HBR Guide to Buying a Small Business

The confidentiality and nonsolicitation are important to the seller in case your proposed deal doesn’t close.

If you are unwilling to live where a potential business opportunity is located, then there is no sense searching for businesses there.

The essential characteristic of enduringly profitable businesses is recurring customers.

The referrers are focused on excellent service with no mistakes.

Debt Debt, a fixed claim of the firm, requires the firm to make prespecified interest and principal payments or face significant adverse consequences. The debt will come in the form of a loan from a bank, nonbank lenders, and sellers.

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.

Remember: Dull is good. We also excluded price from the shopping list. The price of the business you buy isn’t restricted to the amount of cash you have in the bank.

For directly sourced prospects, it is trickier because you won’t know much about the business during your first few conversations with the owner. But you can still suggest a general valuation range: “I’m looking to buy a business at 3x–5x pretax EBITDA.”

If, as we will recommend, you pay for your new business in part by borrowing against it and in part with equity, your return on equity will be even higher and well above investment returns available elsewhere.