Buying a business: boring, cash-flowing, and thoroughly diligenced
Acquiring an established, profitable small business can create ownership income faster than building from zero — and it can also create debt obligations that outlive the business's performance.
Small businesses are commonly priced on a multiple of Seller's Discretionary Earnings (SDE) or EBITDA. Multiples vary by industry, size, customer concentration, owner dependence, and deal terms.
SDE adds back owner compensation and discretionary expenses; EBITDA does not.
Add-backs need documentation — unverified add-backs inflate price.
Terms (financing, escrow, earn-outs) can matter as much as the headline multiple.
Financing structures
Many small acquisitions combine buyer equity, bank or SBA-guaranteed debt, and seller financing. Personal guarantees are common.
SBA 7(a) eligibility, down payment, and terms are set by lenders within program rules and change over time.
Seller notes align incentives but add fixed obligations.
Debt service must be covered even in a weak year — model downside cases.
Due diligence that protects you
Diligence tests whether earnings are real, repeatable, and transferable without the seller.
Quality of earnings: verify revenue, margins, and add-backs against bank statements and tax returns.
Customer concentration, contracts, and churn.
Employees, key technicians, licensing, and retention risk.
Legal, tax, insurance, environmental, and regulatory exposure.
The first year of ownership
Transition risk is the most underestimated part of acquisition. Staff, customers, and vendors all reassess after a change in ownership.
Plan working capital separately from the purchase price.
Document processes before the seller's transition period ends.
