The steps to buy a business come down to nine moves, and skipping any one of them is how buyers get hurt.
Why I follow set steps to buy a business
I run a business opportunity marketplace, so I see how many people want to skip the startup phase and buy something that already has customers. That is a smart instinct. It is also easy to get wrong. A running business comes with real records, real customers and real problems, and your job is to find out which is which before you sign anything. No smoke. No mirrors. Here are the steps to buy a business that I would follow, in order.
This is general information, not legal, tax or financial advice. Every deal is different, so plan on bringing in a CPA and an attorney who handle business acquisitions.
Step 1: Decide what kind of business fits you
Start with you, not the listing. Write down the skills you already have, the hours you can give, how much you can put in, and what kind of work you will still want to do in three years. A business you do not understand or do not like is hard to run and harder to sell. Narrow it to one or two industries before you look at a single deal.
Step 2: Set your budget and check your finances
Know your cash before you shop. Add up what you can put down, what you will need for working capital after closing, and what you can borrow. Lenders look at your credit and your experience, so find out where you stand early. Leave room for the costs people forget, such as legal fees, a valuation, inventory top-ups and the first few months of payroll.
Step 3: Find businesses for sale
Listings are only one source. You can use online marketplaces, business brokers, industry contacts, trade associations and direct outreach to owners who have not listed. Our guide on how to find a business for sale covers where to look first, and our Businesses for Sale category is a good place to browse. Keep a simple spreadsheet so you can compare every deal on the same terms.
Step 4: Find out why the owner is selling
Ask early and ask more than once. Retirement, health, a move or a new opportunity are common and fair reasons. Falling sales, a lost key customer, a lease that is about to jump or a new competitor are not. The answer you get should match what the financials show. If the story and the numbers disagree, believe the numbers.
Step 5: Sign an NDA and ask for the records
Serious sellers will ask you to sign a nondisclosure agreement before they share financial details. That is normal. Once it is signed, ask for several years of tax returns, profit and loss statements and balance sheets. Also ask for a list of equipment, the major contracts, the lease, and an outline of how the owner spends a typical week. Collecting records is the part of the steps to buy a business that most people rush.
Step 6: Do your due diligence before you buy a business
This is the step that protects you. Have your CPA check the books against the tax returns and bank statements, and have your attorney review contracts, licenses, permits and any open claims. Our full due diligence guide goes deeper. At a minimum, look at these items:
- Financial statements and tax returns for at least three years
- Customer concentration, meaning how much revenue depends on a few buyers
- The lease, including whether the landlord will transfer it to you
- Licenses, permits and zoning for the location
- Equipment condition and any liens against it
- Employee roles and whether key people plan to stay
- Pending lawsuits, complaints or unpaid taxes
Step 7: Value the business and negotiate the price
Buyers and sellers rarely agree on value at first. The common approaches look at earnings, at assets, and at what similar businesses have sold for. Our guide on how to value a business before you buy explains multiples and seller discretionary earnings. An independent valuation costs money, but it gives you something solid to negotiate from.
Price is only one term. Seller financing, a transition period, a non-compete agreement and what is included in the sale all change what the deal is worth to you.
Step 8: Arrange your financing
Most buyers use more than one source. Common options include an SBA 7(a) loan, a conventional bank loan, seller financing, a partner, or your own savings. Lenders often like acquisitions because there is a track record to review, but they will want to see the same records you saw. Our guide on how to finance a business opportunity covers the SBA route in more detail.
If the seller carries a note and you also have an SBA loan, expect the lender to have rules about repayment order. Ask about those rules before you agree to terms.
The last of the steps to buy a business: close and hand off
Closing paperwork usually includes a purchase agreement, a bill of sale, a lease assignment and a non-compete. Your attorney should draft or review every one. Decide whether you are buying assets or the company stock, because the tax and liability results differ. Our asset sale vs stock sale explainer shows how.
Then plan the handoff. A few weeks of the owner staying on to introduce you to customers and suppliers can save you months of guessing.
Mistakes I would avoid with these steps to buy a business
These are the ones I would watch for most:
- Falling in love with a listing before the numbers check out
- Relying only on the seller’s version of the financials
- Skipping the attorney or CPA to save a few dollars
- Paying full price for a business that depends on the owner personally
- Spending every dollar at closing and leaving nothing for working capital
Where to go next
If you are still deciding between buying and building from scratch, compare both paths before you commit. NerdWallet has a helpful overview of buying an existing business, and the SBA and IRS pages in the list below explain financing and taxes. When you are ready to see what is out there, browse our Businesses for Sale listings.
Related reading on the steps to buy a business
- How to Buy an Existing Business: A Due Diligence Guide
- How to Value a Business Before You Buy: Multiples and Seller’s Discretionary Earnings
- How to Find a Business for Sale: Where to Look First
- How to Finance a Business Opportunity: SBA Loans & More
- Asset Sale vs Stock Sale: How They Differ in a Business Deal
- NerdWallet guide to buying an existing business
- SBA 7(a) loan program
- IRS guide to the sale of a business
- USA.gov guide to starting a business
- America’s SBDC small business advising
