Frequently Asked Questions

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Buying gives you customers, staff, systems and a cash-flow history from day one, which is why lenders are often more willing to finance an acquisition than a start-up. The trade-off is a higher upfront price and the risk of inheriting problems the seller did not disclose. Starting from scratch costs less at the beginning but usually takes longer to reach a steady income.

See Best Business to Buy for a First-Time Buyer.

Look for a business with several years of steady, documented earnings, a broad customer base, simple operations and an owner who is not doing all the key work personally. Service businesses with recurring contracts are popular first purchases because their income is easier to predict and verify.

Compare categories in 10 Most Profitable Businesses to Buy.

A broker can help you find deals, prepare paperwork and keep the process moving, but in most deals the broker is paid by and represents the seller. Buying direct can save time and give you more room to negotiate, but you take on more of the work yourself. Either way, use your own accountant and attorney.

Read Broker Fees vs Going Direct.

It depends on the price and financing. Many buyers combine savings, seller financing and an SBA-backed loan. Lenders commonly expect a down payment, and requirements vary by lender and deal. Also budget for working capital, closing costs and professional fees on top of the price.

Qualified buyers may use SBA-backed financing for eligible acquisitions, subject to lender underwriting, borrower qualifications, collateral and cash flow requirements. The SBA sets the program rules, including minimum equity, and those rules change from time to time, so confirm current requirements with an SBA lender.

See How to Buy a Business With No Money Down.

Fully zero-down deals are rare. What is more common is a low-cash structure that combines an SBA loan, a seller note and sometimes an earn-out, so the buyer's own cash is a small share of the price. Lenders still want to see that you have some money at risk and enough reserves to run the business.

Seller financing means the seller lets you pay part of the price over time, usually through a promissory note with agreed interest and repayment terms. It lowers the cash you need at closing and keeps the seller invested in a smooth handover. Lenders may limit how and when the seller note can be repaid.

Small businesses are often valued as a multiple of Seller's Discretionary Earnings (SDE); larger businesses as a multiple of EBITDA. The multiple depends on industry, risk, growth and how transferable the business is.

Full method in How to Value a Business.

SDE is profit before tax, interest, depreciation and amortisation, with one owner's salary and personal perks added back. It shows what a single owner-operator could earn. EBITDA does not add back a market-rate manager's salary, so it fits larger businesses run by a management team.

The checks a buyer does before closing: verifying financial statements and tax returns, reviewing leases, contracts, licences, staff and customer concentration, and confirming there are no hidden liabilities.

Use our 28-point Due Diligence Checklist.

Common warning signs are tax returns that do not match the profit and loss statement, one customer making up a large share of revenue, a lease that ends soon or cannot be assigned, falling sales the seller cannot explain, and an owner who will not allow time to verify the numbers.

See Red Flags When Buying a Business.

Many small-business purchases take several months from first search to closing. The search, the letter of intent, due diligence and lender approval are the main stages, and SBA financing usually adds time for underwriting.

Step-by-step in How Long Does It Take to Buy a Business?

An LOI is a short, mostly non-binding document that sets out the proposed price, structure, financing, timeline and key conditions before both sides spend money on full due diligence and legal drafting. It often includes binding terms such as confidentiality and an exclusivity period.

In an asset purchase you buy selected assets and usually leave most past liabilities with the seller, which is why many small-business buyers prefer it. In a share or stock purchase you take over the company itself, including its history, contracts and liabilities. Tax treatment differs for both sides, so get accounting and legal advice before you decide.

Many buyers form an LLC or corporation to hold the business they acquire, which can separate business liabilities from personal assets and is often expected by lenders. Which structure suits you depends on your state or country, taxes and financing, so check with an accountant or attorney.

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Yes, but rules differ by country: foreign-investment approvals, visas, licensing, tax and how leases are transferred all vary. Our country guides cover the main points for the US, UK, Canada and Australia.

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No. Our content is educational. Work with a qualified accountant, attorney, broker or lender for your specific deal.

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