HBR Guide to Buying a Small Business

Some of the purchase price will come from a bank loan, some will come as a loan from the seller, and the rest will be equity that you will raise from individual investors.

At an onsite visit, you usually have the opportunity to talk directly with the owner about the business and its challenges and opportunities. The visit works best if it is a free-flowing conversation in which you learn a lot about the business that goes beyond the initial information you received while filtering. The conversation will sharpen your

If an acquisition was identified, the searchers were obligated to offer it to their investors.

Continuing involvement after the sale

For directly sourced prospects, some of the information for the initial filters will be available from business directories and other public listings

In fact, we’ll explain in this chapter that you should look for what may seem to be a dull business: one that has the same customers from year to year and is growing slowly—a business that is what we call enduringly profitable.

Since recurring customers are the foundation of an enduringly profitable small business, we suggest that your first deeper filter be whether its customers buy from your prospect again and again.

While there is no magic formula to get the right price for your company, most small businesses sell for between three and five times their adjusted earnings

Completing the Acquisition Once you get a signed LOI back from the owner, you will continue to conduct further research into the organization to confirm that your understanding of its finances and operations are correct—a phase we call confirmatory due diligence. This phase is the most time-intensive portion of the search and acquisition. You’ll be