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How to Buy a Business: The Complete Guide

Everything a first-time or experienced buyer needs to know — from targeting and valuation to financing, due diligence, and your first 90 days.

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What's in This Guide

1.

The Reality of Buying a Business

2.

What Type of Buyer Are You?

3.

Finding the Right Business

4,

Valuation From a Buyer's Perspective

5.

How to Finance an Acquisition

6.

Going to Market as a Buyer

7.

Due Diligence: What to Verify

8.

Acquisition Timeline

9.

Your First 90 Days

Why Buy an Existing Business?

Starting a business from scratch is a gamble. You’re building a customer base from zero, testing products in real time, and burning cash while you figure out what works. Buying an existing business skips the hardest part: proving the concept. You’re acquiring cash flow from day one.
That doesn’t mean buying is risk-free — it’s not. But the risks are different, and they’re more measurable. When you buy a business, you can see the financials, meet the team, talk to customers, and evaluate the competitive landscape before you spend a dollar. That’s a fundamentally different bet than a startup.

60–70%

of business buyers either fail to close a deal or overpay significantly. The difference between a successful acquisition and a costly mistake usually comes down to preparation and experienced guidance.
The lower middle market — businesses with revenue between $750K and $10M — is where the most opportunity sits for individual buyers. These businesses are often owner-operated, have loyal customer bases, and generate real cash flow. Many are owned by baby boomers approaching retirement who’ve built something valuable but don’t have a succession plan. That demographic wave means more quality businesses will hit the market in the next decade than at any point in history.
Whether you’re a first-time buyer, a search fund operator, or an acquisition entrepreneur looking to build through acquisition, this guide covers the process end to end — the way deals actually work, not the way textbooks describe them.

2. Finding a Business to Buy: Where to Look and Who to Be

Know What Kind of Buyer You Are

Before you start searching, get clear on what kind of buyer you are. This shapes everything — what you can afford, how you finance, and what sellers will think of you.

Individual Owner-Operator

Most Common
You want to buy a job you love — but with equity upside. You’ll run the business day-to-day and plan to grow it before an eventual exit.
  • First-time buyer replacing employment income
  • Typically $500K–$5M deal range
  • SBA financing common
  • Owner transition period expected
Best for: Service businesses, professional practices, retail, trades

Search Fund / ETA Operator

Growing Fast
You’ve raised committed capital from investors and are executing a structured search for a single acquisition. Speed, discipline, and deal sourcing are your key variables.
  • Backed by institutional or individual investors
  • 2–4 year search horizon
  • Deals typically $3M–$30M
  • Management transition built in
Best for: Recurring revenue businesses, B2B services, light manufacturing

Private Equity / Family Office

Institutional
You’re deploying capital at scale, building a platform, or executing a buy-and-build strategy. Deal volume, pipeline, and leverage discipline are central.
  • Multiple acquisitions per year
  • Management team in place or added
  • Leverage-optimized financing
  • Hold period of 3–7 years
Best for: Fragmented industries, bolt-on targets, platform businesses

Strategic Acquirer

Synergy-Driven
You’re buying to expand market share, acquire talent or technology, or enter a new geography. You can pay more than financial buyers because of synergies you can actually realize.
  • Paying strategic premium (1–2x more)
  • Integration timeline matters
  • Cultural fit is a real deal risk
  • Faster due diligence expectations
Best for: Competitors, adjacent verticals, supplier/ distribution channel

Where to Find Businesses for Sale

The best deals often don’t come from the places you’d expect. Here’s where to look, ranked roughly by quality:

M&A advisors and brokers.

The highest-quality deal flow comes through advisors who represent sellers. These businesses have been vetted, valued, and prepared for sale. The CIM (Confidential Information Memorandum) gives you the information you need to evaluate before you invest significant time.

Your professional network.

CPAs, attorneys, wealth advisors, and industry contacts often know of businesses that are quietly exploring a sale before they go to market. The best acquisitions often happen before a formal process begins.

Online marketplaces.

BizBuySell, BusinessesForSale.com, and similar platforms list thousands of businesses. The quality varies enormously — many listings are overpriced, poorly prepared, or stale. But for volume and early-stage browsing, they’re a reasonable starting point.

Direct outreach.

Some buyers — particularly search funders and acquisition entrepreneurs — identify target industries and geographies, then contact business owners directly. This is a numbers game, but it can surface opportunities that aren’t on the market.

3. Evaluating a Business: What to Look For Before You Offer

Not every business for sale is worth buying. Before you spend weeks on due diligence, you need a quick evaluation framework to separate real opportunities from time wasters.

The Five-Minute Filter

Before you sign an NDA or request a CIM, answer these questions:

Does it make money?

This sounds obvious, but many listed businesses are unprofitable or barely breaking even. Look for businesses with clear, documented SDE or EBITDA.

Can it run without the current owner?

If the owner IS the business — they hold every customer relationship, make every decision, perform the core service — you’re buying a job, and a risky one at that. The best acquisitions have some management infrastructure in place.

Is the asking price defensible?

A business asking 6x SDE with flat growth and no recurring revenue isn’t a deal — it’s a wish. Compare the asking price to market multiples for the industry and size. Our EBITDA multiples by industry guide is a good reference.

Why is the owner selling?

Retirement and burnout are legitimate. “I want to pursue other opportunities” with a business that’s declining is a red flag. The seller’s motivation tells you a lot about the timeline and negotiation dynamics.

Does it fit your skills and resources?

The best acquisition is one where you can add value. If you have no experience in the industry and no operational expertise, the learning curve may be steeper than the opportunity justifies.

Going Deeper: The CIM Review

Once you sign an NDA and receive the Confidential Information Memorandum, you’re evaluating the business in earnest. Key areas to scrutinize:

Financial trends.

Is revenue growing, flat, or declining? Are margins improving or compressing? Look at three years minimum. One great year surrounded by mediocre ones is not a growth story.

Customer concentration.

If one customer represents more than 20% of revenue, that’s a risk. If they represent more than 40%, it’s a deal-breaker for many buyers and lenders.

Revenue quality.

Recurring and contractual revenue is worth more than project-based or one-time revenue. Ask what percentage is recurring and what the churn rate is.

The team.

Who stays and who goes? What does the org chart look like? Are key employees likely to leave after a transition?

The competitive landscape.

Is the business differentiated, or is it competing on price in a commoditized market?

4. Financing the Deal: How Buyers Pay

Most buyers don’t write a check for the full purchase price. Business acquisitions in the lower middle market are typically financed through a combination of sources. Understanding your options shapes what you can afford and how you structure your offer.

SBA Loans: The Most Common Path

The SBA 7(a) loan program is the backbone of small business acquisitions. SBA-backed loans allow buyers to finance up to 90% of the purchase price with competitive interest rates and long repayment terms (typically 10 years). The catch: SBA loans require a defensible business valuation, clean financials, and often require the seller to carry a note for 10–20% of the purchase price as a show of confidence.
The SBA process takes 45–90 days and involves substantial paperwork. Start the conversation with an SBA-preferred lender before you find a deal — getting pre-qualified makes you a more credible buyer and speeds up the process when you find the right business.

Seller Financing

In many lower middle market deals, the seller finances a portion of the purchase price — typically 10–30%. This means you pay the seller over time, usually at a negotiated interest rate over 3–5 years. Seller financing is common, expected, and actually works in the buyer’s favor: if the seller is willing to carry a note, it signals confidence that the business will continue to perform. For a deeper dive, see our guide on how seller financing works.

Equity and Investor Capital : Search fund operators and PE-backed buyers bring investor capital. If you’re raising equity, your investors will expect a return — typically structured as preferred equity with a hurdle rate. The more equity you can contribute yourself (even 5–10% of the deal), the more aligned you’ll appear to both investors and sellers.
All-Cash Deals Rare for individual buyers, but common for strategic acquirers and well-capitalized PE firms. All-cash offers are the strongest possible position in a negotiation — they eliminate financing risk and often allow buyers to negotiate a lower price in exchange for certainty of close.

Type

Type Typical Structure Pros Cons

Pros

Cons

SBA 7(a)
Up to 90% LTV, 10-yr term
Low down payment, competitive rates
Lengthy process, valuation required
Seller Note
10–30% of price, 3–5 yr
Signals seller confidence, flexible terms
Seller must agree, adds complexity
Equity / Investors
Preferred or common equity
No debt service, more buying power
Gives up ownership, investor expectations
All Cash
100% at close
Strongest offer, fastest close
Requires significant capital

Due diligence is where you verify that what the seller told you — and what the CIM presented — is actually true. It's the most critical phase of the acquisition process. Skip it or do it poorly, and you're buying blind.

Due diligence is where you verify that what the seller told you — and what the CIM presented — is actually true. It’s the most critical phase of the acquisition process. Skip it or do it poorly, and you’re buying blind. Due diligence is where you verify that what the seller told you — and what the CIM presented — is actually true. It’s the most critical phase of the acquisition process. Skip it or do it poorly, and you’re buying blind.
Typical due diligence takes 30–60 days after the LOI is signed. You’ll be in exclusivity during this period, meaning the seller isn’t talking to other buyers. Use the time wisely.

Financial Due Diligence

The most common structure in SBA deals: 10% buyer equity, 80% SBA loan, 10% seller note. The seller note shows commitment and often satisfies the bank’s requirement that the seller has skin in the game post-close.

Tax returns (3 years). Compare to the P&L the seller provided. Discrepancies aren’t always sinister, but they need explanation.

Bank statements. Verify revenue deposits match reported revenue. Look for unusual patterns.

Accounts receivable and payable aging. Old AR may be uncollectible. Large AP may signal cash flow problems.

Normalized earnings. Re-calculate SDE or EBITDA yourself. Verify every add-back the seller claimed.

Working capital. Understand the seasonal cash needs and what level of working capital transfers with the deal.

Legal Due Diligence

Contracts and agreements. Customer contracts, vendor agreements, leases, employment agreements. Are they assignable? Do any have change-of-control provisions?

Litigation history. Any pending or threatened lawsuits? Any past settlements that could signal ongoing risk?

IP and licensing. Trademarks, patents, trade secrets, software licenses. Make sure the business actually owns what it claims to own.

Regulatory compliance. Industry-specific licenses, permits, environmental compliance. Ensure everything is current and transferable.

Operational Due Diligence

Employee interviews. Meet key employees (with the seller’s permission). Understand the team’s capabilities and flight risk.

Customer conversations. Talk to major customers about their relationship, satisfaction, and likelihood of continuing after a transition.

Systems and technology. Evaluate the tech stack, software, equipment condition, and any upcoming capital expenditure needs.

Facility review. Visit the location(s). Evaluate the lease terms, condition of the space, and any deferred maintenance.

For a comprehensive checklist you can download and use during your process, see our due diligence checklist for buying a business.

6. From LOI to Close: The Final Stretch

The Letter of Intent (LOI)

The LOI is where the deal gets real. It’s a non-binding agreement (with a few binding provisions, like exclusivity and confidentiality) that outlines the key terms: purchase price, deal structure, timeline, and conditions. Think of it as the blueprint for the deal. For a detailed breakdown of what goes into an LOI and how it differs from an IOI, see our guide on what an LOI is and what it covers.

Negotiating the Deal Structure

The purchase price is just the starting point. The structure of the deal — how you pay, when you pay, and what conditions are attached — is where the real negotiation happens.

Asset sale vs. stock sale. Most small business deals are structured as asset sales, where you’re buying the assets of the business (equipment, inventory, customer lists, goodwill) rather than the legal entity. Asset sales are generally better for buyers from a tax perspective. Stock sales are more common in larger deals or when the business has non-transferable contracts or licenses. We cover the difference in detail in asset sale vs. stock sale.

Earnouts. An earnout ties a portion of the purchase price to the future performance of the business. They’re a tool for bridging a valuation gap — the seller thinks the business is worth $3M, you think $2.5M, so you structure $2.5M at close plus $500K contingent on hitting revenue targets. Earnouts can work, but they need to be structured carefully. See our guide on when earnouts work and when they don’t.

Reps and warranties. These are the promises the seller makes about the business — that the financials are accurate, that there are no pending lawsuits, that all contracts are valid. They’re your protection if something turns out to be untrue after closing. Your attorney will negotiate these carefully. For more, see reps and warranties in M&A.

The Purchase Agreement and Closing

The purchase agreement is the definitive legal document that transfers ownership. It codifies everything negotiated in the LOI, plus the detailed legal protections both sides require. Your attorney drafts or reviews it. Your advisor ensures the business terms match what was agreed.
Closing day itself is mostly procedural — signing documents, wiring funds, transferring accounts. The real work happened in the weeks and months before. If you’ve done the diligence and the structure is sound, closing should be confirmation, not surprise.

7. Your First 90 Days as the New Owner

You closed the deal. The wire went through. You own a business. Now what?

The first 90 days are a transition period — and how you handle it sets the trajectory for everything that follows. Most deals include a transition agreement where the seller stays involved for 30–90 days to introduce you to key relationships, transfer knowledge, and ensure continuity.

Week 1–2: Listen More Than You Change

Resist the urge to optimize everything on day one. Your first job is to understand how the business actually operates — not how the CIM said it operates. Meet every employee. Talk to every key customer. Observe the systems and rhythms before you touch them.

Week 3–6: Build Relationships

Your employees are watching to see what kind of owner you’ll be. Your customers are wondering if the service will change. Both groups need reassurance and personal connection. Be visible, be accessible, and follow through on what you promise.

Week 6–12: Start Optimizing

Now that you understand the business, start making the improvements that drew you to the acquisition in the first place. But prioritize — don’t try to change everything at once. Focus on the one or two levers that will have the biggest impact on cash flow or customer experience.

Ready to Find and Buy the Right Business?

We work with buyers at every stage — from defining your acquisition thesis to closing your first
deal. Start with a confidential conversation.

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