Resources & Tools

The most common financing for business acquisitions under $5M. Up to 90% financing, 10-25 year terms. Most banks require 10-20% down payment and the business must show 1.25x debt service coverage.

• -Max loan: $5M
• -Down payment: 10-20%
• -Terms: 10-25 years
• -Rates: Prime + 1.5-2.75%
• -Requires: 2+ years business history, positive cash flow

The seller acts as the lender for a portion of the purchase price. Common in small business acquisitions — typically 10-30% of the deal. Shows seller confidence and aligns incentives during transition.

• -Typical: 10-30% of purchase price
• -Terms: 3-7 years
• -Rates: 5-8% (negotiable)
• -Often paired with SBA loan for the remainder
• -Seller stays involved during earn-out period

A portion of the purchase price is contingent on the business hitting performance targets post-acquisition. Useful when buyer and seller disagree on valuation or when the business depends heavily on the current owner.

• -Bridges valuation gaps
• -Typically 10-30% of total price
• -Performance metrics: revenue, EBITDA, customer retention
• -Duration: 1-3 years post-close
• -Requires clear, measurable benchmarks

The critical investigation period before closing. Most acquisitions allow 30-90 days. Cover financials, legal, operations, customers, employees, and competitive position.

• -Financial: 3 years tax returns, P&L, balance sheets, AR/AP aging
• -Legal: contracts, leases, IP, litigation, licenses
• -Operations: SOPs, vendor agreements, key person dependencies
• -Customers: concentration, churn, contract terms, satisfaction
• -Employees: org chart, compensation, non-competes, key hires
• -Market: competitive landscape, industry trends, regulatory risks

The non-binding agreement that outlines deal terms before due diligence begins. Sets purchase price, structure, contingencies, exclusivity period, and timeline. Usually 2-5 pages.

• -Purchase price and structure (asset vs. stock sale)
• -Payment terms (cash, financing, seller note, earnout)
• -Due diligence period (typically 30-90 days)
• -Exclusivity period (seller stops talking to other buyers)
• -Key contingencies (financing, landlord approval, etc.)
• -Non-binding except for exclusivity and confidentiality

How businesses are priced. The three standard approaches and when each applies.

• -SDE Multiple: Most common for <$5M businesses. Price = Seller's Discretionary Earnings x industry multiple (typically 2-4x)
• -EBITDA Multiple: Standard for larger businesses. Price = EBITDA x multiple (typically 3-6x)
• -Revenue Multiple: Used for high-growth or pre-profit businesses. Price = Revenue x multiple (0.5-3x)
• -Asset-Based: Used for asset-heavy businesses. Price = fair market value of assets minus liabilities
• -Comparable Sales: What similar businesses actually sold for. Most reliable when data exists

The 12-18 months before listing matter more than the listing itself. Clean financials, reduce owner dependency, document processes, and lock in customer contracts.

• -Clean up financials — separate personal and business expenses
• -Document all SOPs and processes
• -Reduce owner dependency — delegate key relationships
• -Lock in customer contracts and vendor agreements
• -Resolve any pending legal issues
• -Ensure all licenses and permits are current
• -Build a management team that can operate without you

Asset sale vs. stock sale has major tax consequences. Sellers generally prefer stock sales (capital gains treatment), buyers prefer asset sales (step-up in basis). Understanding this drives negotiation.

• -Asset Sale: Buyer gets step-up basis, seller pays ordinary income on some assets + capital gains
• -Stock Sale: Seller pays capital gains only, buyer inherits existing basis
• -Installment Sale: Spread capital gains over multiple years
• -Qualified Small Business Stock (QSBS): Potential exclusion of up to $10M in gains
• -Always consult a tax advisor before structuring the deal

Brokers typically charge 8-12% commission on businesses under $1M, declining to 3-5% for larger deals. They handle marketing, buyer screening, negotiations, and closing coordination.

• -Commission: 8-12% for <$1M, 5-8% for $1-5M, 3-5% for $5M+
• -Lehman Formula: 5% of first $1M, 4% of second $1M, etc.
• -Listing period: typically 12-18 months exclusive
• -They handle: valuation, marketing, buyer screening, negotiations
• -You handle: financials, operations during transition, disclosures