Buying or selling a business involves a different set of skills and processes than most other commercial transactions. Unlike commercial real estate, where the asset itself is the property, a business sale involves people, processes, customer relationships, inventory, goodwill, and often a real estate component as well. Getting it right requires professional guidance — and getting it wrong is expensive in ways that don't always become apparent until years later.
How a business is valued
Most small to mid-size businesses are valued using some multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) or Seller's Discretionary Earnings (SDE) — a metric that adds back the owner's compensation to get to the true earnings power of the business.
The multiple applied to those earnings varies significantly based on industry, business size, customer concentration risk, growth trends, the strength of the management team, and the presence of recurring revenue. Businesses with highly concentrated customer bases (where one customer represents more than 20–25% of revenue) typically command lower multiples due to transition risk.
The selling process
A well-run business sale typically unfolds in several stages:
- Preparation: Clean financials, organize documentation, resolve any legal or operational issues that would concern buyers.
- Valuation and packaging: Develop a Confidential Information Memorandum (CIM) that presents the business professionally to potential buyers.
- Marketing: Identify and approach qualified buyers — which often means financial buyers (private equity, search funds) as well as strategic buyers (competitors, adjacent businesses).
- Letters of Intent (LOI): Qualified buyers submit non-binding LOIs. Seller selects the best offer and enters into exclusivity.
- Due diligence: The buyer's team reviews all aspects of the business — financial, legal, operational. Sellers who are well-prepared reduce deal risk here.
- Closing: Final documentation, fund transfer, and transition.
Confidentiality is critical
One of the biggest risks in selling a business is premature disclosure. If employees, customers, or competitors learn the business is for sale before a deal closes, it can trigger exactly the departures and customer defection that make the business less valuable. Professional business brokers manage the marketing process confidentially — requiring NDAs before providing any identifying information, and carefully managing which buyers are approached and in what sequence.
Buying a business
For buyers, the due diligence process is where deals succeed or fail. Key areas to investigate include the quality of earnings (are reported earnings truly recurring?), customer concentration and relationship transferability, key employee dependencies, lease terms if the business occupies commercial space, and any regulatory or environmental issues.
SBA financing is available for many business acquisitions, with loan amounts up to $5 million and terms of up to 10 years for business acquisitions (up to 25 years when real estate is included). A business broker familiar with SBA requirements can help structure a deal to be financeable.
