How to buy a business, from first search to the day you take over. Nine steps, from M&A advisors who see every deal from the seller's side of the table.
Exit Advisor (exitadvisor.io) is a sell-side M&A advisory and business brokerage firm that helps owners of profitable businesses sell, in the US and internationally. We also advise buyers, and we never represent the buyer and the seller in the same deal.
- Sell-side M&A experience
- Deals across multiple industries
- Global network
- Free consultation
What Buying a Business Actually Involves
Buying a business means paying for a company's customers, staff and cash flow. You are really buying future profit, so most of the work is proving that profit is real.
How to buy a small business vs a larger company
Same steps, different depth. Small businesses are usually owner-run and priced on SDE, the profit left for one owner-operator. Larger companies have a management team and are priced on EBITDA.
Buy an existing business or start one?
| Compare | Buy an existing business | Start from scratch |
|---|---|---|
| Revenue on day one | Yes | No |
| Track record | Years of accounts to check | None |
| Financing | Easier, lenders see the history | Harder |
| Upfront cost | Higher | Lower |
| Main risk | Problems you inherit | The idea may not work |
How to acquire a business as a first-time buyer
Buy what you understand. Build your team (accountant, lawyer, lender) before you make an offer. Keep cash aside for working capital after the down payment.
How to Buy a Business in 9 Steps
The steps to buying a business, in the order most deals follow.
1. Decide what you want
Set your criteria first: industry, profit size, location and budget. Clear criteria let you say no fast.
2. Find businesses for sale
Look at marketplaces, brokers and M&A advisors, direct outreach to owners, and your own network. Off-market deals mean less competition. Stale listings are the other overlooked pool: a business that has sat unsold for months is often mispositioned, not broken. Where buyers find businesses for sale
3. Screen and value the deal
Ask for three years of P&Ls, balance sheets and tax returns, and ask why the owner is selling. Value it on an earnings multiple, its assets or recent comparable sales. Watch the add-backs. What a good multiple looks like
4. Line up financing
Most buyers combine their own cash, an SBA or bank loan, and seller financing. In the US, an SBA 7(a) loan goes up to $5 million and covers changes of ownership. Earnouts, holdbacks and seller financing
5. Make an offer with a letter of intent
The LOI sets the price, structure, timeline and exclusivity. Get the key terms right here, because reopening them later is hard. How LOIs are negotiated
6. Run due diligence
Check the financials, legal, operations, customers and people. Use an accountant and a lawyer who handle acquisitions. How buyers evaluate a business
7. Negotiate the purchase agreement
Choose an asset or stock purchase. Then lock in warranties, indemnities, a non-compete, working capital and the seller's handover period.
8. Close the deal
Funds move, documents are signed, and leases, licences and accounts transfer to you. Ask landlords and suppliers for consent early. Why deals fall apart
9. Take over
Meet key staff and top customers early. Change little at first, and use every day of the seller's transition.
Mistakes that cost buyers the most
- Trusting the story over the tax returns
- Ignoring customer concentration
- Running out of working capital
- Letting the owner leave too soon
- Skipping professional checks
Buying a Business Checklist: What to Check Before You Sign
Ask for every item. If the seller cannot produce one, ask why.
| Area | Ask for | Red flag |
|---|---|---|
| Financials | 3 years of P&Ls, balance sheets, bank statements | Profit only in the seller's summary |
| Tax | 3 years of tax returns | Less profit than the books show |
| Add-backs | Every add-back, with proof | Large or vague add-backs |
| Customers | Revenue by customer | One customer dominates |
| Owner | The owner's weekly role | Owner holds every relationship |
| People | Staff list, pay, contracts | Key staff likely to leave |
| Leases and contracts | Lease, supplier and customer contracts | Lease cannot transfer |
| Legal | Records, licences, lawsuits | Pending claims |
| Assets | Equipment list, inventory count | Equipment due for replacement |
| Working capital | Monthly cash needs | Gaps the owner covers personally |
Why Talk to Exit Advisor Before You Buy a Business
We have been the buyer, and we prepare businesses for sale. So we know where the numbers get stretched.
- Spot stretched numbers before you make an offer
- Structure the deal, from LOI to closing
- Plan due diligence and the handover
- Know when to walk away
Free first consultation.
Who We Are: Sell-Side M&A Advisors
Entrepreneurs, operators and M&A professionals who know how sellers prepare, price and negotiate. Led by Founder Reggie Young. Meet the team
How to Buy a Business: Common Questions
Is it a good idea to buy an existing business?
Buying an existing business is a good idea when the profit shows in the tax returns and does not depend on the current owner. You get customers, staff and cash flow from day one. It is a poor idea when the numbers only work on the seller's adjusted figures.
How much does it cost to buy a business?
The cost to buy a business is the purchase price plus deal costs. The price is usually a multiple of yearly profit: SDE for small businesses, EBITDA for larger ones. Budget extra for legal, accounting and lender costs, plus working capital for the first few months.
Do you need an advisor to buy a business?
You can buy a business without an advisor, but one helps most with valuation, negotiation and due diligence. A good advisor spots inflated add-backs, owner dependency and weak contracts before you sign. Exit Advisor's team works on the sell side every day, so we know what sellers hide and what they'll negotiate on. The first consultation is free.
How do you finance buying a business?
You finance buying a business by combining your own cash, a bank or SBA loan, and seller financing paid over time. In the US, an SBA 7(a) loan goes up to $5 million and can fund a change of ownership. An earnout ties part of the price to future results.
Ready to Buy a Business? Start With a Free Consult
You know how to buy a business. Now talk it through with people who have done it.
Selling instead? Read how to sell a business, or see our sell-side M&A advisory services.