A good guide to buying a business starts with an honest question: do you want to buy a job, or build something that can run without you?
Guide to buying a business: start with why
Buying an existing business can save the time of building from zero, because you may inherit customers, systems and cash flow. It can also mean paying for problems you cannot see. This guide to buying a business explains the main steps and links to deeper guides on each. It is general information, not legal, tax or financial advice, and nothing here promises results.
Be clear about your goals. How many hours do you want to work? How much can you invest and how much can you lose? What skills do you bring? Our guide on which business opportunity is right for you helps you match options to your situation.
- Decide how hands-on you want to be
- Set a budget and a limit on what you can lose
- List the skills you already have
Finding businesses for sale
Businesses are listed on marketplaces, through brokers and by owners directly. Our article on a reliable business for sale marketplace covers how to approach them. Treat every listing as a starting point, not proof. Ask why the owner is selling, and be wary of anyone who rushes you.
- Online marketplaces and business brokers
- Local networking and direct approaches
- Always ask why the owner is selling
How the steps fit together
The process usually runs from search to a first conversation, a letter of intent, due diligence, financing, a purchase agreement and closing. Our roadmap on the steps to buy a business lays out each stage, and the NerdWallet guide to buying an existing business offers another view. In this guide to buying a business, the middle steps matter most, because that is where deals are won or lost.
- Search and screen
- Sign an NDA and make an initial offer
- Run due diligence and secure financing
- Sign the agreement and close
Guide to buying a business: valuing the business
Price is not the same as value. Sellers and brokers often use multiples of earnings, and the definition of earnings matters a great deal. Our guide on how to value a business before you buy explains seller discretionary earnings and why you should question every add-back. Ask an accountant to review the numbers rather than relying on the seller’s summary.
- Ask how earnings were calculated
- Question each add-back
- Compare to similar sales where possible
Guide to buying a business: due diligence
Due diligence means verifying what the seller tells you. Review tax returns, bank statements, customer lists, leases, contracts and any open disputes. Talk to employees and key customers where allowed. Our due diligence guide has a full checklist. A good guide to buying a business always tells you to walk away when the facts do not match the story.
- Tax returns and bank statements, matched to the profit and loss
- Customer concentration and contract terms
- Leases, licenses, debts and pending disputes
Guide to buying a business: financing the purchase
Most buyers use a mix of savings, seller financing and a loan. The SBA lists change of ownership as an eligible use of its 7(a) loan program, and our guide on business funding options compares your choices. Ask about the total cost, any personal guarantee and what happens if the business underperforms.
- Savings and investor money
- Seller financing
- SBA-backed or bank loans
Contracts and closing
The purchase agreement sets what you are buying, what you are paying and who is responsible for what. Read our guide to key terms in a business purchase agreement before you sign, and have an attorney review it. Plan for the transition too, including training from the seller, customer introductions and a clear handover of accounts and licenses.
- Have an attorney review the agreement
- Confirm what transfers, such as licenses and contracts
- Plan the handover with the seller
Red flags to take seriously
Be careful with pressure to decide quickly, numbers that will not reconcile, owners who will not share records, and promises of guaranteed income. Our guide to business opportunity scams lists more. If something feels wrong, pause and get advice.
- Records the seller will not share
- Profit that appears only in a summary
- Pressure to skip diligence
Related reading on the guide to buying a business
- The Steps to Buy a Business: A Nine-Step Roadmap
- How to Buy an Existing Business: A Due Diligence Guide
- How to Value a Business Before You Buy: Multiples and Seller’s Discretionary Earnings
- Business Purchase Agreement: Key Terms to Review Before You Sign
- Business Funding Options: A Plain-English Guide for New Owners
- Is There a Reliable Business for Sale Marketplace?
- Business Opportunity Scams: 12 Red Flags to Check
- NerdWallet guide to buying an existing business
- SBA 7(a) loan program
- America’s SBDC small business advising
- SCORE free business mentoring
- SBA Lender Match
