HBR Guide to Buying a Small Business

The big idea is that you can buy an existing small business, right now, and run it as a CEO. Each year, we teach hundreds of MBA students about this kind of entrepreneurship, and dozens of them follow this path immediately

TABLE 13-1

Do the company’s top five customers account for a lot of its revenues? The amount of revenue from top customers is called customer concentration. High customer concentration—if one customer provides, say, 40% of revenues, or three customers provide 70% of revenues—is a substantial risk to enduring profitability because those important customers hav

The referrers are focused on excellent service with no mistakes.

Their statement may be true, but few people, especially those who have managed a business for a decade a more, have such a humble and detached perspective.

is common for owners to be the company’s primary salesperson, but be wary when the owner is involved in the delivery of every product or service the company provides.

A debt-free, cash-free acquisition means that the seller gets to keep the cash in the business but also must pay any outstanding debt of the business.

Earn-outs are similar to seller notes in that in these arrangements, part of the sales price is paid on a deferred basis. But in the case of earn-outs, that payment is pegged to company performance. It enables the seller to be paid a higher price if future company performance hits certain targets, while the buyer has the protection of only paying m

The only terms that are legally binding in the LOI are those that have to do with the structure of the closing: the exclusivity of your offer and your own promises regarding confidentiality of the information and nonsolicitation of the seller’s customers and employees.