How to Buy a Business: The Complete Guide for 2026

Key Takeaways

The acquisition process has 7 distinct phases - skipping any one of them is where deals go wrong
Asset purchases protect buyers from unknown liabilities; stock purchases keep contracts intact - your attorney should model both
The LOI is where the deal is really made - terms you miss here are nearly impossible to renegotiate later
Most acquisitions are financed with 10-20% buyer equity, 20-30% seller financing, and 50-70% SBA or bank debt

Buying a business is one of the fastest paths to owning a profitable company - faster than building from scratch, less risky than a startup, and (when done right) immediately cash-flowing from day one.

But here's the part most guides leave out: 90% of people who start looking to buy a business never actually close a deal. Not because there aren't good businesses for sale. Because the process is complex, the stakes are high, and most first-time buyers don't know what they don't know until it's too late.

I've sat at the closing table on over 400 transactions - representing both buyers and sellers. I've watched first-time buyers overpay by hundreds of thousands of dollars because they didn't understand working capital adjustments. I've watched sophisticated buyers walk away from great deals because they got spooked by fixable issues during due diligence. And I've watched the right deals close smoothly because both sides had competent counsel and a clear process.

This guide walks you through the entire business acquisition process - all seven phases, from finding a target to integrating after closing. It's the guide I wish every first-time buyer would read before they sign anything.

The 7 Phases at a Glance

Phase	What Happens	Timeline
1. Search & Evaluation	Find targets, review financials, assess fit	1-6 months
2. LOI Negotiation	Agree on price, structure, and key terms	2-4 weeks
3. Due Diligence	Verify everything - financial, legal, operational	6-12 weeks
4. Deal Structure	Asset vs. stock, tax planning, liability allocation	Concurrent with DD
5. Purchase Agreement	Negotiate the binding contract	3-6 weeks
6. Financing & Closing	Finalize funding, satisfy conditions, sign	2-6 weeks
7. Post-Closing	Integration, transition, working capital true-up	90+ days

Total timeline: 3-9 months from signed LOI to closing. Full process including search: 6-18 months.

Phase 1: Finding and Evaluating a Business to Buy

Before you evaluate a single business, define your acquisition criteria. What industry? What size (revenue, EBITDA)? What geography? How much can you invest as equity? What are your deal-breakers?

Without clear criteria, you'll waste months looking at businesses that don't fit. I've seen buyers evaluate 50+ opportunities over a year and close zero deals - not because the opportunities were bad, but because the buyer couldn't make a decision without a framework.

Where to Find Businesses for Sale

Business brokers - Handle most deals under $5M. They list businesses, screen buyers, and facilitate introductions. You'll sign an NDA before seeing detailed financials.
Online marketplaces - BizBuySell, BusinessesForSale.com, and Axial (for larger deals). Good for browsing, but listings often lack financial depth.
Investment bankers - Handle deals over $5-10M. They run competitive auction processes that typically result in higher prices for sellers.
Direct outreach - Contact business owners directly in your target industry. Many of the best acquisitions happen off-market, where there's no competition and pricing is more favorable.
Your professional network - CPAs, attorneys, and financial advisors often know of businesses their clients want to sell before they're listed.

Initial Screening: Red Flags to Watch For

Walk Away If:

One customer is >30% of revenue
Revenue has declined for 2+ consecutive years
The owner refuses to provide financials before LOI
No written processes - everything is in the owner's head
Significant pending litigation (unless priced in)
The seller won't agree to any exclusivity period

Green Lights:

Diversified customer base (no customer >10-15%)
Stable or growing revenue over 3+ years
Management team that can operate without the owner
Clean, audited (or reviewed) financial statements
Recurring or contracted revenue
Seller willing to provide transition support

Phase 2: The Letter of Intent (LOI)

The LOI is the most underrated document in the acquisition process. Most people think the purchase agreement is where the deal is made. They're wrong. The deal is made at the LOI.

Here's why: once both sides sign an LOI, the framework is set. Purchase price, deal structure, exclusivity - these are locked in. Yes, due diligence can surface issues that lead to renegotiation. But trying to materially change terms after the LOI is like trying to renegotiate after you've already shaken hands. The other side will resist, and you'll damage the relationship you need to close the deal.

This is why you need your M&A attorney involved before you sign the LOI, not after.

Key LOI Terms Every Buyer Must Get Right

LOI Term	Why It Matters	Buyer's Target
Purchase price	Sets the baseline - hard to reduce later without DD findings	Based on verified EBITDA multiple, not seller's asking price
Deal structure	Asset vs. stock affects liability exposure and taxes	Asset purchase (default for most buyers)
Exclusivity period	Prevents seller from shopping your offer while you spend money on DD	90 days minimum (binding)
Working capital target	Ensures you receive adequate working capital at closing	Trailing 12-month average, with adjustment mechanism
Due diligence scope	Defines what you can investigate and seller's cooperation obligations	Unrestricted access to all records, employees, and facilities
Financing contingency	Lets you walk if financing falls through	Clear right to terminate if SBA/bank financing denied
Seller transition	Ensures seller helps with handoff post-closing	90-180 days of transition support included in deal

For a deeper dive into LOI strategy, see our complete LOI guide and LOI negotiation playbook.

The $300,000 working capital mistake:

A first-time buyer signed an LOI for a $3.2M manufacturing business without specifying a working capital target. The seller drained accounts receivable and ran up payables in the weeks before closing. At the closing table, the buyer received a business with $300,000 less working capital than what was represented during negotiations. Without a working capital adjustment mechanism in the LOI, the buyer had no contractual basis to reduce the price. An M&A attorney would have caught this in 10 minutes at the LOI stage.

Phase 3: Due Diligence - Verifying Everything

Due diligence is your investigation period. The seller has told you the business makes $500K in EBITDA. Now you prove it. The seller says all contracts are current. Now you verify it. The seller says there's no pending litigation. Now you confirm it.

Due diligence runs on three parallel tracks:

Financial Due Diligence

Typically led by your transaction CPA. The centerpiece is a Quality of Earnings (QoE) report - an independent analysis that verifies the seller's claimed EBITDA by normalizing one-time items, owner add-backs, and accounting inconsistencies.

What you're verifying:

Revenue is real, recurring, and properly recognized
Expenses are complete (no deferred costs that will hit post-closing)
EBITDA normalizations are legitimate and supportable
Working capital requirements are accurate
Accounts receivable are collectible
Tax returns match financial statements

Legal Due Diligence

Led by your M&A attorney. This is where hidden risks surface - and where most first-time buyers are underprepared.

What your attorney is reviewing:

Contracts - Change-of-control provisions, assignment restrictions, expiration dates
IP ownership - Are trademarks, patents, and software properly assigned to the company?
Employment - Non-competes, key person agreements, wage/hour compliance, pending claims
Litigation - Pending lawsuits, threatened claims, regulatory investigations
Corporate records - Formation documents, board minutes, ownership documentation
Real property - Lease terms, environmental issues, landlord consent requirements
Regulatory - Licenses, permits, industry-specific compliance

Operational Due Diligence

Typically led by the buyer directly or an operational advisor. Understand how the business actually runs day-to-day.

What you're assessing:

Customer relationships - How loyal? How dependent on the owner?
Management team - Can they run the business without the seller?
Systems and processes - Are operations documented or tribal knowledge?
Vendor relationships - Are supply chains reliable and diversified?
Technology - What's the state of IT systems, cybersecurity, data?

We have a comprehensive due diligence checklist with 50+ items your team should review.

Due diligence findings don't automatically kill deals. They inform negotiations. If you discover that the seller's largest customer contract expires in 6 months with no renewal commitment, that's not necessarily a deal-breaker - but it should affect the price, the earnout structure, or the indemnification provisions. The key is knowing what you've found and having counsel who can translate findings into deal terms.

Most acquisition deals fail in due diligence.

Not because the business is bad - because buyers aren't prepared for what they find. Get an M&A attorney involved before you sign the LOI, not after.

Phase 4: Deal Structure - Asset Purchase vs. Stock Purchase

This is one of the most important decisions in any acquisition, and it's where buyers and sellers often have competing interests.

Factor	Asset Purchase	Stock Purchase
Liability exposure	Buyer assumes only specified liabilities	Buyer inherits ALL liabilities (known and unknown)
Tax benefit	Stepped-up basis = higher depreciation deductions	No step-up (unless 338(h)(10) election)
Contract transfers	Most contracts need assignment consent	Contracts usually continue automatically
Licenses & permits	Often need reapplication	Usually continue in place
Complexity	More documents (bill of sale, assignments)	Simpler transfer (stock certificates)
Seller preference	Often disfavored (double taxation for C-corps)	Usually preferred by sellers
Best for buyer when...	You want to limit liability and get tax benefits	Non-assignable contracts or licenses are critical

The default for most buyers should be an asset purchase. You pick the assets you want, you leave the liabilities behind, and you get a stepped-up tax basis that saves you money for years. The seller will often push for a stock sale (especially if they're a C-corporation) because it's more tax-efficient for them. The resolution usually involves adjusting the purchase price to bridge the tax gap.

For a detailed comparison of deal structures, see our deal structure guide.

Phase 5: The Purchase Agreement

The purchase agreement is the binding contract that governs the entire transaction. It's typically 40-80 pages plus exhibits, and every clause matters. This is where your M&A attorney earns their fee.

The 6 Provisions That Determine Whether You're Protected

1. Representations and Warranties

The seller makes formal statements about the business - that they own the assets, contracts are valid, financials are accurate, there's no undisclosed litigation. If any representation turns out to be false, you have a claim for indemnification. The more specific and comprehensive these representations, the better your protection.

2. Indemnification

This is your post-closing insurance. If the seller breached a representation, or if undisclosed liabilities surface after closing, the indemnification provisions determine how much the seller pays you. Key terms: the cap (maximum the seller pays - typically 10-20% of purchase price), the basket (minimum threshold before claims trigger - typically 0.5-1% of price), and the survival period (how long you can bring claims - typically 12-24 months).

3. Working Capital Adjustment

The purchase price is typically set based on a "normal" level of working capital. A working capital adjustment mechanism ensures you receive that normal level at closing. Without it, the seller can drain cash, accelerate receivables, and defer payables before closing - leaving you with a business that's short on operating cash from day one.

4. Escrow Holdback

A portion of the purchase price (typically 10-15%) held in escrow for 12-24 months after closing. This gives you actual money to collect against if the seller breaches a representation or undisclosed liabilities surface. Without an escrow, you're relying on the seller's willingness and ability to pay claims - after they've already received your money.

5. Non-Compete Agreement

The seller agrees not to compete with the business for a specified period (typically 3-5 years) within a defined geography. Without this, the seller could take the relationships, knowledge, and goodwill you just paid for and open a competing business across the street.

6. Earnout Provisions

If any portion of the price is contingent on post-closing performance, the earnout formula needs to be airtight. Define the metrics precisely (revenue vs. EBITDA, what's included/excluded), specify who controls business decisions during the earnout period, and establish a clear dispute resolution process. Vague earnout provisions are one of the most common sources of post-closing lawsuits.

The indemnification cap that cost $1.2M:

A buyer purchased a manufacturing company using a general business attorney. The purchase agreement included an indemnification cap of $50,000 - about 1% of the purchase price. Six months after closing, the buyer discovered $1.2M in unreported environmental contamination (the seller had buried a compliance report). With a proper indemnification cap (10-20% of purchase price, standard for M&A transactions), the buyer would have recovered $500K-$1M from escrow. Instead, they were capped at $50K. An experienced M&A attorney would never have agreed to that cap.

Phase 6: Financing Your Acquisition

Most business acquisitions aren't all-cash. They're financed with a mix of buyer equity, bank debt, and seller participation. Understanding the options - and how they interact - is critical to structuring a deal that works.

SBA Loans (Most Common for Deals Under $5M)

The SBA 7(a) program guarantees up to 75-90% of the loan, making lenders more willing to finance acquisitions. Typical structure: 10-year term, competitive rates, 10-20% buyer equity required.

Key requirement: Most SBA lenders require the seller to carry a note for 10-20% of the price on standby (no payments for 2 years), reducing the buyer's cash requirement.

Seller Financing

The seller carries a note for 10-30% of the purchase price, typically at 5-8% interest over 3-5 years. This is a strong signal of seller confidence in the business - if they're willing to be repaid from future cash flows, they believe the business will perform.

Legal consideration: Seller notes must be subordinated to bank debt, and the terms need to be coordinated with your primary lender. Your M&A attorney structures the intercreditor arrangement.

Conventional Bank Loans

For deals where SBA isn't available (seller or business doesn't qualify, or deal is over $5M). Higher equity requirements (25-40%) but faster approval and fewer restrictions.

Earnout (Performance-Based)

Part of the price is paid over time based on the business hitting targets. Reduces upfront cost and bridges valuation gaps. But the legal drafting is critical - poorly defined metrics lead to disputes.

A Typical Financing Stack

Example: $2M Business Acquisition

Buyer equity

$200K-$400K

10-20%

Seller financing

$400K-$600K

20-30%

SBA / Bank loan

$1M-$1.4M

50-70%

Phase 7: After the Closing - The First 100 Days

Closing day feels like the finish line. It's actually the starting line. The first 100 days after closing determine whether your acquisition succeeds or becomes a cautionary tale.

Immediate Legal and Business Priorities

Timeframe	Action	Who Handles It
Day 1-7	Update bank accounts, notify key customers/vendors, transfer utilities and insurance	Buyer + M&A Attorney
Day 1-30	Meet all employees, assess management team, establish communication cadence	Buyer
Day 1-30	File UCC statements, transfer licenses, record assignments, update regulatory filings	M&A Attorney
Day 30-60	Obtain remaining third-party consents, complete contract assignments	M&A Attorney
Day 60-90	Working capital true-up calculation and settlement	CPA + M&A Attorney
Day 1-100	Seller transition support (per agreement)	Seller (monitored by buyer)

Don't make changes too fast.

The biggest mistake new owners make is changing everything in the first month - new systems, new vendors, new processes. This spooks employees, customers, and vendors. The first 90 days should be about listening, learning, and building trust. Make changes after you understand the business from the inside, not based on assumptions from due diligence.

How We Handle Acquisitions at Acquisition Stars

Buying a business is the biggest financial decision most people ever make. Bigger than buying a house. More complex than any contract you've signed. And most buyers go into it with counsel who has closed fewer acquisitions than they've had birthdays.

Here's how we're different:

• I'm on every deal. Not a junior associate. Not a paralegal for the hard parts. I personally handle your LOI, due diligence, purchase agreement, and closing. You get the person with the experience, not someone learning on your deal.
• Better rates, better attention. 15+ years of transaction experience without the large firm overhead. No surprises, and Alex picks up when you call at 11 PM with a question about a due diligence finding.
• Full lifecycle. We handle everything from LOI drafting through post-closing working capital disputes. No handoffs between departments, no "that's not in our scope." One attorney, one team, one fee.
• Nationwide. We handle transactions across the country. Your deal shouldn't be limited by your attorney's zip code.

Ready to buy a business? Start with the right counsel.

Whether you're evaluating your first target or already have a signed LOI, a consultation with an experienced M&A attorney is the highest-ROI investment you'll make in your acquisition. Managing partner on every deal.

Or call directly: (248) 266-2790

Frequently Asked Questions About Buying a Business

How much money do I need to buy a business?

For an SBA-financed acquisition, you'll typically need 10-20% of the purchase price as a down payment, plus 3-6 months of working capital in reserve. On a $1M business, that's $100K-$200K down plus $50K-$100K in reserves. Seller financing can reduce the cash requirement - some deals close with as little as 10% buyer equity when seller financing covers 20-30% and an SBA loan covers the rest. Your M&A attorney can help structure the financing to minimize your out-of-pocket investment while protecting your interests.

How long does it take to buy a business?

From signed LOI to closing, most acquisitions take 60-120 days. The full process - including search, evaluation, and negotiation - typically takes 6-12 months. The breakdown: target identification (1-3 months), LOI negotiation (2-4 weeks), due diligence (6-12 weeks), purchase agreement negotiation (3-6 weeks), and closing preparation (2-4 weeks). Complex deals with regulatory approvals, SBA financing, or earnout structures can take 6-9 months from LOI to close.

Should I buy assets or stock?

Asset purchases are preferred by most buyers because you choose which assets and liabilities to assume, avoiding unknown liabilities. You also get a stepped-up tax basis on the purchased assets, which means higher depreciation deductions. Stock purchases are sometimes necessary - for example, when the business has non-assignable contracts, regulatory licenses, or when the tax cost to the seller of an asset sale would kill the deal. Your M&A attorney should model both structures and negotiate the one that best protects you.

What is due diligence when buying a business?

Due diligence is the investigation period after signing an LOI where you verify everything the seller has told you. It covers three areas: financial (verifying revenue, expenses, and cash flow through a Quality of Earnings analysis), legal (reviewing contracts, IP ownership, litigation, employment matters, and regulatory compliance), and operational (understanding systems, customer relationships, and key person dependencies). Due diligence typically takes 6-12 weeks and is your last chance to identify deal-killing issues before committing to the purchase.

What is a letter of intent (LOI) in a business acquisition?

An LOI is a preliminary agreement that outlines the key terms of the deal - purchase price, deal structure, exclusivity period, and conditions. While most LOI provisions are non-binding, the exclusivity clause (which prevents the seller from negotiating with other buyers) is typically binding. The LOI sets the framework for the entire deal. Terms that aren't negotiated at the LOI stage are much harder to change later. This is why having an M&A attorney draft or review your LOI is critical - it's where the deal is really made.

Do I need an attorney to buy a business?

For any acquisition over $500,000, yes. The purchase agreement alone contains provisions - indemnification caps, representations and warranties, working capital adjustments, earnout formulas - that can cost you hundreds of thousands of dollars if negotiated poorly. An M&A attorney also manages due diligence, identifies hidden liabilities, structures the deal for tax efficiency, and coordinates the closing. The cost of M&A counsel ($15K-$50K for most deals) is a fraction of what a bad deal term or missed liability costs.

How do I value a business I want to buy?

Business valuation typically uses multiples of earnings - most commonly EBITDA (earnings before interest, taxes, depreciation, and amortization) or SDE (seller's discretionary earnings for smaller businesses). Multiples vary by industry: SaaS companies trade at 4-8x EBITDA, service businesses at 2-4x, manufacturing at 3-5x. But the multiple is just a starting point. Your actual offer should account for customer concentration, growth trends, owner dependency, contract quality, and working capital requirements. A Quality of Earnings report from a transaction CPA is essential for verifying the seller's claimed earnings.

What are the biggest risks of buying a business?

The three biggest risks are: (1) inheriting unknown liabilities - lawsuits, tax obligations, environmental issues, or employee claims that weren't disclosed, (2) customer concentration - if one customer represents more than 20% of revenue and leaves post-closing, the business may not support your debt payments, and (3) owner dependency - if the business can't function without the previous owner, revenue may decline during the transition. Your M&A attorney mitigates these through deal structure (asset purchase to limit liability), indemnification provisions (seller remains liable for undisclosed problems), and earnout structures (tying part of the price to post-closing performance).

What is an earnout in a business acquisition?

An earnout is a portion of the purchase price paid after closing, contingent on the business hitting certain performance targets (usually revenue or EBITDA milestones over 1-3 years). Earnouts bridge valuation gaps - if the seller says the business is worth $5M but you think it's worth $4M, you might pay $4M at closing plus up to $1M based on performance. The legal risk is in the details: how are the metrics calculated? Who controls business decisions during the earnout period? What happens if you make changes that affect performance? Poorly drafted earnout provisions are one of the most common sources of post-closing litigation.

How do I finance a business acquisition?

The most common financing structures are: SBA loans (up to 90% of purchase price, 10-year terms, competitive rates - ideal for deals under $5M), conventional bank loans (faster but higher equity requirements), seller financing (the seller carries a note for 10-30% of the price - common and often required by SBA lenders), and equity investors (for larger deals or when you want to limit personal exposure). Most acquisitions use a combination: 10-20% buyer equity, 20-30% seller financing, and 50-70% bank/SBA debt. Your M&A attorney coordinates the financing structure and ensures the loan documents don't contain terms that conflict with your purchase agreement.