Buying a Small Business (Who, What, When, Where, Why, and How)
Who
Who do you need in order to buy a business? You need a deal team. Taking on this process without the right support is not only unwise but highly discouraged. I’ve seen too many nightmare situations unfold when people try to handle an acquisition on their own.
Assembling a deal team before you begin your search—or as you go along—will make a world of difference.
You’ll want at least three key professionals on your side:
CPA: Having a CPA vet the target business’s tax returns and analyze the Profit and Loss Statements is crucial. This will help you identify both positive and negative trends in the numbers. Ideally, choose a CPA who has experience with business acquisitions or specializes in business financials. They should be familiar with key aspects like working capital, and be able to spot potential issues with Accounts Receivable (AR) and Accounts Payable (AP). While the bank will underwrite the deal for you, it’s always good to have as many trusted eyes on the deal as possible. Hire a CPA to review the taxes and financials during the due diligence phase.
Transactional Attorney or Small Business Attorney: This is absolutely necessary when it’s time to draft the Purchase Agreement. Choose an attorney with expertise in this space—not just any contract lawyer. You want someone who specifically handles Letters of Intent (LOIs) and Purchase Agreements. They will ensure legal protections are in place within your Purchase Agreement. Yes, this is going to be a cost, but it’s one worth paying. Additionally, a good attorney will be invaluable when answering legal questions that arise during due diligence.
Business Broker/Consultant: This professional will guide you through the process of acquiring a business. I’m often amazed at how many buyers reach the point of having an accepted LOI and then don’t know what to do next. Due diligence isn’t something you can just “do.” You need to approach it with a prepared checklist of documents and specific questions. Think about it—have you verified assets, inventory, working capital, AR and AP, customer concentration, the lease agreement, licensing requirements, and more? This list is long, and if any of these items are news to you, then this is exactly why you need a trusted expert by your side. You don’t need to know everything; you need someone who understands the process and can navigate it for you. A good broker/consultant is invaluable. Ensure they have experience and know the ins and outs of the process. They’ll have the tips and strategies to help you succeed.
Assemble your deal team. The first person you’ll likely bring on is a Broker/Consultant. They’ll assist with your search, vetting deals, submitting offers, navigating calls, and guiding you on what to say and what not to say. Once due diligence begins, bring on your CPA and Attorney.
Put your deal team together and make sure you have the right support throughout the process.
What
What do you need to buy a business? Let’s start with qualifications. Be prepared to bring 10%-12% of the purchase price as a down payment. The SBA requires a 10% down payment, but as with most things in life, there are additional fees involved, which is why I suggest budgeting 10%-12%. They may also include some working capital in your loan, which could increase that percentage.
You’ll need a credit score of at least 680.
If your “Buyer Profile” is not strong, you may be asked to provide collateral. This could be equity in your home or other assets in your name. While there are ways around this—such as using a HELOC on your home to avoid putting up collateral—it’s important to have a solid buyer profile if you want to bypass these requirements.
You’ll also want to have 8%-10% of post-close liquidity. Essentially, do you have additional funds available? The SBA won’t want to see you go “all-in” on the acquisition, so having extra liquidity is important.
The more you have in savings, 401k, stocks, real estate, or other investments, the better.
It’s a good idea to get pre-qualified with an SBA lender. Head over to Live Oak Bank, speak with a representative, and get pre-qualified to understand your purchasing power. They’ll let you know what size business you can buy and outline the contingencies you’ll need to meet for approval.
Next, you’ll need time. This process takes time—anywhere from 6 to 12 months to close on a deal. Be sure you have the time to dedicate to this, as it’s an involved process.
Lastly, commitment. There’s a reason only 10% of buyers end up purchasing a business. The process is tough. Buyers often get shaken out because: 1) they don’t know what they’re doing (this is why having a deal team is essential), 2) they get discouraged when a deal falls apart, or 3) the obstacles feel overwhelming. If you’re going to buy a business, commit to the entire process. Be prepared for it to take up to a year to close, with setbacks along the way. When you’ve committed, starting from scratch won’t feel like a setback because you’ll be ready for it. Don’t let the process discourage you—winners win.
When
When should you buy a business? The short answer: when you’re financially ready and committed, and when you have your deal team in place. Timing the market? That’s a tricky one. You’ll rely on the cash flow of the business to cover debt payments. This isn’t the housing market, and trying to time interest rates will only leave you sitting on the sidelines while others jump in. Instead, you’ll lean on your deal team to find businesses that cash flow over the debt service requirement—ideally with some room to spare.
Forget trying to time interest rates. Focus on industry research. Look for industries that have positive growth trends for the next 10 years. For example, home healthcare and assisted living are booming, especially as Baby Boomers age. It’s better to focus on the industry trends rather than trying to time the interest rate market. Even then, your deal team will help you identify solid, stable, and recession-proof industries. Think “needs” over “wants,” or, as some are calling them, “boring” or “non-sexy” industries.
Ultimately, you buy a business when you’re ready for the next phase of your life—when you’re ready to take things to the next level, bet on yourself, and go all in. When you’re financially prepared and committed to the journey.
Where
Where do you buy a business? This is a two-part question: Where do you look for deals, and where should you buy geographically?
Where to Look You have two options: on-market and off-market deals. For on-market listings, check out websites like BizBuySell, BizQuest, LoopNet, BusinessesForSale, and Flippa.
These deals are more “downstream.” They’ve been seen by others and are publicly available for everyone to see. Does that mean on-market deals are saturated or full of bad opportunities? Not necessarily. You just need to be diligent in your search and proactive in reaching out. Stay in tune with the markets you're targeting, sign up for newsletters, and let brokers know what you're looking for.
The misconception with on-market listings is that they’re too saturated. Sure, there are plenty of buyers, but many of those buyers don’t know what they’re doing or don’t have a deal team ready to go. These on-market businesses are listed by owners who are mentally prepared to sell. They’ve had valuations performed, and they’re waiting for a buyer. These businesses are actively listed and represented by brokers—you just need to take your search seriously and stay consistent.
Then there’s off-market. I recommend off-market deals for buyers who know exactly what they’re looking for. For example, I helped a client close a deal completely off-market. How? He wanted a trucking and logistics business with a freight brokerage department, 5-10 employees, and revenue between $8M and $12M. He had a specific geographic radius and was looking for an owner willing to help with the transition or stay on as an operator for a salary.
Off-market deals are great for buyers who can be highly specific, but that means you’ll need to target the right businesses and build relationships with owners. The key to off-market success is to get specific—casting a wide net will only make it harder and could require additional work to get the seller into the mindset of selling and agreeing on price.
Geographic Location Where do you look geographically? Start in your own backyard. This is the best place to begin. If you can find a business near you, that’s a win. It’s easier for the SBA, and it will be more convenient for you.
After that, you can expand your search. Look within your state, in neighboring states, or, if you're willing to relocate, the world becomes your oyster. Personally, I recommend states with no state income tax, but that’s a decision you can make based on your own goals and preferences.
Why
Why buy a business? This is a question you need to answer for yourself. What is your goal? Are you an existing business owner looking to expand through acquisition? Growth by buying another business can rapidly accelerate your revenue. Or are you an individual looking to buy your first business?
Once you understand your goal, the next step is to clarify your "why." Are you trying to leave your current job and become your own boss? If so, you’ll want to look for businesses you can manage while paying yourself a salary. Ideally, you should target industries you have experience in or at least understand. Can you leverage your current skills to bring growth opportunities? Are you capable of managing day-to-day operations yourself?
Alternatively, if you’re interested in a more absentee or semi-absentee role, your search parameters will change. In that case, you’ll need to ensure there’s an operator in place—whether it’s the current owner, someone within the business, or an operator you bring on.
Whatever your reason for buying—whether it's for a roll-up strategy, adding to your portfolio, or making a career change—you need to clearly define your goals. Understanding your motivations will help you focus on finding the right business for you.
Buying a business can be life-changing, so make sure you understand why you're doing it.
How
How do you buy a business? Start by educating yourself on the process. You don’t need to become an expert, but having a solid understanding will make the process smoother. From there, you can either search on your own or hire a broker or consultant to assist you.
Next, decide whether you want to pursue on-market or off-market deals.
Throughout the process, rely on your deal team to guide you and provide the facts. Your role is to make decisions based on logic, not emotion, at each stage. Once you’ve found a business you’re interested in, you’ll submit a Letter of Intent (LOI). This is a non-binding offer that outlines the price, terms, and timeline for the next steps, including due diligence.
During due diligence, your CPA, attorney, and broker will help you evaluate the business. Simultaneously, you’ll begin discussions with an SBA lender while your attorney drafts the purchase agreement.
Once financing is approved and the purchase agreement is signed, it’s time for the seller to transfer assets to you, and the transition and training period will begin.
It’s possible to do this. If you’re committed, thorough, and stay focused, you can reach the closing table. Bet on yourself, hire the right professionals, and stay focused on your goal.
Let me know if you have any questions in the comments!
Jordan – Business Broker
Kelliher Acquisitions