How to Buy a Business:
The Complete Guide for 2026

The capital requirement depends on deal size and financing structure. For SBA 7(a)-financed acquisitions, lenders typically require 10% equity injection from the buyer, meaning a $1M deal requires approximately $100K in cash equity, plus reserves for working capital and transaction costs. Seller financing layered on top of an SBA loan can reduce the buyer's equity requirement in some deals. Cash deals and conventional bank financing carry different thresholds. Transaction costs - legal, quality-of-earnings, financing fees, and working capital reserves - add meaningfully beyond the purchase price and are often underestimated by buyers new to M&A.

Most acquisitions take 6 to 12 months from initial search to closing. The LOI-to-close phase alone typically takes 60 to 120 days, broken down across due diligence (6 to 12 weeks), purchase agreement negotiation (3 to 6 weeks), and closing preparation. Deals involving SBA financing, earnout structures, regulatory approvals, or complex real estate often extend to 9 months or longer from signed LOI. The most common time lost is in due diligence - not because issues are found, but because the buyer's team was not organized before the process started.

The first step is defining your deal criteria and confirming your financing capacity - before you begin looking at businesses. Buyers who engage with targets before knowing what they can finance, what industries they want to operate in, and what they can actually manage post-closing waste significant time and damage relationships with brokers. Once criteria are clear, the next practical step is engaging a business broker or investment banker in your target segment, and retaining M&A counsel before you submit any offer.

For any acquisition involving a formal purchase agreement - which covers virtually all deals over $500K - yes. The purchase agreement's representations and warranties, indemnification structure, working capital adjustments, and closing conditions carry real financial consequences. A buyer relying on a broker or a general business attorney who does not close transactions regularly is taking on legal exposure they may not recognize until post-closing. M&A counsel also manages the due diligence process, reviews contracts for assignability, and negotiates the definitive agreement on your behalf.

In an asset purchase, the buyer selects specific assets of the business - equipment, contracts, customer relationships, intellectual property - and generally does not assume unknown liabilities. This is the preferred structure for most buyers. In a stock purchase, the buyer acquires the entity itself, including all of its liabilities - known and unknown. Stock purchases are sometimes necessary when the target holds non-assignable permits, licenses, or contracts that are critical to operations. The tax treatment differs significantly between structures, and the decision affects both parties. Your M&A attorney should analyze both before you commit to a structure.

The SBA 7(a) loan program is the most common financing vehicle for small business acquisitions in the United States. It provides government-backed loans up to $5 million for eligible business purchases, with terms up to 10 years for working capital and up to 25 years for real estate. The buyer typically contributes 10% equity; the SBA guarantees a portion of the loan, which reduces lender risk and makes terms more accessible than conventional bank financing. SBA loans come with specific requirements around seller standby agreements, personal guarantees, and eligible business use that affect deal structure.

Due diligence is the investigation period that follows a signed LOI. The buyer's team reviews financial records (typically 3 to 5 years of statements, tax returns, and a Quality of Earnings analysis), legal documents (contracts, litigation, IP ownership, employment agreements, regulatory compliance), and operational matters (customer concentration, key employees, vendor relationships, systems). The purpose is to verify everything the seller has represented and identify issues that may affect price, terms, or the decision to proceed. Most due diligence periods run 6 to 12 weeks.

A letter of intent is a preliminary agreement that establishes the key commercial terms of the deal - purchase price, deal structure, exclusivity period, and due diligence timeline. Most LOI provisions are non-binding, but certain provisions - exclusivity, confidentiality, expense allocation - are typically binding. The LOI is one of the most important documents in the transaction because it sets the framework for everything that follows. Terms not addressed in the LOI are significantly harder to negotiate later. Buyers should have M&A counsel review or draft the LOI before signing.

Business valuation for acquisition purposes is typically based on a multiple of normalized EBITDA (for larger businesses) or seller's discretionary earnings (for smaller owner-operated businesses). Industry multiples vary - service businesses commonly trade at 2 to 4x SDE, and asset-heavy businesses at different ranges depending on sector. The multiple is a starting point; the real work is in normalizing earnings by adjusting for owner add-backs, one-time expenses, and accounting treatment that may not reflect true cash flow. A Quality of Earnings report from a transaction CPA is the standard method for verifying earnings before closing.

The most significant risks are: undisclosed or unknown liabilities that surface after closing; financial misrepresentation, including aggressive add-backs that inflate EBITDA; customer concentration, where one or two customers represent a disproportionate share of revenue; key-person dependency, where the business's value is tied to the departing seller; contract assignability issues that block the transfer of critical agreements; and working capital shortfalls after closing. An experienced M&A attorney and a transaction CPA performing a Quality of Earnings analysis are the primary defenses against each of these risks.