How to Buy a Business

Buying a business is a process, not a lottery. The buyers who do well follow the same sequence every time, and the ones who overpay or buy a broken company are almost always the ones who skipped a step. Here is the sequence, start to finish.

1. Decide what you're actually looking for

Before you look at a single listing, get specific. What industries do you understand or want to learn? How much of your own cash are you willing to put in? Do you want a business you can run yourself, or one with a manager already in place? How much do you need it to pay you each year?

Write your criteria down: target price range, industry, minimum owner earnings, and location. Every deal you look at gets measured against that list, not against the excitement of the moment. A disciplined buyer rejects nine deals for every one they pursue, and that's the point.

2. Know where businesses actually get sold

Business brokers

Brokers represent sellers, usually for businesses priced from a few hundred thousand to a few million dollars. They pre-screen the numbers and shepherd the process, which makes them the easiest starting point. Register with the brokers in your target industry and region and tell them exactly what you're looking for.

Online marketplaces

Marketplaces list thousands of businesses for sale at any time, from small websites to seven-figure Main Street companies. Volume is high but quality varies. Treat listings as a way to learn pricing and structure, not as the finish line.

Off-market outreach

The best deals often never get listed. Owners of profitable businesses are getting older, and many would sell to the right person if asked. They just don't want to pay a broker or broadcast that they're leaving. A respectful, direct letter or email to owners in your target industry can surface deals no one else sees.

3. Do a fast first look at the numbers

When something looks interesting, ask for basic financials: the last two or three years of profit and loss statements and tax returns. The number buyers care most about is seller's discretionary earnings (SDE), the total pre-tax profit the business generates for its owner, adding back the owner's salary and any one-off or personal expenses buried in the books.

Small businesses typically sell for a multiple of SDE. The multiple depends on the industry, how dependent the business is on the owner, customer concentration, and growth trend. Your job at this stage is simply to sanity-check: does the claimed profit match the tax return? Is revenue growing, flat, or declining? How many customers make up the bulk of the revenue?

4. Make the offer with a letter of intent

Once the numbers hold up, you make a non-binding offer, a letter of intent (LOI) that states your price, the deal structure (how much cash at closing, how much seller financing), and a timeline for due diligence. This is where serious buyers separate from tire-kickers, and it locks in an exclusive negotiation window so you're not bidding against the world while you investigate.

5. Run due diligence like an owner, not a fan

Due diligence is the deep verification stage: confirming the financials against tax returns and bank statements, understanding customer contracts and churn, checking leases, licenses, employment agreements, and any legal or tax problems. You are trying to disprove the seller's story. If what you find doesn't match what you were told, you renegotiate, or you walk away. Walking away from a bad deal is a win.

6. Close and take over

Closing involves attorneys, the lender if you're using one, and a purchase agreement that transfers the assets. But the real work is the transition: meeting the key customers and employees, getting introduced by the seller, and agreeing on how long the seller stays available to help. A smooth handover is negotiated into the deal, not hoped for afterward.

Where most first-time buyers go wrong

• Falling in love with a deal before verifying the numbers.
• Buying a business that only works because the owner works 80 hours a week in it.
• Skipping due diligence to win a bidding contest.
• Not negotiating seller financing, the single best risk-reducer in a deal.

Take the process one step at a time and it's very learnable. Next: how buyers finance these deals →

Michael Freedman

Florida licensed business broker. 14+ years buying and selling businesses, 1,000+ evaluated, $100M+ in deals closed and advised on.

About Michael →