Buying a business isn’t just one big decision; it’s a bunch of smart, planned-out steps. Think of it like a road map. You start by figuring out what you want, then you find and value businesses, get your money lined up, do your homework, and finally, close the deal.
Following this path lets you jump right into a business that’s already making money, skipping the scary part of starting from zero.
Starting Your Journey To Business Ownership
Jumping into the world of buying a business can feel huge, but it’s simpler than you might think. We’ll skip the fancy words and get right to what you need to know.
The first question you have to answer isn’t about money or paperwork. It’s about you.
Before you even look at a business for sale, you need to be really honest about why you’re doing this. Are you trying to ditch your 9-to-5 job for something you can control? Is this a brand-new career, or are you trying to add a new service to a business you already own? Knowing your “why” will guide every choice you make.
For example, a freelance web designer might buy a small marketing agency so she can offer more services to her clients. That’s a smart way to grow. Someone else might buy a simple business like a laundromat to earn money without having to be there all the time. For many, this hands-on experience is a better teacher than school. That’s why some people say buying a business is the new MBA.
This simple picture shows the first key steps of your journey.
As you can see, getting clear on your personal “why” helps you set real goals and make a smart checklist for your search.
Set Your Goals and Create a “Buy Box”
Once you know your “why,” it’s time to get specific. This means setting money goals and deciding exactly what your perfect business looks like. The result is what we call a “buy box”—a simple but powerful checklist that will guide your search.
A good buy box is your secret weapon. It stops you from wasting time on businesses that aren’t a good fit for you.
And you’ll need that focus. It’s a busy market for buyers right now. The value of business deals hit an amazing $2 trillion in the first half of this year alone. That’s a 27% jump from last year. More chances to buy also means more people looking, so being clear about what you want is super important.
Your buy box is like your North Star. It’s a list of things you won’t compromise on, like the industry, location, size (how much it makes), and even the type of customers you want. Sticking to it helps you avoid making emotional choices and keeps your search super efficient.
To get you started, here is a simple table to help you figure out what you’re looking for.
Defining Your Personal Acquisition “Buy Box”
| Criteria | Your Ideal Specification | Example |
| Industry/Niche | What fields do you know or enjoy? | Home Services (Plumbing, HVAC, Landscaping) |
| Financials | Min. Profit? Max Price? | $150k profit, under $600k purchase price |
| Location | Remote, local, or can it be moved? | Within a 30-minute drive of my home |
| Business Model | Monthly payments, B2B, service-based? | Sells to customers with monthly service contracts |
| Owner Involvement | How many hours will you work in it? | I’ll run it myself, 40-50 hours a week |
| Deal Breakers | What would make you walk away? | If one customer makes up more than 20% of sales |
Think of this table as your first draft. Write these things down.
Having this checklist makes it way easier to look through hundreds of listings on sites like BizBuySell and quickly find the few that are actually worth your time.
How to Find the Right Business to Buy
Okay, you’ve got your “buy box” ready. Now for the fun part: the hunt.
Most people think this just means scrolling through websites like BizBuySell. While that’s part of it, it’s not the whole story. The really great deals—the hidden gems—are almost always found “off-market.” This means they aren’t even listed for sale anywhere.
Think about it. The second a business is listed online, you’re competing with tons of other buyers. That competition drives the price up and makes it harder to get a good deal. The real secret is to find and talk to owners who haven’t even thought about selling yet.
Being proactive puts you in control.
Your Search Starts Online, But Ends Offline
Starting your search online makes sense, but don’t stop there. A smart plan mixes looking at public listings with talking to people you know in the real world.
- Online Marketplaces: Sites like BizBuySell, BizQuest, and Flippa are great for seeing what’s out there. You can see what kinds of businesses are for sale and what they’re selling for. But don’t believe everything you read in a listing.
- Business Brokers: A good broker can be a huge help. They know about deals that aren’t public yet and can find opportunities for you. Look for local brokers who know your target industry.
- Your Professional Circle: This is your secret weapon. Start talking to local accountants, lawyers, and bankers. These people are often the first to know when a business owner is thinking about retiring or selling. A simple chat with your accountant could lead to a great opportunity that no one else knows about.
Finding Hidden Gems: The Proactive Approach
The most successful buyers don’t wait for the perfect deal to show up; they go out and find it. This means finding great businesses that fit your list and reaching out to the owners directly, even if there’s no “For Sale” sign.
This might sound scary, but it’s easier than you think. Many owners of small businesses don’t have a plan for who will take over. A polite, professional email from a serious buyer might be just what they need to start thinking about it.
Let’s look at a real-life example. A woman wanted to buy a local landscaping company. Instead of just searching online, she made a list of the top five landscaping businesses in her town. She found out one of the owners was in his early 60s.
She didn’t send a cold, boring email. Instead, she wrote a simple, personal letter:
“Hi [Owner’s Name], my name is Jane and I really admire the business you’ve built. I’ve lived here for 10 years and have always been impressed by your work. I’m currently looking to buy a great local business to run for the long haul. If you’ve ever thought about what’s next for you and your company, I’d be honored to chat with you privately. Either way, thanks for building such a great local business.”
That simple, respectful letter led to a coffee meeting. Six months later, she bought the business in a friendly deal with no other buyers competing against her. This approach can be your golden ticket. It also helps to know what a good business looks like, which is why we always tell people to learn how to build the business you would want to buy.
Spotting Red Flags in Listings
As you look at listings, you need to learn how to spot red flags. Not every business is as good as it seems, and learning to filter out the bad ones quickly will save you a ton of time and energy.
Here are a few common warning signs to watch for:
- Vague Financials: Be careful if a seller won’t give you clear financial reports. Phrases like “owner can prove income” without any real documents are a huge red flag.
- Sudden Growth Spikes: If a business has been flat for years and suddenly has a huge jump in sales right before being sold, you need to look closer. Is that growth real, or did they do something to make the numbers look good for the sale?
- High Customer Concentration: If one single customer makes up 30% or more of the company’s sales, you’re buying a big risk. What happens if that one customer leaves right after you take over?
- A “Too Good to Be True” Story: If the owner is selling a super profitable, easy-to-run business for a low price because they are “bored,” you need to dig deeper. There’s almost always another reason.
Understanding What a Business Is Really Worth
Figuring out a business’s price tag can feel like a guessing game. But it’s less about guessing and more about some simple math. Let’s show you how it works so you can make an offer with confidence.
The most common way to value a small business is based on a simple idea called Seller’s Discretionary Earnings (SDE).
Just think of SDE as the total amount of money the owner gets from the business in one year. It’s the company’s net profit plus the owner’s salary and any personal perks they pay for through the business.
Uncovering the True Profit
To get the real SDE, you have to “normalize” the finances. This is just a fancy way of saying you add back all the owner’s personal expenses to see the business’s true profit. It’s common for owners to pay for things like a personal car, family cell phone bills, or vacations through the company.
While this might be okay for taxes, it hides how much cash the business really makes. Finding these “add-backs” is a key step in figuring out what a business is actually worth.
Let’s say you’re looking at a small local restaurant. The books show a profit of $80,000 a year. But after digging a little, you find the owner also pays themselves a $60,000 salary, has a $10,000 car lease paid by the business, and writes off $5,000 in personal travel.
By adding those back, you see the real SDE:
- $80,000 (Net Profit)
- $60,000 (Owner’s Salary)
- $10,000 (Car Lease)
- $5,000 (Personal Travel)
- Total SDE = $155,000
Suddenly, a business that looked just okay is actually a strong money-maker. This is the number you’ll use to figure out its value.
Applying the Industry Multiple
Once you have a solid SDE number, the next step is to apply an industry “multiple.” A multiple is just a number—like 2x, 3x, or 4x—that shows what buyers are usually paying for a business in that industry, based on its earnings.
Key Takeaway: A business’s value is usually calculated as SDE x Industry Multiple = Purchase Price. It’s that simple. Your job is to check the SDE and find the right multiple.
So, if that restaurant with $155,000 in SDE is in an industry where businesses usually sell for 3x their earnings, a fair price would be around $465,000 ($155,000 x 3).
This is a basic idea, but getting the numbers right is everything. For a closer look at the key numbers that drive value, check out our guide on the 7 numbers that can skyrocket your company’s value.
Using online tools can help you organize these numbers and compare a business against real market data. This gives you a big advantage when it’s time to negotiate.
Finding the Right Multiple for Your Target Business
So, where do these multiples come from? They aren’t made up. They’re based on data from actual business sales and can change a lot based on a few key things. A stable, boring business might get a lower multiple, while a fast-growing company in a popular industry will get a higher one.
Here are some of the key things that affect a business’s multiple:
- Industry: A software company will have a much higher multiple than a local retail shop.
- Growth Rate: Businesses that are proven to be growing are simply worth more.
- Predictability: Companies with customers on monthly plans are less risky, so they get a higher multiple.
- Owner Involvement: Does the business run like a machine, or does it fall apart if the owner takes a vacation? One that can run without the owner is far more valuable.
The tech industry, for example, makes up about 30% of all business deals. Tech and other fast-growing businesses often get higher prices because buyers are willing to pay more for things like special software or smart systems.
To find a realistic multiple for the business you’re looking at, talk to business brokers or look at databases that track business sales. This research is important—it helps you see if the seller’s asking price is realistic or just a wish. Your goal is to negotiate with facts, not just feelings.
How to Fund Your Business Purchase
Unless you have a ton of cash lying around, you’re going to need a way to pay for your business purchase. This is where many people get nervous, but getting funding is more flexible than you might think. Let’s break down your options in plain English, so you can see how possible this is.
The great news? You don’t need to have 100% of the purchase price yourself. In fact, the best deals are usually a smart mix of different funding sources. The trick is to find the right mix that works for the business, the seller, and your own wallet.
The Go-To Option: SBA Loans
For most first-time buyers, the Small Business Administration (SBA) loan is the first place to look. These aren’t loans directly from the government. Instead, the SBA promises to cover a large part of the loan for a bank. That promise makes the bank feel safer, so they’re much more likely to approve a loan to buy a business.
The SBA 7(a) loan is the most common type for buying a business. They offer long repayment times, often up to 10 years, which keeps your monthly payments low.
But getting an SBA loan takes some work. You’ll need to have a few things ready:
- A Solid Down Payment: Lenders want to see you have some of your own money in the deal. Plan on putting down at least 10% of the total price.
- Good Personal Credit: Your credit score is a big deal. Banks want to see that you’ve borrowed money responsibly in the past.
- Relevant Experience: While it’s not always required, having some experience in the industry you’re buying into makes you look like a much better bet.
The approval process involves a lot of paperwork, like personal financial statements, tax returns, and a business plan. It’s a lot, but it’s the most common path for a reason: it works.
The Creative Choice: Seller Financing
What if the seller could act like your bank? That’s the simple idea behind seller financing. In this setup, the owner agrees to let you pay them a part of the purchase price over time, with interest. It’s a powerful tool that shows the seller is confident in the business’s future—and in you.
Why would a seller agree to this? Simple. It makes their business easier to sell, often for a better price. It also gives them a good reason to help you succeed after the sale. A seller who truly believes in their business will almost always be open to this.
Imagine you’re buying a business for $500,000. With just an SBA loan, you’d need to come up with a $50,000 down payment (10%).
But what if you made a deal where the seller financed 20% of the price ($100,000)? Now, you only need an SBA loan for $400,000. The bank sees the seller’s help as a huge vote of confidence, making them more likely to approve your loan. Plus, your down payment on that smaller loan might drop to just $40,000, saving you cash.
Putting It All Together for the Win
The smartest deals almost always mix these two options. Let’s look at a real-life example. A buyer wanted to purchase a small manufacturing company for $1 million. The problem? They only had $100,000 in cash.
Here’s how they structured the deal:
- SBA Loan: They got an SBA loan for $750,000, covering 75% of the price.
- Seller Financing: They convinced the seller to finance $150,000, or 15% of the deal.
- Buyer’s Down Payment: This left just $100,000 (10%) for them to cover in cash, which was exactly what they had.
This creative structure made a deal happen that seemed impossible. It lowered the buyer’s upfront cash, made the bank happy, and kept the seller involved for a smooth transition.
As you start exploring how to buy a business, remember that the funding world is always changing. While SBA loans are great, it’s worth seeing how new funding alternatives can help you buy and scale with even more freedom. The right financing plan isn’t just about getting the money; it’s about setting yourself up for success.
Performing Due Diligence Without Missing a Thing
You’ve found a business that looks great, you’ve agreed on a price, and you have your financing ready. You might be tempted to rush to the finish line.
Don’t do it.
This next step is where the deal is really won or lost. Welcome to due diligence—the most important part of buying a business. It’s your one chance to be a detective and check that everything the seller told you is true.
Think of it like a home inspection before you buy a house. Your only job is to find any problems before you own them. This is your safety net, the one thing that can save you from making a huge mistake.
And it can be a huge mistake. Studies show that 50% to 60% of business purchases fail to work out as planned. Why? Most of the time, it’s because of problems that a good due diligence process would have found.
Look Beyond the Surface-Level Financials
The first thing to check is the money, but you need to go much deeper than the simple profit reports the seller showed you. This is where you bring in the pros—specifically, an accountant who has experience with buying businesses. This is not a job for your cousin who does taxes.
Your accountant’s job is to check the same numbers you used to make your offer. They’ll match bank deposits to sales reports to make sure the cash flow is real. This isn’t about not trusting the seller; it’s about being a smart business owner.
Here’s a basic checklist of the financial papers you need to see:
- Tax Returns: At least the last three to five years. Don’t just look at them; compare them to the financial reports. They should match.
- Bank Statements: Three years of statements for all business accounts. This is a must. It’s how you prove the cash is real.
- Profit & Loss Statements: Detailed reports for the last three years, plus one for the current year.
- Accounts Receivable & Payable Aging: This is a big one. It tells you who owes the business money (and if they are late) and who the business owes. A lot of late payments can signal a problem.
One of the first things I check is customer concentration. If a business gets 40% or more of its sales from a single client, that’s a huge red flag. You’re not buying a business; you’re buying one relationship that could leave the day after you take over. That risk has to be reflected in the price.
Investigate the Operational and Legal Risks
Once you have a clear financial picture, it’s time to look at how the business runs and its legal health. This is where you find the non-money problems that can blow up your investment later.
Check out the physical stuff. Does that important machine sound like it’s about to break? Are the delivery vans held together with duct tape? A surprise $50,000 equipment repair six months from now can kill your cash flow. You need to check everything yourself or, even better, hire an expert to do it.
On the legal side, you need a lawyer to search for hidden problems. I once helped a buyer who was about to purchase a great online store. During the legal check, his lawyer found a nasty lawsuit from a former employee that the seller had “forgotten” to mention.
That discovery didn’t kill the deal. Instead, it gave my client the upper hand. They went back and negotiated the price down by the amount they thought it would cost to settle the lawsuit. That’s the power of good due diligence—it doesn’t just protect you; it gives you the power to change the deal based on facts.
Building Your Due Diligence “Strike Team”
Let me be direct: you cannot do this alone. Trying to save a few thousand dollars by not hiring professional help is the most expensive mistake you can make.
Your due diligence team is small but powerful:
- An Accountant: This person leads the financial check. They’ll confirm the numbers and find any weird financial stuff.
- A Lawyer: They’ll handle the legal review, looking for lawsuits, problems with contracts, or other legal issues.
Think of these experts as your insurance policy. They know what to look for and what it means. The money you spend on them isn’t a cost; it’s an investment in not losing everything. Don’t even think about skipping it.
Closing the Deal and Planning for Day One
You’ve done the hard work, checked the numbers, and your funding is ready. This is it—the moment you cross the finish line. This is where you sign the papers, get the keys, and “business owner” becomes your official title.
The last big step is signing the purchase agreement. This is the main legal document that spells out every detail of the sale. Your lawyer will do the heavy lifting, but you need to understand the key parts.
Pay close attention to the non-compete clause. This stops the seller from opening a similar business down the street and stealing the customers you just paid for. Make sure it’s specific about the time and location it covers. A weak non-compete is worthless.
Your First Week as the New Owner
Once the deal is done, the real work begins. Your first week is not the time for big changes. It’s all about building trust, calming your new team, and learning how things work from the people who know best.
Communication is key. Talk to the employees on day one. Be open, introduce yourself, and tell them your first plan is just to listen and learn. They are your most valuable resource, and their knowledge is key for a smooth transition.
Here are a few simple goals for your first week:
- Meet with every employee one-on-one for just 15 minutes. Ask them what works, what doesn’t, and what they’d change.
- Call your top 5 customers. Introduce yourself and tell them it’s business as usual. Let them know they are important.
- Learn the daily routines. Watch key employees. See how orders are handled and how problems are solved.
The best new owners spend the first 30 days listening more than talking. Your goal is to understand how the business really works, not how you think it should. Holding back on making big changes right away shows you’re a smart leader.
Creating a Simple 90-Day Plan
Your first three months should be about a smooth transition and finding small, easy wins. A messy change can scare employees and customers, so your main goal is stability.
A great 90-day plan is super simple. It’s not about changing the whole company; it’s about taking over in a calm, steady way.
Here’s a simple plan for your first 90 days:
- Days 1-30: Listen and Learn. Your only job is to soak up information. Understand how things are done and the roles people play. Write down everything you see and hear.
- Days 31-60: Find Opportunities. Now that you know how things work, you can start to see where to make improvements. Are there slow processes that waste time? Are customers asking for something the business doesn’t offer?
- Days 61-90: Implement Small Wins. Pick one or two small changes you can make that will have a big impact. This could be as simple as updating old software or asking customers for feedback. These small wins build confidence and show your team you’re there to make things better.
This patient approach sets you up for long-term success. Remember, you’re not just buying a company’s stuff; you’re earning the trust of the people who make it run.
Frequently Asked Questions About Buying a Business
Even after you’ve done your homework, a few questions always come up. Here are some quick, simple answers to the most common ones.
How Much Cash Do I Really Need?
For the down payment, you should plan on having 10% to 25% of the total purchase price in cash. This is what most lenders, especially for SBA loans, will want to see.
Creative deals like seller financing can sometimes lower that number, but don’t count on it.
Also, don’t forget to save money for closing costs. This is where people get surprised. Fees for your lawyer, accountant, and other advisors can add up, so make sure you have extra cash set aside for them.
How Long Does The Process Usually Take?
Be patient. From the day you start your search to the day you get the keys, the whole process usually takes six to twelve months.
Here’s a rough idea of how that time is spent:
- The Search: Finding the right business often takes the longest. This can easily take a few months.
- The Deal: Once you find a business, negotiating and due diligence usually takes another one to two months.
- The Paperwork: Getting all the legal and financing papers signed can take one more month.
The biggest mistake I see first-time buyers make is rushing through due diligence. It’s easy to get excited and ignore potential problems. A careful, skeptical review is the best way to protect yourself. Trust the numbers, not just the story the seller tells you.
Grab my book! https://amzn.to/45Cm2ky
Hi, I’m Heather.
Let me help you scale your Utah $1M+ biz to $20M+
My credentials:
Built & sold Queen of Wraps (yep, that’s my face on the side of I-15)
Learned 1,769,230+ lessons so you skip trial-and-error
Zero Ivy MBA (just pioneer grit + market-tested tactics)
Let’s talk if you’re:
Ready to make your ‘good’ business a GREAT business
Hitting $1M+ and knowing you’re built for more
Have 10+ employees that need to see your vision
Subscribe to my YouTube https://lnkd.in/g78wdEhm