How to buy a small business comes down to six moves: decide exactly what you’re looking for, find deals, check the numbers before you fall in love, sign a letter of intent, run real due diligence, then close with financing and a transition plan in writing. The step that protects your money is diligence, because that’s where you find out whether you’re buying a business that pays you or a stressful job you just paid a million dollars for.
People also search this as “buying an existing business,” “how to acquire a small business” or “steps to buy a business.” Same road. This is education, not legal, tax or lending advice. Get an M&A attorney and a CPA on your side before you sign anything that matters.
Why buying a business beats starting from zero (sometimes)
I’ve spent years telling people to build. I still believe in building. But there’s a quiet group of entrepreneurs who skip the hardest part of the startup curve entirely. They buy a company that already has customers, staff, suppliers and cash coming in.
Walker Deibel, the guy in the video above, wrote a whole book on this called Buy Then Build. His point is simple and it stuck with me: a startup has to prove the business model works. An existing business already did. You’re not betting on an idea. You’re betting on your ability to keep something running and make it better.
That’s the upside. The downside is that you can overpay, inherit problems you didn’t see and discover the “business” was really the old owner working 70 hours a week. That’s why the process matters more than the listing.
Step 1: Build a buy box before you look at a single listing
A buy box is your filter. Write it down. If you skip this, every shiny listing on a marketplace will look like the one.
- Size: the range of yearly cash flow you’re targeting, not revenue. Revenue is vanity here.
- Industry: sectors you understand or can learn fast. Boring is fine. Boring is often great.
- Owner dependence: how much you’ll accept. If every client relationship runs through the seller’s cell phone, that risk walks out the door at closing.
- Your role: do you want to run it day to day or hire a manager? Be honest.
- Deal-breakers: customer concentration, licenses you can’t get, a lease about to expire.
Then talk to a lender early. If you plan to use an SBA 7(a) loan, a lender can tell you roughly what you’d qualify for and what documents they’ll want. Sellers take you a lot more seriously when your financing is already moving.
Step 2: Find deals on and off the market
Listed deals come through brokers and online marketplaces. Off-market deals come from you reaching out directly to owners who haven’t put their company up for sale yet. Off-market takes more work and usually means less competition. Plenty of owners near retirement have never been asked.
Before a seller hands you the real numbers, you’ll sign an NDA. Expect to request at least three years of tax returns, profit and loss statements and a current balance sheet.
Step 3: Check the numbers before you get emotional
This is where people get hurt. The listing says the business makes $400,000 a year for the owner. That number almost always includes “add-backs,” expenses the seller says you won’t have, like their car, their family on payroll or a one-time lawsuit.
Some add-backs are real. Some are wishful thinking. Your job is to grade each one: verified, supportable or made up. Price is its own skill, and I’ve already broken down how to value a small business, so I won’t re-teach multiples here. What I will say is this: never pay for earnings you can’t prove.
Step 4: Sign a letter of intent that sets the rules
A letter of intent (LOI) is where you put the deal on paper before the expensive work starts. It’s usually non-binding on price but binding on things like confidentiality and exclusivity. A clear LOI covers:
- Price and how it’s paid (cash at close, a seller note, any earnout)
- Structure, meaning whether you’re buying the assets or the stock
- What’s included, like inventory, equipment and working capital
- An exclusivity window so the seller can’t shop your offer while you spend money on diligence
- A financing contingency if you need a loan
- How long the seller stays to help you transition
Structure deserves a real conversation. Your attorney and CPA will push you toward one side of the asset sale vs stock sale debate, and the tax and liability gap between the two is big.
Step 5: Run small business due diligence like your money depends on it
Because it does. Due diligence is where you confirm the story matches the records. Here’s the framework I’d use.
Diligence area
What to check
Red flag
Earnings
Tax returns, monthly financials and bank deposits all tell the same story
Deposits don’t match reported revenue
Customers
Revenue by customer and by month, contract terms, churn
One customer is a huge share of sales
Owner role
What the seller actually does every week
Seller is the sales team, the ops team and the brand
Legal
Lease, licenses, liens, lawsuits, employee issues
Lease can’t be assigned to you
Assets
Equipment condition, deferred maintenance
Big repairs hiding behind “it runs fine”
The core test is a three-way match. Tax returns show what the owner told the IRS. Internal financials show how they run the business month to month. Bank statements show the cash that actually moved. When all three line up, the earnings are probably real. When they don’t, you need an explanation you can document, or you walk.
What is a quality of earnings report?
A quality of earnings report (QoE) is an accountant’s review of how much the business really earns on a sustainable basis. It’s not an audit. It rebuilds the earnings, tests the add-backs and ties revenue to bank activity.
For bigger SBA deals it’s no longer optional. Under SBA SOP 50 10 8.1, effective October 1, 2026, the lender must get an independent quality of earnings report on qualifying 7(a) acquisitions with a business purchase price of $3 million or more, on top of the business valuation. Below that line, a scaled-down review from a CPA is still worth paying for on any deal with heavy add-backs.
Step 6: Finance the deal and close
Most small acquisitions are funded with some mix of your own cash, a bank or SBA loan and sometimes a note the seller carries. I’m not going to tell you which mix is right for you. That depends on the deal, your credit and what the lender approves.
One rule worth knowing: on SBA change-of-ownership loans, the business valuation has to support the purchase price. If you agree to pay more than the valuation supports, the difference has to come from equity. That’s the lender quietly telling you you’re overpaying.
At closing, your attorney handles the purchase agreement, including representations, indemnification and any non-compete. Get the seller’s transition help in writing. “I’ll be around if you need me” is not a plan.
Am I buying a business or buying a job?
This is the question I’d tape to the wall. If the business only works because one person grinds 70 hours a week, and that person is about to be you, you bought a job. Maybe that’s fine. Just price it like a job and go in with your eyes open.
The buyers who do well tend to look for a business with systems, a team that can run without the owner in the room and customers that aren’t loyal to one personality. Then they spend the first 100 days learning, not changing everything. Knowing all of this is easy. Walking away from a deal you’re excited about when the numbers don’t match is the hard part. That’s the discipline that separates people who build wealth through acquisitions from people who lose their savings on one.
Frequently asked questions about buying a small business
How much money do you need to buy a small business?
It depends on the price, the loan and the seller. Most deals need some buyer cash for the down payment, closing costs and working capital. A lender can tell you what they’d require on a specific deal.
Can you buy a business with no money down?
It’s rare and risky. Lenders usually want the buyer to have real cash in the deal. Seller notes can reduce how much you bring, but you’ll still pay it back out of the business.
How long does it take to buy a small business?
From signed LOI to closing, many deals take two to four months, mostly diligence and financing. The search before that can take far longer.
What documents should I ask for when buying a business?
At least three years of tax returns, profit and loss statements, balance sheets and bank statements, plus the lease, key contracts, licenses, payroll records and a list of liens or lawsuits.
Is it better to buy an existing business or start one?
Buying gets you proven customers and cash flow faster but costs more upfront. Starting is cheaper but riskier and slower. The right call depends on your capital, skills and tolerance for risk.
Do I need a quality of earnings report?
For SBA 7(a) acquisitions of $3 million or more, the lender must get one as of October 1, 2026. On smaller deals it’s optional but smart when the seller’s numbers lean on add-backs.
The post How to Buy a Small Business: The Diligence Process That Keeps You From Overpaying for a Job appeared first on Addicted 2 Success.
