How to Find a Small Business for Sale

Decide what you are looking for first

Write a profile covering industry, size, location, price range and how much of the daily work you want to do. A focused search finds better deals.

Before you browse listings, answer a few questions:

• What industries do you understand, or can learn quickly?
• What is your maximum price, including working capital after closing?
• Do you want an owner-operator role or a manager-run business?
• How far will you commute or relocate?

A search without these limits wastes time on deals that never fit. Our list of places to look when buying a small business is a good companion.

Where listings come from

Online marketplaces, business brokers, industry contacts and direct outreach to owners are the main sources, and each surfaces different deals.

Use more than one channel:

• Online marketplaces. Wide choice, but listings can be stale or exaggerated.
• Business sale intermediaries. They represent the seller and often have vetted financials.
• Trade associations and suppliers. Suppliers know which owners are thinking about retiring.
• Direct outreach. A short, respectful letter to owners in your target industry can reach businesses never listed.

Remember that the seller's representative works for the seller. You need your own accountant and attorney.

Screen quickly, then dig deep

Early screening looks at revenue trend, owner dependence, customer concentration and reasons for sale. Only promising deals get a full review.

Red flags to notice early:

1. Revenue falling for several periods.
2. One customer providing a large share of sales.
3. The owner is the only person who knows key customers or processes.
4. Financials that cannot be tied to tax returns and bank statements.
5. A vague or changing reason for selling.

See spotting red flags in financial statements for more.

Documents to request and verify

Ask for several years of tax returns, profit and loss statements, bank statements, a debt schedule, contracts, and lease terms, then verify them against each other.

Request at least three years of business tax returns, current year-to-date statements, balance sheets, an equipment list, customer and vendor lists, leases and any pending legal matters. Compare reported revenue with deposits on the bank statements. Differences need explanations.

Many sellers present adjusted earnings, adding back owner perks and one-time costs. Ask for the support behind every add-back. Determining business market value and business valuation methods explain how price relates to earnings.

Check that the price pays for itself

Compare the purchase price to the cash the business produces after you pay yourself and service any debt used to buy it.

Illustrative example: a business is listed at $400,000 and produces $120,000 a year in owner earnings. After paying a manager $50,000 if you do not want to run it, $70,000 remains. If you finance part of the purchase with $2,000 a month in payments, you retain $46,000. Payback on the price is well over five years. Run those numbers with your own conservative assumptions.

Ask what could reduce earnings after the sale: owner departure, a lease expiring, a key employee leaving. Build a downside case first.

Funding the purchase and the first months

Most purchases combine a down payment, seller financing or an SBA loan. Keep working capital in reserve for the first months after closing.

Acquisition loans and commercial real estate are not products ROI Funder places. For a purchase, look at buying a business with an SBA loan and first acquisition guidance.

What ROI Funder can help with is the operating side after you own it, once the business has 6+ months of history under its books and $20,000+ monthly revenue with 500+ FICO. Working capital can cover inventory, payroll timing and improvements, and it is not a fit for the purchase price itself.