How to Buy a Business in 2026

The hardest part of any business is the first $1 million in revenue. Customer acquisition, brand trust, operational systems, employee bench, supplier relationships, and a financial track record do not exist on day one of a startup. They have to be invented under capital pressure, while a founder is burning savings or venture money to fund the gap. The single largest reason people choose to buy a business instead of build one is to skip that gap entirely. An established company brings revenue, repeat customers, a working team, vendor terms, and at least some predictable cash flow on closing day.

The financing math reinforces the choice. When you start a business, banks will not lend against an idea. You fund the venture yourself or with equity from friends, family, or angel investors. When you buy a small business with positive cash flow, you can finance the majority of the purchase price with an SBA 7(a) loan, often 80% to 90% of the deal. The remaining gap is filled with some combination of buyer equity, seller financing, and in some cases rollover equity from the existing owner. The cash flow of the business itself services the debt. Compare a $2 million SBA-financed acquisition that generates $500,000 of seller’s discretionary earnings to a startup that burns $200,000 a year for three years before reaching break-even, and the picture becomes clear.

The risk profile is dramatically different too. Roughly half of new businesses fail inside five years. Established companies sold through a professional broker rarely fail at anything close to that rate, because they have already proven the model, retained customers, and built repeatable revenue. When you buy a business with ten or fifteen years of profitable history, you are buying a track record. When you start one, you are buying a hypothesis.

Time is the other variable people underestimate. A startup founder spends three to five years getting to a level of revenue and team that an acquirer of an existing company has on day one. For a buyer in their forties or fifties looking to control the back half of a career and build equity in something that already works, the question is not really build versus buy. The question is whether buying the right business is achievable inside their financing capacity, and the rest of this page is about answering that question.

One last note. Buying a business is not free of risk. The diligence process exists because the seller has more information than the buyer, and only careful work surfaces what is real and what is dressed up. The sections that follow walk through how to compress that information gap, value what you are looking at, structure the financing, and close on terms that protect you.

Start with the cash flow metric that fits the deal. For owner-operator Main Street businesses, the right cash flow metric is seller’s discretionary earnings, or SDE. SDE is net income plus owner compensation, owner perks, interest, taxes, depreciation, amortization, and any one-time or non-recurring items. SDE assumes the buyer is going to step into the owner-operator seat. For lower-middle-market companies where the buyer will hire a CEO or general manager, the right cash flow metric is EBITDA, which deducts a market-rate manager replacement from the recast earnings. Confusing SDE and EBITDA is one of the most common pricing mistakes first-time buyers make.

Apply a multiple that fits the industry and the size. Multiples are not random. A $400K SDE landscaping business trades in a different range than a $1.2M SDE HVAC company, which trades in a different range than a $4M EBITDA managed service provider. The multiple is a function of industry growth, customer concentration, recurring revenue, owner dependence, working capital needs, and the depth of the buyer pool for that asset. Reasonable Main Street multiples sit in the 2.5x-4.0x SDE range. Reasonable lower-middle-market multiples sit in the 4.5x-7.5x EBITDA range. A CFA-led valuation analysis cross-checks the multiple against comparable completed transactions, a discounted-cash-flow model with a WACC-derived discount rate, and an asset-based floor.

Look at comparable completed transactions, not asking prices. Listings on industry trade-press and other public marketplaces show what sellers are asking, not what buyers are paying. The actual transaction data lives in proprietary databases (DealStats, BizComps, Pratt’s Stats) that CGK references for every valuation. A target asking 4.5x SDE when comparable closed deals in the same SIC code and size band traded at 3.2x SDE is a target you negotiate hard, or you walk away from. Conversely, a target listed at 2.8x SDE when comparable closed deals traded at 3.6x is a target you move quickly on.

Recast the financials before you negotiate. The asking price is built on the seller’s representation of cash flow. Your job is to verify it. That means rebuilding the income statement to back out personal expenses, separate one-time gains and losses, normalize owner compensation to market, and confirm that the run-rate revenue is durable. The recast schedule is the document that drives the LOI price. If you skip the recast and accept the seller’s claimed SDE at face value, you will almost certainly overpay.

Get a buyer-side valuation conversation before you go too far. CGK offers a free verbal valuation conversation for buyers who are seriously thinking about acquiring (any horizon: a year out, five years out, longer). The free conversation is the on-ramp. A formal written valuation, the kind you would actually use to negotiate or to support an SBA loan file, is a paid product handled by Greg Knox personally. The CFA charter is the institutional gold-standard credential for valuation work, and it is what most sophisticated sellers and lenders look for when they evaluate the work product. You can read more at business valuation.

Financial diligence. The buyer (and the SBA lender for SBA-financed deals) verifies the recast cash flow against three years of tax returns, three years of profit-and-loss statements, monthly bank statements, payroll records, sales-tax filings, and accounts receivable aging. The deliverable for SBA-financed Main Street deals is a third-party arms-length business valuation report ordered by the lender, which independently confirms the price the buyer agreed to pay. For lower-middle-market deals with institutional buyers, financial diligence often expands into a full third-party Quality of Earnings engagement by an independent accounting firm. SDE add-backs are scrutinized line by line, and any add-back the buyer’s diligence lead cannot independently verify gets removed from the cash flow number that drives the price.

Legal diligence. Legal counsel reviews corporate organization, ownership records, material contracts, customer agreements, vendor agreements, real estate leases, employment agreements, non-compete agreements, litigation history, intellectual property, regulatory filings, and any open or threatened claims. The output is a disclosure schedule attached to the purchase agreement, and any item the seller failed to disclose creates indemnification exposure post-closing. Buyers with experienced M&A counsel catch issues that broker-side counsel will miss.

Operational diligence. The buyer walks the operation, reviews customer concentration, supplier dependencies, employee bench depth, key-person risk, equipment condition, technology stack, customer satisfaction data, and the systems that make the business run without the current owner present. Customer concentration is the single most common deal-killer in this band. A company where the top customer is 35% of revenue trades at a lower multiple, and on stricter deal terms (longer earnouts, larger escrows, stronger seller representations), than the same company with a top customer at 12%.

Commercial diligence. The buyer pressure-tests the addressable market, the competitive landscape, the durability of the customer base, and the runway for organic growth. For PE platform acquisitions, commercial diligence often includes customer reference calls and a competitor benchmark study. For SBA-financed Main Street deals, commercial diligence is lighter but the buyer should still spend real time understanding why the customers buy from this company specifically and what would have to change for them to stop.

The first 60 to 90 days are intake and pipeline. The buyer works with a broker (or runs their own outreach) to identify targets, sign NDAs, review confidential information memoranda, conduct preliminary management calls, and build a short list. On the buyer side, the SBA lender pre-qualification runs in parallel, which involves a personal financial statement, three years of tax returns, a resume showing relevant operating experience, and a soft credit pull. This pre-qualification is the document the seller will ask for before granting any deeper access. Buyers who skip the pre-qualification step end up six weeks behind faster-moving buyers in the pipeline.

LOI to close runs 90 to 150 days for a typical SBA-financed deal. The clock starts at LOI signature. The buyer’s diligence team has 45 to 60 days to complete financial, legal, operational, and commercial diligence. The SBA lender’s credit committee has 30 to 45 days to approve the loan. The purchase agreement is drafted, negotiated, and signed in parallel. Title work, lease assignment, license transfers, and final closing schedules close out the last 30 days. For a lower-middle-market deal with a PE buyer, the same arc runs 120 to 180 days because the diligence is deeper, the financing is more complex, and there are usually more parties around the table.

The most common things that slow a buyer’s deal down. Sloppy seller financials slow everything because the diligence team has to rebuild the numbers from raw bank statements. Seller-side legal counsel that does not know M&A drafts purchase agreements that take two extra rounds of redlines to clean up. Real estate lease assignment with an uncooperative landlord can add 30 days. A buyer who has not gotten pre-qualified by an SBA-preferred lender before LOI loses two to three weeks at the start. And the single biggest deal-killer in the buyer’s-deal-slowdown bucket is the buyer’s spouse or partner discovering the deal late in the process and pulling the rip cord on the financing. Have the conversation with your partner before you sign the LOI, not after.