How to Acquire a Small Business

Buying an established business lets you skip the startup phase and acquire customers, revenue, and cash flow from day one. This guide covers the key steps from search to close.

Step 1: Define Your Criteria

Before searching, clarify what you want:

• Industry: What sectors interest you or match your experience?
• Size: Revenue range, employee count, deal size
• Location: Local, regional, or remote operation
• Role: Hands on operator or passive investor with management
• Budget: How much equity can you invest?

Step 2: Finding Deals

Deal sources include:

• Business Brokers: Professionals who list and sell businesses
• Online Marketplaces: BizBuySell, BizQuest, Flippa
• Direct Outreach: Contact owners of businesses you admire
• Industry Contacts: Accountants, lawyers, and bankers know sellers

Step 3: Valuation Basics

Small businesses are typically valued as a multiple of Seller's Discretionary Earnings (SDE), which is net profit plus owner compensation and benefits.

Step 4: Financing the Deal

Most acquisitions use a combination of:

• SBA 7(a) Loan: Up to 90% LTV, 10 year terms, government guaranteed
• Seller Financing: Seller carries 10 to 30% as a note
• Buyer Equity: Your cash investment, typically 10 to 20%

Step 5: Due Diligence

Before closing, verify everything:

• 3+ years of tax returns and financial statements
• Customer concentration and retention rates
• Employee agreements and key person risk
• Legal issues, liens, and pending litigation
• Lease terms and facility condition
• Equipment age and replacement needs

After the Acquisition

The first 90 days are critical. Focus on:

• Building relationships with key employees and customers
• Understanding operations before making changes
• Establishing financial reporting and controls
• Planning for seller transition period