How to Buy a Small or Mid Size Business — and What to Look For

There are roughly 32 million small businesses in the United States, and a huge percentage of them are owned by people in their 60s or 70s who are thinking about retiring. Most of those owners do not have a kid or employee waiting to take it over. That mismatch is one of the biggest wealth-building opportunities in the country right now — and it’s a big part of why we do what we do at Del Val Investment Group.

If you’re thinking about buying a small or mid size business, this post is a plain-language starting point. We won’t get into the legal mechanics — that’s what your attorney and CPA are for. We’ll focus on what to look for and what to avoid, so you can have smarter conversations with everyone else.

What does it mean to “buy a small business”?

The category most people are talking about when they say “small business acquisition” today is sometimes called Entrepreneurship Through Acquisition, or ETA. The basic idea: instead of starting a business, you buy a profitable one and grow it from there.

Where to find deals

A few honest options, in rough order of how realistic they are for a first-time buyer:

• Business brokers — most accessible, but the listings are public and competitive. Sites like BizBuySell list thousands of businesses. Quality varies wildly.
• Direct outreach to owners — harder but better. Identify owners in your target industry and geography, send polite letters offering to start a conversation. Slower but you get less competition and often better terms.
• Industry networks and trade associations — word of mouth in a specific industry will surface deals that never hit the open market. Your network is your edge.
• M&A advisors and investment bankers — for larger deals (usually $5M+). They’re more expensive but the deals are more vetted.

What to look for in a good acquisition

After a lot of years watching businesses change hands, the same factors come up again and again. The strong candidates have most of these:

Durable cash flow

The business has been profitable for at least three years in a row, ideally five. Revenue isn’t declining. Margins are stable. There’s a clear story for why the business makes money and why it will keep making money.

Recurring or repeat revenue

A business where the same customers keep buying month after month, or year after year, is much more valuable than a business that has to win every customer from scratch. Think service contracts, maintenance plans, subscription tools, repeat clients, multi-year contracts.

A real team beyond the owner

The owner should not be the only person who knows how things work. If everything in the business runs through the owner’s head, you’re not buying a business — you’re buying a job. Look for documented processes, capable managers, and a team that can operate without the owner present.

A reason the owner is selling

Retirement is the best answer. Health is honest. “I want to do something else” is fine. “The business is going downhill” is a giant red flag — but at least it’s honest. Be wary of sellers who can’t give you a straight answer.

A specific technological niche, if you can find it

This is our own preference at Del Val Investment Group. We look for businesses where technology — software, automation, better workflow — can unlock the next stage of growth. A profitable business that’s still being run on spreadsheets and phone calls is often a goldmine, because you can apply technology and meaningfully expand the operation without breaking what already works.

Red flags

If you see any of these, slow down and dig deeper:

• Customer concentration. One customer is 40%+ of revenue. If that customer leaves, the business breaks.
• Owner dependence. All the key relationships, the sales, and the institutional knowledge live in the owner’s head.
• Declining trend. Revenue or margins have been falling for two or more years. There might be a turnaround story, but it’s harder than it looks.
• Messy financials. The owner can’t produce clean tax returns, P&Ls, and a current balance sheet. If the seller can’t show you the numbers cleanly, they probably don’t know them cleanly — and you’ll inherit that mess.
• No employee bench. The team is one or two people including the owner, and replacing the owner means rebuilding from scratch.
• A pricing structure that hasn’t moved in years. Could be untapped pricing power, could be a sign the business can’t raise prices without losing customers. You need to figure out which.

What to actually look at in due diligence

When you get serious about a specific deal, you’ll review (with the help of a CPA and lawyer):

• Three years of tax returns and financial statements — the foundation
• Bank statements — do they tie to the financials?
• Customer list and revenue concentration
• Vendor list and contracts
• Lease agreements — are you inheriting a good lease or a bad one?
• Employee roster, comp, and any agreements
• Any pending or recent lawsuits
• Software, systems, and the tech stack — what’s it really running on?
• Insurance — is the business properly insured for what it does?

This is not the full list. It is the minimum.

How to finance an acquisition

A few common paths, simplified:

• SBA 7(a) loans — the most common path for first-time buyers in the U.S. for deals up to about $5M. You typically need 10% equity down, the rest is financed.
• Seller financing — the seller agrees to be paid over time instead of all at closing. Common, and a great sign of seller confidence.
• Equity partners or investors — raise some or all of the equity from outside capital.
• Conventional bank loans — harder to get for acquisitions without strong personal credit and collateral.

Most deals are a combination of at least two of the above. Your banker, CPA, and lawyer will help you put the right structure together.

Common mistakes first-time buyers make

• Falling in love with the business. The deal that gets done is rarely the first one you fall in love with. Be willing to walk away.
• Underestimating the transition. The first 90 days post-close are brutal. Plan for it.
• Skimping on due diligence. A good CPA and lawyer cost a small fraction of what they save you. Hire them.
• Buying outside your zone of competence. If you’ve spent your career in technology, buying a restaurant is a different beast. Stay close to what you know — or partner with someone who knows the industry.

Where to start

If you’re thinking about acquiring a business and want to talk through the process with someone who has lived this work, reach out. We aren’t deal brokers and we aren’t selling you a course — we’ll just give you honest input on what to think about for your specific situation.

You can also read more about our own approach to acquisition and what we look for at Del Val Investment Group.