Last Updated on September 4, 2026 by Dave Schoenbeck
Starting a business from scratch isn’t for everyone.
You have to find customers, build a team, create systems, establish cash flow, make plenty of mistakes, and somehow survive long enough to figure out what you’re doing.
That’s one reason buying an existing business can be so appealing.
Instead of starting from scratch, you may be able to buy a business with customers, employees, revenue, equipment, vendor relationships, cash flow, and sustainable profits already in place.
That’s the good news.
The bad news is that you can also buy someone else’s problems. And trust me, some of the expensive ones won’t be sitting on the balance sheet waiting for you.
I’ve worked with entrepreneurs and business owners for many years, and I’ve learned not to get too excited by a good-looking set of financial statements. The numbers matter—a lot—but you need to understand what’s behind them.
Why is the business successful? Will that success continue? How much of that success walks out the door when the seller leaves?
If you’re thinking about buying a business, here are eight things I would look for.
Key Takeaways
- Buy the future, not the rearview mirror. Great historical numbers are nice, but you’re buying what this business can produce tomorrow—not what the previous owner accomplished yesterday.
- Look for a moat, not just a money-maker. The best businesses own something competitors can’t easily replicate: a niche, reputation, expertise, customer loyalty, pricing power, or a unique market position.
- Cash flow tells the truth. Profits can look terrific on paper until you discover aging equipment, hungry working capital, customer concentration, or another expensive surprise lurking beneath.
- Make sure you’re buying a business—not an expensive new job. If the customers, employees, decisions, and relationships all depend on the current owner, you’d better understand what happens when that owner walks out the door.
1. It Has the Potential to Survive and Thrive
There’s no point in buying a business that looks terrific today but could be in serious trouble in five years.
Start with the financial health of the business. Look at several years of sales, profit margins, overhead, cash flow, and working capital. How did it perform when the economy was strong? What happened when things got tougher?
Then get outside the financial statements.
What’s happening in the industry? Who are the competitors? Is technology changing the game? Are customers behaving differently? Are new regulations, labor shortages, or other changes creating problems—or opportunities?
A seller will naturally spend a lot of time telling you about the company’s history. That’s useful. But you’re not buying its history.
You’re buying its future.
2. It Has a Wide and Defensible Moat
A growing market helps, but I wouldn’t buy a company simply because it operates in a good industry.
I want to understand why this business should keep winning. Warren Buffett uses the term “economic moat” to describe the competitive advantages that protect a successful business. I think it’s a great way to evaluate a potential acquisition.
For an existing small business, the moat doesn’t need to be a patent, brilliant technology, or a famous brand.
It might be a niche the company has quietly dominated for years. Maybe it’s known as the expert in a specialized field. It could have exclusive relationships, a strong reputation, proprietary processes, a geographic advantage, unusually loyal customers, or a service model that’s simply difficult to copy.
Sometimes the advantage is much simpler:
They do something important better than everybody else.
I love businesses that have carved out a profitable niche and practically own it. Customers know who they are and why they’re different. Competitors have a hard time taking business away from them. And they don’t have to be the cheapest guy in town to get the order.
Before buying the business, I’d want to know how much of its niche or local market it controls. I’d want to understand why customers choose it, how easily they could switch, and what would happen if a smart, well-funded competitor targeted it.
And don’t just ask whether the company has a moat today. Ask whether that moat is widening or narrowing. That’s where things get interesting.
A company may have dominated its niche for twenty years because of an advantage that will no longer matter five years from now.
What you’re really trying to determine is whether its differentiation has staying power.
A strong moat can support repeat business, healthier profit margins, pricing power, sustainable profits, and better cash flow. It can also offer some protection when the economy inevitably gets ugly.
Here’s the question I’d keep coming back to:
What does this business own in the customer’s mind that its competitors don’t?
If nobody can give you a good answer, I wouldn’t pay much of a premium for the business.
3. It Has a Repeat-Business Future
I’m a big fan of businesses that don’t have to wake up every Monday morning to find an entirely new batch of customers. Repeat business makes life easier.
Revenue becomes more predictable. Customer acquisition costs can decrease. Cash flow becomes easier to forecast. And you’ve got a much better foundation from which to grow.
Look closely at the customers. How often do they return? How long have they been customers? Why do they stay? Do they have contracts or subscriptions, or does the company have to earn their business every year?
There’s another question I wouldn’t overlook.
Are those customers loyal to the company, or to Joe, the owner, who has been taking them to lunch for years?
That’s something you’ll want to know before Joe heads to Florida with your check in hand.
4. It Generates Strong Cash Flow Without Constantly Demanding More Money
I like businesses that generate cash flow. I like them considerably less when every dollar they generate must be reinvested in inventory, trucks, buildings, equipment, or other expensive assets.
When evaluating a business’s financial health, don’t stop at reported profits. Dig into cash flow and working capital.
How much inventory does the company need? When will equipment need to be replaced? Are the facilities in good condition? Is the technology current?
Here’s another place where buyers can be fooled. Sometimes a business looks highly profitable because the owner hasn’t spent money on anything for five years.
The trucks are worn out. The software is outdated. The building needs work. Good employees are underpaid. Inventory has been allowed to run down.
Those aren’t savings. They’re bills awaiting the new owner.
I want to know how much cash the company produces after making the investments required to keep the business healthy.
That’s a much more useful number.
5. It Has a Workforce You Can Actually Recruit and Keep
Every business needs good people, but some businesses are far more vulnerable to labor problems than others.
Before buying an existing business, understand how difficult it is to recruit, train, compensate, and retain the people who make the place run. Then figure out who you absolutely cannot afford to lose. Almost every company has a few of these people.
One knows every important customer. Another knows how the operating systems actually work. Someone else can solve problems that apparently nobody bothered to document.
Find them. Talk to them. And have a plan for retaining them after the sale.
The seller may own the stock, but some of the company’s most valuable assets go home every night.
6. Its Problems Are Things You Can Actually Fix
I don’t necessarily want to buy a perfect business.
In fact, some of the best opportunities are good businesses with fixable problems.
Maybe overhead is too high. Pricing is weak. Profit margins could be better. Lead flow isn’t strong enough. Conversion rates are disappointing. Existing customers aren’t buying often enough.
That’s where a buyer can create real value. But be careful not to fall in love with your own turnaround plan.
It’s very easy to sit in a conference room and say,
“We’ll fix sales.”
“We’ll raise prices.”
“We’ll improve margins.”
“We’ll bring in better people.”
Okay. How?
Before I bought the company, I’d write down the three to five things I believed I could materially improve, then try hard to prove myself wrong.
Do I have the skills to fix them, the people, the money, and the time?
And here’s a rule worth remembering:
Don’t pay the seller today for improvements you’ll have to make tomorrow.
7. The Purchase Economics Make Sense
A terrific company can still be a lousy investment if you pay too much for it.
This is where due diligence matters.
Reconcile the tax returns, financial statements, bank records, payroll, receivables, inventory, working capital, and anything else that helps you determine what the company actually earns.
Pay close attention to adjusted EBITDA and seller add-backs. Some add-backs are perfectly legitimate. Some require a pretty vivid imagination.
Don’t get hung up on what the seller says the company earns. Figure out what it will realistically earn once you own it.
If the seller works 60 hours a week and pays himself very little, someone will eventually have to take over those 60 hours.
If equipment needs replacing, put it in your numbers.
If you need to hire a manager, put that in too.
Then determine what the business is worth to you.
A cheap business isn’t necessarily a good business. And a good business can turn into a bad deal if you overpay for it.
8. It Has a Great “Jockey”
Good businesses usually don’t become good by accident.
Somebody built the customer relationships, hired the people, weathered the bad years, made the decisions, and figured out how to make the place work.
Learn everything you can about that person.
How involved is the owner today? What decisions still depend on them? Which customer and vendor relationships do they personally control? Is there a strong management team beneath them? And why are they really selling?
Maybe they’re retiring. Maybe they’re tired. Maybe their kids don’t want to take over the business.
All perfectly reasonable explanations. But keep asking questions.
I’d want to know whether the seller sees something coming that I haven’t noticed yet.
What does the seller know about the next three years that I don’t?
That’s a question worth losing a little sleep over.
Seven More Questions I’d Ask Before Buying the Business
Finding these eight traits would catch my attention.
It wouldn’t get my signature on the check.
If one of my coaching clients were seriously considering buying a business, these are seven more areas I’d push them to investigate.
1. How Dependent Is the Business on the Owner?
Let’s make this simple.
What happens if the current owner doesn’t show up tomorrow?
Do customers still call?
Does the sales team still sell?
Can employees make decisions?
Do vendors cooperate?
Does anybody actually know how the whole place works?
A company producing terrific EBITDA isn’t nearly as attractive if one person is holding the entire thing together with duct tape and a cell phone.
You want to buy a business.
You don’t want to buy yourself a very expensive job.
2. How Concentrated Is the Customer Base?
Repeat customers are valuable. One customer accounting for 35% of your revenue isn’t.
Look at the top customer, the top five, and the top ten. Then look beyond revenue.
How profitable are they? How long have they been in business? Are there contracts? When do they renew? Who owns the relationship?
I’d also want to know what happens to cash flow if the largest customer leaves six months after closing. If that scenario ruins the deal, you need to know about it before buying the business—not afterward.
3. How Real Are the Earnings?
Privately held businesses can have some interesting financial statements.
Personal expenses find their way into the company. Family members appear on payroll. Owners underpay themselves. One-time expenses pop up everywhere. Normalizing those earnings is reasonable. Getting creative isn’t.
Rebuild the financial picture based on what the company will look like after you own it.
I want a number I can believe, not the prettiest number someone can squeeze into a sales memorandum.
4. What Has the Seller Been Putting Off?
Deferred expenses can make yesterday’s profit look great and tomorrow’s cash flow look terrible.
Look at the trucks. Walk through the building. Check the equipment. Understand the software. Review compensation. Ask about inventory.
Then ask:
What will I have to spend during my first two years just to keep this business running? at its current level?
That question has probably saved more money than any fancy spreadsheet ever will.
5. How Strong Are the Management Team and Culture?
You are buying more than just financial statements. You’re inheriting a group of people with their own habits, loyalties, frustrations, politics, and ways of getting things done.
Some of it may be great. Some of it may drive you crazy.
Look at turnover. Talk to key managers. Understand how decisions are made. Find out whether people are held accountable.
Pay attention to what happens when the owner isn’t in the room. That’s usually pretty revealing.
6. Where Is the Growth Really Going to Come From?
I get nervous when I hear someone describe an acquisition by saying:
“There’s tons of growth potential.”
Great. Where?
Can you raise prices? Generate more qualified leads? Improve conversion? Get existing customers to buy more frequently? Increase the average sale? Improve margins? Enter another market?
Put some numbers to it. If the deal only works because your spreadsheet shows sales will grow 20% each year, I’d spend a little more time on that spreadsheet.
Hope is not a growth strategy.
7. Are You the Right Person to Own This Business?
This question is skipped far too often. You can find a good company at a fair price and still make a poor acquisition.
Perhaps you don’t understand the industry.
Maybe you hate managing the type of workforce the business needs. Maybe the company’s biggest weakness is also your biggest weakness.
Or maybe you’ve simply fallen in love with the deal.
I’ve watched entrepreneurs become emotionally attached to an opportunity long before the facts justified it. Once that happens, due diligence can quietly turn into an exercise in proving yourself right.
That’s dangerous. Ask yourself whether your experience, temperament, skills, financial resources, and interests actually fit the business you’re considering.
Sometimes the smartest deal you’ll ever make is the one you walk away from.
Don’t Forget the Money You’ll Need After Closing
The purchase price isn’t the end of the check-writing.
You’ll probably need working capital. You may need inventory, equipment, technology, marketing, employee-retention incentives, professional fees, or new people.
And something unexpected will happen. It always does.
Before closing, build a conservative cash forecast and then beat it up a little. What if sales drop 10%?
What if a major customer leaves? What if two key employees quit? What if margins slip? What if you need more working capital than anticipated?
You don’t do this because you’re a pessimist. You do it because running out of cash is a lousy way to learn that your assumptions were too optimistic.
Have a 100-Day Plan Before You Own the Business
Don’t wait until the day after closing to decide what to do.
Identify which customers you need to meet. Identify which employees you need to retain. Understand the critical operating processes. Protect cash flow. Talk with key vendors.
Then resist the urge to fix everything in your first week. New owners have many ideas. Employees have probably seen lots of ideas. Listen first.
Learn why things are done the way they are. Some practices will need to change. Others may turn out to be considerably smarter than they seemed from the outside. You’ll have plenty of time to leave your fingerprints on the business.
You don’t need to leave all ten of them on it for the first 30 days.
Coach Dave’s Bottom Line
Buying an existing business can save you years of building from scratch. You can acquire customers, employees, systems, relationships, cash flow, repeat business, and sustainable profits from day one.
But a good-looking income statement isn’t enough.
Do the due diligence. Understand the cash flow, working capital, customers, key employees, profit margins, competitive moat, leadership, and the real opportunities for improvement.
And don’t overlook the obvious question:
Why should this business still be successful five or ten years from now?
The financial statements show you what happened. Your job is figuring out what happens next.
Then ask yourself one last question:
Given everything I know now, would I still be excited to own this business five years from today?
If the answer is yes—and the numbers check out—you may have found a business worth buying.
Need Help?
You will need professional guidance to evaluate and go through the process of buying a business. A professional Business Coach, like me, can be a huge help. Click here for a free video call to sound out your thoughts and plans. In the meantime, sign up for my complimentary blog articles.
Coach Dave
- How to Successfully Get Out of a Failing Franchise Business - August 27, 2026
- Entrepreneurs: Push Your Limits and Read the Book Elevate by Robert Glazer - August 20, 2026
- Challenges and Solutions for Your Family Business - August 13, 2026
