Business Strategy
Buying a Business
Acquiring an existing business gives you immediate cash flow, an existing customer base, and systems already in place. But only if you evaluate it properly.
What You're Actually Buying
When you buy a business, you're not just buying assets — you're buying cash flow, systems, customers, reputation, and the ability to replace the current owner. The most important question: does the business survive without the seller?
Revenue
Top line — but less important than what it keeps
EBITDA / SDE
Earnings before interest, taxes, depreciation, and amortization — or Seller's Discretionary Earnings for small businesses. This is what you're paying for.
Customer concentration
One customer = 40%+ of revenue is a serious risk
Owner dependency
If the business runs because of the seller's relationships, it may not survive the transition
Valuation Basics
Most small businesses (under $5M) sell for 2–5x SDE. Larger businesses trade on EBITDA multiples. Here's what drives the multiple up or down:
Higher multiple
- — Strong growth trajectory
- — Recurring revenue
- — Low owner dependency
- — Defensible market position
Lower multiple
- — Declining revenue
- — Concentrated customers
- — High owner involvement
- — Industry headwinds
Funding Options
SBA 7(a) Loan
Government-backed loans up to $5M. Low down payment (10%), long terms (10 years). Requires strong personal credit and 2 years of business financials. Slowest to close — 60-90 days.
Seller Financing
Seller carries a note for part of the purchase price. Common for small businesses — seller gets payments over time, buyer reduces cash needed upfront. Often 10–30% of purchase price.
Earnout
Portion of purchase price tied to future performance. Aligns seller incentives but creates disputes if targets aren't met. Requires precise legal language.
Private / Equity
Investors or partners fund the acquisition in exchange for equity. Works for larger deals where SBA limits don't apply.
Red Flags to Look For
- —Declining revenue with no clear explanation
- —Books that don't match bank statements
- —Seller won't agree to a transition period
- —Key employees planning to leave
- —Pending legal or regulatory issues
Deal Structure Tips
- —Tie part of payment to post-close performance
- —Require seller to stay for 3-12 month transition
- —Escrow a portion for representations & warranties
- —Asset purchase vs. stock purchase matters for taxes
- —Get quality legal and accounting support
Business acquisitions have more moving parts than real estate deals. If you're evaluating a business, I can help you figure out if the deal makes sense and how to structure it.
I work with business buyers regularly. Send me the details and we'll work through it together.