOs, CFOs, or industry specialists who bring deep sector experience.
Some funds even focus exclusively on one vertical, such as healthcare, industrial services, or business services. These specialized firms often come to the table with detailed knowledge of market trends, customer demands, and operational best practices. These insights from the broader sector are often incredibly valuable when applied to your niche.
For sellers, this can mean gaining a partner who understands the industry and can provide meaningful insight. These operating partners often serve as an extension of the management team, helping the company capitalize on previously unattainable opportunities.
Finding the Right Private Equity Partner
There are so many different private equity firms out there, and they all vary widely in strategy and execution. In fact, there are now more PE funds in America than McDonalds franchises. While some adopt a hands-on approach, actively guiding strategy and operations, others prefer to remain in the background, providing support and capital while allowing management to take the lead.
For a business owner considering a sale, the most important step is understanding the buyer’s philosophy and priorities. Aligning your goals with the right partner can set the stage for a successful outcome, both for you and your team.
Are You Ready To Talk About Your Next Step?
Selling a business is a major decision, and understanding the reality of private equity is only part of the process. With Roadmap Advisors, you gain a partner who helps you navigate your options, build a deal that fits your objectives, and prepare your business for long-term growth post-sale.
Our team understands the nuances of founder-led businesses, and we take the time to understand your objectives, whether you want to stay on and grow with a partner or transition smoothly to your next chapter.
If a sale is on the horizon or you simply want expert insight into what the process could entail, contact Roadmap Advisors today. We’ll help you evaluate your options, connect you with the right buyers, and guide you through each step with clarity and confidence.