Buying a Business: The Basics
12 January 2026
If you’re thinking of making the entrepreneurial leap and acquiring an already established business, you’re not alone.
Buying a business can be an attractive alternative to starting one from scratch, as it often comes with proven operations, an existing customer base and established cash flow. However, “buying a business ain’t for sissies“. The process is complex and requires careful planning, analysis, and execution.
Following a structured, step-by-step approach can significantly improve your chances of making a sound investment and avoiding costly mistakes. The following guide outlines the key stages involved in successfully buying a business. This is by no means a deep dive into the process but a basic overview of the most important aspect of an acquisition. We STRONGLY urge you to start with a conversation with a professional business broker.
Find the Right Business
Sounds easy, huh? It’s not necessarily so. The foundation of a successful acquisition lies in selecting the right business. But how do you do that? This initial step is pivotal because even the most skillfully negotiated deal can fail if the underlying business is not a good fit for you.
Begin by taking a close look at yourself. Assess your strengths, weaknesses, professional experience, interests, and risk tolerance. For example, if you have a background in retail management, acquiring a retail business may be more advantageous than entering a highly technical industry you know little about. Similarly, your lifestyle goals—such as desired working hours, location preferences, or income need or expectations—should influence your decision.
Once you have a clear understanding of your personal and professional criteria, define what you are looking for in a business. This may include factors such as industry, size, revenue, profitability, geographic location, and growth potential. Having predefined criteria helps narrow your search, avoids wasting time with untrained brokers and prevents emotional decision-making later in the process.
There are several avenues to explore when searching for businesses for sale. There are several online business-for-sale marketplaces that can provide a broad overview of opportunities across industries and regions. (We use one or two.)
But to save time and cut down on the number of people you have to deal with, the quickest way to find what you’re looking for is to work with a professional business broker or, if your target market includes businesses worth many millions of dollars, an M&A advisor. Such professionals can help match you with suitable opportunities and guide you through the process. Before moving forward, ensure that any business you consider aligns closely with your criteria and long-term objectives.
Negotiate the Price
Once you’ve identified a promising business, the next step is negotiating the purchase price.
This stage requires both analytical rigor and strong communication skills. While the seller may have a price in mind—often influenced by emotional attachment or optimistic future projections—it’s your responsibility as a buyer to determine the business’s true value.
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Check out our new YouTube channel on how to value, price and sell a business.
Business owners, buyers, brokers, consultants and even real estate agents: Resources – including courses, coaching and all the talents needed for selling or buying a business – are available in The Brokers Roundtable℠
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A comprehensive valuation should take into account multiple factors, including historical financial performance, current profitability, assets and liabilities, customer concentration, competitive positioning, and growth prospects. Review several years of financial statements to identify trends in revenue, expenses, and margins. Consider whether profits are sustainable or heavily dependent on the owner’s personal involvement. External factors, such as market conditions, regulatory changes, or technological disruption, should also be factored into your assessment. Assuming you’re working with a professional broker, the information you’ll have been provided should give you a good idea what the business is likely to be worth.
Armed with this information, you can enter negotiations with a clear rationale for your offer. If the asking price exceeds your valuation – which will almost always be the case – don’t be afraid to negotiate. This may involve proposing a lower purchase price, structuring earn-outs based on future performance, or requesting seller financing. Equally important is knowing when to walk away. Again, a qualified broker is the key to this stage of the process. Overpaying for a business can severely limit your ability to invest in growth and may put long-term viability at risk.
Interested in learning what a business is worth? Check out our video series, “How Much is My Business Worth“on our YouTube channel.
Draft a Letter of Intent (LOI)
After reaching a preliminary agreement on price and basic terms, the next step is signing a letter of intent (LOI). An LOI outlines the key aspects of the proposed transaction, such as the purchase price, payment structure, assets included, scope of due diligence, and anticipated timeline. While it signals serious intent from both parties, it is typically non-binding, except for specific clauses like confidentiality and exclusivity.
The primary purpose of the LOI is to create a shared understanding and framework for moving forward while allowing room for further negotiations and adjustments. It also provides you with a defined period to conduct due diligence without the risk of the seller entertaining competing offers. Although non-binding, an LOI should be drafted carefully, as it sets expectations and can influence later stages of the deal.
Conduct Due Diligence
Due diligence is arguably the most critical phase of the acquisition process. This is where you verify that the business is exactly what it appears to be and uncover any hidden risks. Skipping or rushing this step can lead to unpleasant surprises after the deal is closed.
Financial due diligence involves a deep examination of the company’s financial statements, tax returns, bank records, and cash flow reports. Look for inconsistencies, unusual expenses, or revenue spikes that may not be sustainable. It’s often wise to engage an accountant to help interpret the data and identify red flags. It’s also wise to engage a professional business broker – especially if the seller has engaged one and the information you’re receiving is incomplete and does not easily and clearly answer your questions.
Operational due diligence is equally important. Review client contracts to understand revenue stability and termination clauses. Examine employee agreements, compensation structures, and any potential liabilities related to labor laws. Assess supplier relationships and dependency risks. Additionally, investigate any pending or potential litigation, regulatory compliance issues, or intellectual property concerns.
Beyond documents, evaluate the business’s reputation and market position. Online reviews, customer feedback, and conversations with industry peers can provide valuable insights into brand perception and customer loyalty. This comprehensive understanding allows you to confirm the business’s value and renegotiate terms if necessary before proceeding.
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Secure Financing
Purchasing an existing business often requires more capital than buyers have readily available, making financing a crucial step. If you cannot pay the full amount upfront, explore the various financing options available to you. Traditional bank loans are a common choice, particularly for businesses with stable cash flows and strong financial histories. Small Business Administration (SBA) loans are another popular option, as they often offer favorable terms, longer repayment periods, and lower down payments.
Private investors or partners can also provide funding, though this typically involves sharing ownership or control. In some cases, sellers may offer financing, allowing you to pay a portion of the purchase price over time. Seller financing can be advantageous, as it demonstrates the seller’s confidence in the business and may reduce the need for external borrowing. However, it’s essential to carefully review the terms, interest rates, and repayment schedules to ensure they are sustainable.
Before finalizing any financing arrangement, evaluate how debt servicing will impact cash flow and your ability to invest in growth. Over-leveraging can strain operations and limit flexibility, particularly during economic downturns.
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Close the Deal
Once due diligence is complete and financing is secured, you’re ready to close the deal. This final stage involves drafting and signing legal documents, transferring assets or shares, and completing regulatory filings. Purchase agreements should clearly outline what is being acquired, representations and warranties, indemnification provisions, and any post-closing obligations.
Working with experienced professionals—such as business brokers, attorneys, and accountants—is highly advisable at this stage. They can ensure that all details are meticulously handled, deadlines are met, and risks are minimized. Additionally, consider planning for the transition period. A smooth handover, often supported by the seller’s temporary involvement, can help maintain customer relationships, employee morale, and operational continuity.
The Bottom Line
Buying an existing business can be a rewarding path to entrepreneurship, offering a faster route to revenue and a proven foundation for growth. However, success depends on following a disciplined process—from finding the right business and negotiating a fair price to conducting thorough due diligence, securing appropriate financing, and closing the deal properly. By approaching each step with preparation, patience, and professional support, you can significantly increase your chances of making a sound investment and building a thriving enterprise for the future.
Check out our video series, “How Much is My Business Worth“on our YouTube channel.
“Chase the vision, not the money. The money will end up following you.”
–Tony Hsieh
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@*******************og.com
