How do I know if I can afford to buy a business, and how do I finance it? 

This is usually the first thing buyers ask themselves, and it's exactly where our handbook for business buyers starts. Before diving into finding the right business to purchase, you need to be honest and clear about your budget. Not just the purchase price, but the down payment, working capital, closing costs, professional fees, and any post-purchase improvements.

Once you have clarity on your budget, there are a variety of places you can secure funding for the business purchase.

• You can secure traditional bank loans.

• Apply for SBA loans (common for acquisitions and often favorable for qualified buyers).

• Explore seller financing.

• Or connect with private investors or partners.

• Or, you can use your own funds for the down payment and transition costs.
   

Get a lender prequalification before you start seriously evaluating businesses, so you know your real range and can move confidently when the right opportunity appears.​

What are some of the red flags I should look out for when buying a business? 

Due diligence is critical when considering the purchase of a business. Here are some red flags we cover in our handbook to watch for when buying a business. 

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• Unclear or missing financial records like revenue confirmation, expenses, profit, add-backs, cash flow, payroll, taxes, debts, and financial trends.

• Noncompliance with legal or regulatory rules. Review business licenses, permits, zoning requirements, contracts, and more. 

• Restrictive or poorly made contracts and agreements. Examine leases, vendor agreements, customer contracts, franchise agreements, and more. 

• Messy employee or contractor payroll and agreements. 

• Any claims, disputes, lawsuits, or potential liabilities. You'll also want to confirm current insurance policies. 

• Lack of ownership of assets or inventory. 

• Unpaid taxes, liens, loans, and other outstanding obligations.

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How do I know if a business is worth the asking price? 

A great question! A business's valuation is more than the top-line revenue number. You'll want to account for: 

• Overall revenue and profit trends.

• Customer concentration and loyalty.

• Market conditions.

• The physical and intangible assets included in the sale.

• The goodwill/reputation of the business.

The lease or real estate terms can also materially affect what you're really paying for. The throughline is that a fair valuation comes from triangulating several of these factors together, not from taking the seller's number at face value.

What should the purchase agreement include? 

The purchase agreement should clearly outline the rights, responsibilities, and obligations of both the buyer and the seller. 

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Here are the elements you'll want to ensure are covered in the purchase agreement. 

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• Purchase Price

• Assets Included

• Liabilities Excluded Or Assumed

• Training & Transition Support

• Non-Compete Or Non-Solicitation Terms

• Lease Assignment Or New Lease

• Contingencies

• Closing Timeline