Buying a small business is one of the fastest ways to become an entrepreneur. Instead of spending years building something from scratch, you can acquire a company with customers, cash flow, and proven operations from day one. This approach, known as Entrepreneurship Through Acquisition (ETA), offers immediate upside but also comes with challenges that most first-time buyers underestimate.

At SMBootcamp, we’ve trained hundreds of acquisition entrepreneurs to successfully pursue their first business transaction. We’ve seen what works, what causes deals to fall apart, and what separates a successful first-time buyer from someone who never gets across the finish line.

This step-by-step guide blends the standard process with hard-won lessons from our alumni and network so you can approach your search with clarity and confidence.

Step 1: Define Your Acquisition Criteria (The “Big 3, Second 2”)

Before looking at listings, you need to know what you’re solving for. At SMBootcamp, we call this the “Big 3, Second 2” framework.

Big 3: Industry, size, and geography. Choose two that are non-negotiable, leave one flexible to expand your deal flow. If you’re really struggling for deal flow, we’d recommend only one non-negotiable.

Second 2: Role and structure. What role do you want as an owner (hands-on operator vs. hiring a GM)? And what deal structures are acceptable (SBA loan, seller financing, outside equity)?

Pro tip: Overly narrow criteria kills deal flow. One alum limited his search to HVAC companies between $2–3M revenue within a 50-mile radius. He saw fewer than 10 deals in six months. When he loosened geography, he had 40+ opportunities in the pipeline within weeks. Geography tends to be the most limiting factor of the Big 3.

Step 2: Source Deals

Once your criteria are clear, you’ll begin sourcing. Most first-time buyers underestimate how much time needs to be spent building relationships and curating deal flow.

Deal sources include:

• Online marketplaces like BizBuySell or DealStream
• Business brokers
• Direct outreach (“proprietary search”) to business owners
• Networking within your target industry

Lesson learned: Proprietary outreach sounds attractive, but most self-funded searchers close brokered deals. Don’t ignore the “boring” broker pipeline. Brokered opportunities are it’s where the majority of small business acquisitions actually get closed. From a sales perspective, they’re basically pre-qualified leads whereas direct outreach hasn’t been qualified yet.

Step 3: Initial Contact & Signing an NDA

When you spot a business that fits, you’ll sign a Non-Disclosure Agreement (NDA) before receiving sensitive info.

This stage is about relationship building as much as information gathering. Sellers want to know:

• Are you credible?
• Can you actually close?
• Do they like and trust you?

Alumni insight: One buyer won a deal over multiple offers (and higher offers with more cash at close) because he built trust with the seller, calling weekly to share updates and asking thoughtful questions about what the Seller wanted from an offer. Sellers consider more than the highest price (most of the time), they choose the buyer they believe will close and give them certainty a Seller note will be paid back. That said, sometimes being the highest price is the only way to win a transaction.

Step 4: Initial Due Diligence

After signing the NDA, your first step is usually reviewing the Confidential Information Memorandum (CIM) or Confidential Information Presentation (CIP). This document provides your first real look into the business: how it generates revenue, what services or products it offers, who its customers are, and the basic team structure. Most CIMs also include a company history, a stated reason for the sale (at least the seller’s version of it), and high-level financials.

The quality of CIMs varies dramatically, some are polished and detailed, while others are thin or even misleading (especially with add-backs you need to give a smell test..). Regardless, it’s your starting point for diligence. After reviewing the CIM, you’ll usually have an introductory call with the broker and seller to ask some clarifying questions and begin building a working relationship. This is your chance to confirm whether the business fits your acquisition criteria and whether the opportunity is worth pursuing toward a Letter of Intent (LOI).

Common red flags in a CIM include:

• Vague Financials: Financials often exclude some of the more informative detail and include various addbacks that seem dubious at best.
• Growth Story: Heavy emphasis on “future potential” without evidence of historical growth or path to achieve that growth.
• Owner Dependency: The CIM underplays the role of the Seller, often noting that they work “20 hours per week” or are absentee. It’s rarely the case.
• Inconsistent Sale Rationale: The reason for sale feels disconnected from the financial trends or the age of the Seller.

Pro tip: A CIM is a marketing document. Treat it as a sales pitch, not a fact sheet. Use it to form the right questions, not to make a final judgment.

Step 5: Valuation & Letter of Intent (LOI)

Steps 4 and 5 often happen concurrently. It would be unwise to review the CIM and not begin forming thoughts on valuation or penciling in a preliminary model to gauge purchase price. To the extent purchase price is ridiculous, you likely move on from the opportunity without thinking about drafting an LOI. That said, valuing a small business is part science, part art. Most are priced on a multiple of earnings (EBITDA or SDE), adjusted for growth, stability, and risk. That to say, multiples are not arbitrary valuations (as many often believe). The valuation multiples are a condensed representation of the qualitative and quantitative qualities of a business. The higher quality a business is, the higher multiple it will sell for and vice versa.

Once you’ve formed some opinions about the business and decide to fully model/structure the deal, you’ll want to draft an LOI with that in mind.

At this stage you’ll:

• Decide your price, based on your financing structure, risk tolerance, and Seller expectations (hopefully it aligns with your analysis of value)
• Draft an LOI that outlines: price and terms of the transaction.

Reality check: LOIs are non-binding, but they set expectations. A sloppy LOI can trap you later by misaligning expectations; a well-written one gives you flexibility. Secondly, some Brokers will try to get you to sign something that’s basically a Purchase Agreement and not a non-binding LOI. Do not do this.

Step 6: Post-LOI Due Diligence and 3rd Party Advisors

Once you have a target business under LOI, the real work begins. This stage is where you move beyond the seller’s story and start stress-testing the business with outside experts and first-principles thinking.

Most small business M&A transactions involve at least three third-party specialists:

• Quality of Earnings (QoE): A specialized accounting firm reviews whether the cash reported in the financial statements actually ran through the company’s bank accounts, and whether the seller’s “addbacks” are legitimate. This is your financial truth test.
• Legal: Attorneys draft and negotiate purchase agreements to mitigate risk and give you recourse if the seller violates terms post-close. Importantly, lawyers don’t protect you from operational or financial risk. They are just there to protect you contractually.
• Insurance: Advisors help evaluate existing coverage, place new policies, and sometimes identify cost savings or risk blind spots you hadn’t considered.

But third-party diligence is only part of the picture. Post-LOI is also your chance to think like an operator. Break the business down into its simplest components and build your knowledge from the ground up.

Ask questions such as:

• Where does the business truly make money, and where does it spend it?
• Which costs are fixed vs. variable, and how does that shape both growth and risk?
• What are the key opportunities worth leaning into, and the threats you’ll need to mitigate?
• Which employees are indispensable, which roles need to be backfilled, and what expertise leaves with the seller?

A disciplined diligence process combines the numbers, the legal protections, and the operational reality. By the time you’re through, you should know the business well enough to explain it simply and run it confidently (hopefully). That said, you will never be able to fully answer what you purchased until you’re in the seat.

Step 7: Secure Financing

For most first-time buyers, the SBA 7(a) loan is the go-to financing tool. The SBA guarantees a large portion of the loan to the underwriting bank, which lowers the lender’s risk. In practice, this means banks are willing to finance acquisitions that would otherwise be considered too risky or under-collateralized.

Key SBA 7(a) features:

• 10-year amortization: Longer payback periods mean lower monthly debt service.
• 10% minimum equity injection: Though many lenders require closer to 15–20%.
• Loan cap of $5M: Large enough for most first-time deals; junior pari passu loans may be layered in for bigger transactions.

By contrast, conventional bank loans typically require significant collateral, offer smaller loan sizes, and come with shorter amortization periods. They can be a fit for buyers with strong balance sheets, but most acquisition entrepreneurs lean on SBA for their first deal.

In addition to debt, most transactions include some form of equity or seller financing:

• Equity investors – Can provide the down payment if the buyer doesn’t have enough personal capital, bring industry expertise, or reduce leverage to de-risk the deal.
• Seller notes – Common in SBA transactions, typically 10–30% of the purchase price. They align the seller with the buyer post-close but are rarely the sole financing source.

Lesson learned: 100% seller-financed deals are almost unheard of. You’ll often hear some acquisition entrepreneurship influencers tout the power of 100% seller-financed, cash-flowing businesses. This doesn’t happen in reality (at least not our reality at SMBootcamp). Most successful buyers use a mix of SBA debt, a seller note, and either personal or investor equity to get the deal across the finish line.

Step 8: Closing the Deal

Closing is the final step where ownership officially transfers from the seller to you. At this stage, the lawyers prepare a funds flow statement, which outlines exactly how purchase funds will be distributed between the seller, lenders, investors, and any outstanding obligations. On closing day, equity investors wire their capital, the bank wires the loan proceeds, and funds are released to the seller once all documents are signed.

By the time you get here, the heavy diligence is behind you and most of the risk has been uncovered (hopefully). But one universal truth in M&A is that time kills deals. Between signing an LOI and closing, delays are the enemy. The longer a transaction drags, the greater the chance that momentum fades, a lender pulls back, the seller gets cold feet, or external conditions change.

At SMBootcamp, we’ve seen it happen hundreds of times across alumni and instructor careers: great businesses slip away simply because the buyer couldn’t keep the process moving forward.

Key takeaway: Once you’re through diligence, push relentlessly toward the finish line. The best acquisition entrepreneurs know how to balance thoroughness with urgency.

Final Thoughts

The small business acquisition process is complex, but it’s navigable with the right frameworks, network, and preparation. Generic step-by-step guides will only get you so far. The difference comes from experience and applied knowledge. That means knowing what questions to ask, when to push, and how to avoid the mistakes that sink first-time buyers.

That’s exactly what we teach inside SMBootcamp.

Want a deeper playbook? Explore DIY Essentials for step-by-step training and templates.
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