How to buy a business: the 9 steps, what it costs, and how to pay for it

Buying a business is the fastest legal way to own something that already makes money. The customers, staff, suppliers and cash flow exist on day one. The risk is that you pay for numbers that are not real, or buy a business that only works because the owner is in it. This guide walks through the nine steps we take buyers through at Acquisitions.com, in plain words.

Step 1: Decide what you can afford

Start with money, not with listings. Three numbers set your range:

A buyer with $100,000 of cash can usually look at businesses priced up to about $1 million, because an SBA 7(a) loan can cover up to 90% of the price. The SBA publishes the current rules for the 7(a) loan program. Most of our clients buy established businesses with $500K to $50M in revenue.

Step 2: Write your buy box

A buy box is one page that says what you will and will not buy. Industry, location, price, minimum earnings, how involved the owner must be. It stops you from chasing every shiny listing.

A simple buy box looks like this:

• Industry: home services (HVAC, plumbing, landscaping) or B2B services
• Location: within 90 minutes of home, or anywhere if there is a manager in place
• Price: $500,000 to $2,000,000
• Owner's earnings (SDE): at least $200,000 a year
• Owner's role: can be replaced by a general manager within 12 months
• Deal breakers: one customer over 25% of revenue, lawsuits, a lease that ends within two years

The more exact the box, the faster you can say no, and saying no quickly is most of the job.

Step 3: Find businesses for sale

There are two pools of deals.

On-market. Listings on marketplaces such as BizBuySell, BizQuest, BusinessBroker.net and the broker networks. Easy to find, lots of competition, often priced high. Our AI reads 15+ of these marketplaces every day and screens every listing against each client's buy box, so the client only sees the ones that fit.

Off-market. Owners who have not listed but would sell. You reach them through brokers you know, through your own letters and calls, and through advisors with a network. Less competition, more work.

Good buyers run both at once. Expect to look at 100 listings, ask for details on 20, make offers on 3 and close 1. That ratio is normal, not a sign something is wrong.

Step 4: Sign the NDA and read the numbers

Before a broker sends the financials, you sign a non-disclosure agreement and usually a short buyer profile. Then you get the CIM (confidential information memorandum) and three years of tax returns and profit-and-loss statements.

Read for these things:

1. SDE or EBITDA. Seller's discretionary earnings is the profit plus the owner's salary and perks. Small businesses are priced as a multiple of SDE. Check every "add-back" the broker lists. A $30,000 add-back for "owner's travel" that was really sales trips is not an add-back.
2. Tax returns versus the P&L. They should agree. If the tax return shows less, ask why, and value the business on the tax return.
3. Customer concentration. One customer over 20 to 25% of revenue is a risk the price should reflect.
4. Trend. Three flat or rising years are worth more than one great year.
5. What the owner does. If the owner is the top salesperson and the only licensed technician, you are buying a job until you replace that.

Step 5: Value the business

Most small businesses sell for 2 to 4 times SDE. Larger ones with a management team sell on EBITDA, often 4 to 6 times. The exact multiple depends on the industry, how much the business depends on the owner, how long it has been running, and how clean the books are.

The practical test is debt service. Take the owner's earnings, subtract the salary you need, and see whether what is left covers the loan payments with room to spare. Lenders look for a debt service coverage ratio of about 1.25, meaning $1.25 of cash flow for every $1 of loan payment. Our free roll-up calculator does this sum for one business or several.

Step 6: Make an offer with a letter of intent

A letter of intent (LOI) says the price, how it will be paid, what is included, and how long you have for due diligence. It also says the seller will not talk to other buyers in that time. It is mostly non-binding, but it sets the frame for everything after.

The structure matters as much as the price. A $1,000,000 offer paid as $100,000 cash from you, $700,000 from an SBA loan and $200,000 as a seller note over five years is a different deal from $1,000,000 cash. The seller note keeps the seller interested in the business working after they leave, and lenders like to see it.

Step 7: Finance the purchase

Most buyers combine three sources:

• SBA 7(a) loan. Up to $5 million, usually 10-year terms for a business purchase, with the buyer putting in at least 10% equity. The lender's rules are set out in the SBA's standard operating procedure for lenders. The lender will want your resume, personal financial statement, tax returns and a business plan.
• Seller note. The seller lends you part of the price and is paid over time, often 5 to 10% of the price, sometimes much more.
• Investor money. For bigger deals, or when your own cash is short, an investor puts in equity for a share of the business.

Start talking to a lender before you have a deal. A pre-qualification letter makes brokers take your offers seriously. We introduce clients to SBA lenders and investors; Acquisitions.com is an advisory firm and does not lend itself.

Step 8: Due diligence

You now have 30 to 60 days to prove the numbers. The work splits into:

• Financial. A quality-of-earnings review or at least a bookkeeper tying the P&L to bank statements and tax returns.
• Legal. Contracts, leases, licences, permits, lawsuits, employee agreements.
• Operational. Talk to key staff (with the seller's permission, often late in the process), look at equipment, visit customers if the seller allows.
• Commercial. Why do customers buy, who else sells the same thing, what has changed in the market.

If something is wrong, you have three choices: walk away, lower the price, or change the structure (a bigger seller note, an earn-out tied to results). Most problems found in diligence are solved by structure, not by walking.

Step 9: Close and take over

The purchase agreement replaces the LOI. Your attorney and the seller's attorney negotiate the representations, warranties and what happens if something was misstated. The lender funds, the money moves through escrow, and the business is yours.

The first 90 days after closing matter as much as the deal. Keep the staff, keep the customers, change little. The seller usually stays for a transition period of 30 to 90 days, which should be written into the agreement. Once you know the business, that is the time to cut busywork with software; we wrote a separate guide on AI after an acquisition.

How long it takes and what it costs

These are ranges we see, not quotes. The SBA fee changes by year and loan size, so check the SBA's current table.