So you want to buy a business. It’s a path many are drawn to, a form of Entrepreneurship Through Acquisition that lets you skip the grueling startup phase and jump right into running something with a proven track record. But before you start browsing listings, it’s critical to understand what you’re actually looking for.

Let's imagine a buyer, we'll call her Nancy. She's looking to buy a business for around $1,000,000. She's not interested in a fixer-upper; she wants a solid company. In her target market, businesses of a certain size sell for an average of three times their earnings. Nancy decides to target something a bit stronger, settling on a multiple of 3.2.

A little math ($1,000,000 / 3.2) tells her she needs a target company with an annual Seller’s Discretionary Earnings (SDE) of $312,500. SDE is just a way of calculating the total financial benefit a single owner gets from a business. Since SDE often falls between 10% and 20% of revenue, she now knows her ideal company probably has revenues between $1.5 million and $3.1 million.

After factoring in debt payments on a standard 10-year loan at 6%, she projects a pre-tax cash flow of about $165,853. With a total investment of $140,000, that’s a 118% annual return she can use for personal income and reinvestment. Seeing these numbers, Nancy refines her search: she’s looking for a business with an SDE between $300,000 and $350,000. She can already see the potential for Business Growth & Scaling—if she grows the company just 10% a year, in a decade she could be making over $700,000 annually.

This is the kind of clarity that separates serious buyers from tire-kickers.

Define Your Target, Not Just an Industry

One of the biggest mistakes buyers make is limiting their search to one specific industry. Unless you have irreplaceable relationships with buyers in a niche (and be honest with yourself, most people’s contacts aren’t that portable), a narrow focus just reduces your options.

Instead of saying "I want to buy a plumbing company," think in broader terms. Define your target by its type: is it a manufacturing business, a distribution company, or a service provider? This approach allows you to cast a wider net. You might discover that your skills in digital marketing are a perfect fit for a legacy manufacturing company that has zero online presence. The opportunity isn’t the industry; it’s the growth potential you can unlock.

Many venture capital firms prefer entrepreneurs with a track record of success in a different industry. Why? Because they bring fresh perspectives without the "bad habits" or ingrained assumptions of an industry insider. Your experience is transferable. Your strength in operations can apply to logistics just as well as it can to a software-as-a-service business.

Your Target Statement

Pulling this all together creates your "target statement," a compass for your entire search. It’s not complicated, and it looks something like this:

I am looking for a [product, distribution, or service] company with [describe the growth opportunity], generating [define size by SDE range], with [mention any limiters, like location].

Here are a few real-world examples:

• “I am looking for a distribution company with strong sales processes but needing operational excellence, generating $300,000 to $400,000 in SDE, in or around the Chicago area.”
• “I’m looking for a commercial IT service business with solid operations but lacking a strong B2B sales effort, generating between $750,000 and $1,000,000 in SDE in the regional southwest.”

Having this statement makes you a serious buyer. It proves you’ve done the work, and it’s the first step in a successful search.

The Flawed Search: Why You Need to Get Upstream

When most people start their search, they head straight to websites like BizBuySell.com and passively scroll listings during their downtime. Please, do not do this.

Treat this search like a job. Set a goal to buy the right business within six months. It’s entirely possible if you’re prepared. Create folders, start a spreadsheet, and track every listing you review. Get familiar with these sites, but understand one crucial thing: the business you’re going to buy is probably not listed there.

Online marketplaces are often filled with three types of businesses: junk, non-growth businesses (like laundromats or restaurants), and the occasional good one. Those good listings sell fast, leaving the other two categories behind. More importantly, by the time a business hits a public website, it has already been passed over by the broker's private network of vetted buyers.

You need to get into that private network. You need to get upstream.

In private equity, this is called "deal flow." The best firms get the first look at the best opportunities because they’ve built relationships with the people who have the deals: business brokers, M&A advisors, and investment bankers. You need to do the same. This path of Entrepreneurship Through Acquisition is 90% networking, just like finding a high-level job.

Building Your Network of Brokers and Bankers

Your first job as the future CEO is to find your company. That means getting out and meeting the people who know where the deals are.

Meeting the Brokers

Your goal is to meet with every business broker in your target area. But remember, they are sizing you up just as much as you are them. They’ve dealt with countless first-time buyers who don't know what they want, don't have the funds, and can't pull the trigger.

When you walk into that first meeting, the broker wants to know three things:

1. How do you present yourself? Are you professional, prepared, and someone they can confidently introduce to a seller?
2. Do you have the money? Can you actually close a deal?
3. What are you looking for?

Be prepared. Have a personal balance sheet ready (you don't have to leave it, just be ready to discuss it). Bring your resume. Tell them you're committed to buying a company in six months. This immediately sets you apart. Then, when they ask what you’re looking for, don’t talk about revenue or industry. Hit them with your target statement, framed around SDE and opportunity.

This meeting is also a two-way interview. Ask them about their background. Have they ever owned a business themselves? What certifications do they hold (CBI, M&AMI, CMAA)? Brokers who are former entrepreneurs bring incredible value because they understand the emotional side of a deal.

Talking to the Bankers

At the same time you're meeting brokers, you need to start meeting bankers. A good banking relationship can make a deal; a bad one can kill it.

Network to find banks experienced in SBA-backed loans. Get personal introductions if you can. When you meet them, sell yourself first—your experience, your goals, and your target statement. They want to see that you're a capable buyer. Come prepared with your personal balance sheet and the last three years of tax returns.

Ask them if they are an SBA "Preferred Lender" (PLP). This is crucial. A preferred lender can underwrite the loan in-house, which can save you over six weeks in closing time. Time kills deals, and a slow loan process is a major risk. Your goal is to get pre-qualified so you can move quickly when you find the right opportunity. Building these relationships with brokers and bankers is a core part of your Financial Investment Strategies.

How to Analyze a Potential Deal

When a broker sends you an opportunity, you’ll get an Offering Memorandum (OM). This document provides an overview of the business and its financials. Your first job is to ignore the asking price.

Valuation is not a fixed number. It’s a range, and what a business is worth to you is the only valuation that matters. You’re going to reverse engineer what the business can afford.

The OM will contain financial statements. You don't need to be a CPA, but you need to understand the basics. Assume the numbers are accurate for your initial review; you’ll verify everything during due diligence.

1. The Balance Sheet: This is a snapshot of what the company owns (assets) and what it owes (liabilities). It tells you about the company's financial health at a single point in time.
2. The Income Statement (P&L): This shows performance over time. It starts with revenue, subtracts the Cost of Goods Sold (COGS) to get Gross Margin, and then subtracts operating expenses to get to the Net Income or "bottom line."
3. Finding the Real Cash Flow: Net income isn’t the whole story. You need to find the Seller’s Discretionary Earnings (SDE). To do this, you start with the net income and add back interest, taxes, depreciation, amortization (non-cash expenses), and any owner perks (like a personal car or health insurance paid by the business). This number, SDE, represents the true earning power of the company for a single owner. This is the number that matters.

Create your own spreadsheet and re-enter all the financials. This forces you to learn the business intimately. Then, you can calculate the business's value. The most common method for small businesses is a multiple of SDE. If a business has an SDE of $350,000 and the industry standard multiple is 3x, its valuation is around $1,050,000.

Now, can the business afford itself? Let's say the total transaction is $1.18 million. With 10% down, you need a loan of about $1.06 million. A 10-year loan at 6% costs about $11,800 a month. The business generates, on average, over $29,000 a month in cash flow. After the debt payment, there’s still plenty left over for your salary and reinvestment. The numbers work.

The First Date: Meeting the Seller

Your first meeting with the seller is not an interrogation. It’s a first date. Most buyers get this completely wrong. They walk in aloof, skeptical, and ready to poke holes in everything. They act like a conservative investor who needs to be pitched.

The seller, on the other hand, is emotionally invested. This business is their baby. They’re worried about their employees, their customers, and their legacy. Your job is to convince them that you are the right person to take over. You need to show them you are:

• Able to close: You have the financing lined up and are serious.
• Competent and passionate: You respect what they’ve built and have the skills to carry it forward.
• A trustworthy partner: You can work together to get the deal done.

When you introduce yourself, don't just list your resume. Explain why you're on this search, that you're prepared, and highlight what specifically about their business interests you. This simple shift in attitude puts you on the same side of the table and builds immediate rapport.

Your goal is to download the seller's brain. Ask open-ended questions and listen.

• "Tell me about your business." (Let them tell the origin story).
• "What makes this company different?" (Understand their value proposition).
• "Who are your key people?" (Learn about the team).
• "What keeps you up at night?" (Uncover the real challenges).

Listen to your gut. Do you like this person? Do you share their values? The seller’s personality is deeply embedded in the company culture. If you clash with them, you’ll likely clash with the team they built.

Designing the Future of Your New Company

Once you've found a promising target, it’s time to think about Business Growth & Scaling. A successful acquisition isn't just about good Small Business Management; it's about having a vision. You need to develop a business plan.

Use frameworks to guide your thinking. Porter’s Five Forces can help you understand the competitive landscape. Analyzing the Lifecycle of the Industry (introduction, growth, maturity, decline) tells you where the opportunities lie. Even in a mature, "boring" industry, there are immense opportunities for innovation. Netflix didn't invent anything new; they just combined a website, DVDs, and the postal service in a novel way to disrupt a mature industry.

Jim Collins’ "Hedgehog Concept" from Good to Great is a powerful tool. Find the intersection of:

1. What you are deeply passionate about.
2. What you can be the best in the world at.
3. What drives your economic engine.

Your vision for the company should live at this intersection. This clarity will guide every decision you make post-acquisition. Once you have this vision, and the numbers support it, you’re ready to take the final step.

Making an Offer

The initial offer comes in the form of a Letter of Intent (LOI). This is a non-binding document that outlines the key terms of the deal: the price, the structure (asset vs. stock sale), the closing date, and any contingencies.

The LOI is the start of the negotiation, not the end. But because you've done the preparation, built the relationships, analyzed the numbers, understood the seller, and crafted a vision, you're not just making an offer. You’re taking a calculated, confident step toward your future as a business owner.