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How to Buy an Existing Business - Lessons From an Entrepreneur Who Just Did It

Elon Glucklich

13 min. read

Updated November 22, 2024

The entrepreneur’s road to business ownership can take several paths.

There are entrepreneurs who are obsessed with the idea of starting a company that they can build from the ground up.

And then there are entrepreneurs, like Joe St. John, who seize an opportunity whatever its form, including buying an existing business and making it their own. 

I recently asked Joe about his decision to buy a business instead of starting one. The retired army helicopter pilot from Florida dreamed of starting a business he could one day pass down to his children. But when a business partnership with an army buddy fell through, Joe turned to Plan B.

“Buying a business was just something my wife and I got to talking about,” Joe said. Their conversation led them to a restaurant that they used a loan to purchase in late 2023. “It worked out very well for us.”

With 12 million U.S. businesses expected to be sold over the next decade or so, there are plenty of opportunities to buy into ownership. But that doesn’t mean buying a business is as simple as paying the sale price and signing a contract. 

Key takeaways from this article

• •Determine if buying an existing business fits your skills, interests, and long-term goals.
• •Learn everything you can about the business, from its finances to how customers view it versus competitors.
• •Carefully consider how you’ll finance the purchase, and create financial forecasts to project how the business will perform under your ownership.
• •Seek out professional assistance, including free services, to help guide you through the purchase.

What to consider when buying an existing business

Without the right planning, a buyer could end up:

• •Pouring money into a concept that’s out of sync with the market 
• •Inheriting operational challenges they don’t have the skills to handle
• •Overlooking red flags in the businesses’ finances

To help you manage these risks, we’ve distilled Joe’s buying experience into eight key steps. His dedicated approach to planning helped him breathe new life into a shuttered, Chicago-themed restaurant called Ski’s Hideaway in Vero Beach, Florida, reopening it as Joe’s All American Tap Cafe in February 2024.

Read More: How LivePlan helped Joe land a $225,000 SBA loan in just a few weeks.

1. Choose whether to buy a business or start one

So, do you buy a business or start one? The answer depends on factors like:

• •How much money you have
• •How fast you want to get started
• •Where you can turn to for more funding

Buying a business can have significant upfront costs. In Joe’s case, buying a restaurant meant paying right away for all of the kitchen equipment, as well as monthly lease payments. Had he started from scratch, he may have been able to slowly add equipment over time.

But Joe wanted to get up and running quickly. He’d thought at first of tapping his skills as a helicopter pilot to start a scuba diving charter service for tourists along the Florida coast where he lives. But he also wanted to bring his wife, Jonna, and their two children on board.

“I’m wanting to leave something I can pass on to my kids,” he said, “something they can own.”

That made buying a business like a restaurant an appealing alternative. Joe also realized it would be much easier to get the bank loan he would need for a proven concept like a restaurant, versus a riskier new venture like a dive charter service.

2. Select a type of business to buy

You’ve decided to buy a business instead of starting one. Now it’s time to pick an industry to target.

It’s fairly common to see some types of businesses put up for sale, like restaurants, retail stores, laundromats and car washes. 

But just about any type of private enterprise can be bought or sold. A retiring accountant might decide to put their CPA practice up for sale. The owner of an eCommerce site could sell it to turn their attention to a new venture.

When thinking about what type of business to acquire, consider:

Your personal interests

What about owning a business excites you? Being successful requires hard work, so take the opportunity before signing a deal to reflect on why you want to do this.

Your skills and experience

What are you good at, and what is your track record? It’s certainly possible to succeed in an industry you don’t have experience with. You may just need to hire for the expertise you lack.

The needs in the market

Whether buying a business or starting one, market research is essential. For brick-and-mortar businesses like a restaurant, you must research local competitors and find out what gaps exist. For businesses with broader customer bases like online companies, learn about the short- and long-term outlook of that industry, as well as the opportunities and risks of jumping in.

Joe and Jonna knew they wanted to use their business to be a gathering place in the neighborhood, somewhere they could hold events and create a sense of belonging.

A bar and restaurant seemed to check those boxes — a high-demand industry that satisfied their personal interests, and put their customer service skills to use.

“The primary reason was trying to find something that had a high volume of customer interaction, that provided a service and a product that helped build community,” Joe said. 

3. Identify potential businesses to buy

Once you’ve picked the type of business to buy, it’s time to start your search. There are several ways to find businesses for sale:

• •Tap into personal connections: Tell friends, neighbors, or anyone in your network about your plans and whether they know of any opportunities. Even if they don’t, they may be able to connect you with others who do.
• •Search online marketplaces: Websites like BizBuySell and BizQuest offer extensive listings of businesses for sale across various industries.
• •Contact a business broker: These professionals specialize in matching buyers with sellers and can often provide access to listings not publicly available. 
• •Look around your community: If you see a “For Sale” sign in a storefront, that’s all the invitation you need to start up a conversation with the owner. Even for a business not actively on the market, an owner may be considering a sale. 

Joe and Jonna found success searching online.

“We started searching BizBuySell and seeing what type of properties were available that met all our criteria. We scouted a couple of locations and came across this place. So we started to inquire,” Joe said.

4. Learn about the business inside and out

Say you find a business for sale that you’re interested in running. It’s in the perfect location, with lots of foot traffic and plenty of parking. 

That’s enough to go through with the deal, right?

Not until you’ve learned about the business from the people who know it best: the owners of course, but also employees and customers who may have valuable insights.

The information you get through these conversations will help you:

• •Assess the financial outlook of the businesses (more on that next)
• •Understand what the owner did well, and what they could have done better 
• •Learn about what customers liked and where opportunities may exist for you to add value

Joe and Jonna’s search led them to Ski’s Hideaway, a Chicago-themed restaurant. After finding the property online, they contacted the owners and set up a meeting to learn as much as they could about it.

After the meeting, the next step was to get to know the downtown Vero Beach area. Joe knew a strong local customer base would be key to their success, so he dedicated time to walking around the area, sizing up the local dining and scene, learning which establishments were popular and how much they charged. Noting the small and close-knit community, Joe felt more confident in his family-friendly theme and menu.

If you’re thinking of buying a digital business like a software company or eCommerce website, you can still follow these steps. The only difference is that the “neighborhood” you’re getting to know is online. Talk to the owner, and use email or social media to contact employees and customers for their insights about the business.

5. Leave no financial stone unturned

Every step we’ve discussed so far is important, but it’s especially crucial to review (and really understand) the business’s financial records. Without reviewing the assets you’re buying, you won’t know the true value of the business, and will have no way of knowing whether you’re paying a fair amount for it. If the seller isn’t able to give you a clear sense of the financial health and performance of their business, be very wary of moving forward.

To make an informed decision about the value of the business, you should have access to, at minimum, multiple years of its:

• •Profit and loss statements: Shows the business's revenues, costs, and expenses over a specific period.
• •Balance sheets: Provides a snapshot of the business's assets, liabilities, accounts receivable and payable.
• •Cash flow statements: Illustrates how cash is moving in and out of the business over time.
• •Tax returns: Offers insight into the business's reported income, deductions, and estimated quarterly tax payments and deductions, helping verify the accuracy of other financial statements.
• •Debt disclosures: Reveals any outstanding loans, lines of credit, or other financial obligations that you may be assuming with the purchase.

“We gathered all of the financial data from the previous owners,” Joe said. That meant collecting all the necessary documents from the Ski’s Hideaway owners, then hiring an accountant to review them.

It’s also important to remember that no two business purchases are exactly the same. Joe and Jonna’s purchase of Ski’s Hideaway covered all of their commercial kitchen equipment and cookware. But the sellers didn’t own the building, so Joe had to factor in the monthly lease expense when negotiating a sale price.

In other cases, buying a business might also mean buying the building, or paying for patents or other intellectual property. Hire a business attorney specializing in contracts to review any proposed sale terms.

Don’t just look behind, look ahead

So far, this section has examined the business’s past performance. But determining the true value of a purchase also requires looking ahead.

“We did projections and created a profit and loss statement for what our potential would be,” Joe says. He did this by:

• •Creating a baseline for projected revenues and expenses using the financial data from Ski’s Hideaway
• •Using his market research to determine a pricing strategy that would maximize margins while remaining competitive with other establishments.
• •Forecasting projected sales, expenses, and cash flows for the business based on various good or bad scenarios.

These projections helped Joe develop a reasonable sense of how much capital he’d need to run the business profitably under his ownership.

With all of that information in hand, “We were able to make a deal,” Joe said.

If creating financial forecasts sounds intimidating, follow Joe’s example, and remember: Forecasts are just projections. They’re imperfect by definition.

An advisor or consultant can help you create a forecast, and a vast majority of American business owners live near a Small Business Development Center that provides free consulting services (more in that in the final section).

Read More: How LivePlan makes financial forecasting a breeze

6. Line up funding to buy the business

Unless you have substantial personal savings, you’ll likely need some help covering the cost of buying a business.

Joe knew he and Jonna would need outside funding to cover their purchase of Ski’s Hideaway’s kitchen equipment and other assets. They ended up applying in fall of 2023 for a Small Business Administration 7(a) loan, one of the most popular sources of small business funding due to its relatively low interest rates and long repayment windows.

Joe wrote a business plan as part of his loan application. In the financials section, he created financial forecasts to project how long it would take his business to start generating a profit, and whether he could afford to run the business while staying current on his loan repayments.

Just a month after submitting their application, the couple were approved for a $225,000 SBA loan to finance their purchase.

If an SBA loan isn’t right for your business, there are several common funding alternatives:

• •Term loans: The conventional, lump sum loans that commercial banks and credit unions loan out to small businesses, including to finance acquisitions. These have variable interest rates and repayment terms depending on the applicant’s credit score.
• •Investors: If getting a loan isn’t right for your situation, consider bringing in an investor. Selling equity in your company can be a good source of funding to help you cover a purchase. But some investors will provide friendlier terms than others, and, depending on the terms of your agreement, that investor may be entitled to a share of your profits. They may also try to influence how you run the business.
• •Friends and family: Many successful business owners got started with some help from the people who cared about them most, whether through a loan from a friend or an investment from family.

It may be worth speaking to a financial advisor to help you determine which funding option is right for you.

7. Decide if the old brand stays or goes

Buying a business doesn’t mean it has to be run the same way as before.

Unless you’re buying a franchise business like a McDonald’s, or you sign a contract saying otherwise, becoming the owner gives you broad leeway to make whatever changes you see fit.

Joe knew that he wanted to buy a business and rebrand it with his own name, menu and decor.

But in other situations, it’s worth considering the upsides and risks of rebranding a business. 

Retaining the existing brand identity may be beneficial if the business has a loyal customer base. But if sales have been stagnant, or the existing concept doesn’t align with your skills or vision for the business — rebranding could be the answer.

Getting customer feedback and reviewing market trends provide some of the most valuable insights here. They can tell you whether they’re satisfied with what’s currently being offered, or if there’s a demand for something different.

8. Seek out assistance along the way

Accountants, consultants, attorneys, and organizations like the SBA can provide valuable guidance and prevent costly mistakes. Even though this section is listed last, seeking out these advisors should be an ongoing process throughout the journey.

As a military veteran, Joe St. John tapped into the Veterans Business Outreach Center (VBOC), an SBA program that offers free support for veterans to start or grow businesses.

“They brought together a team of financial folks, industry experts, and provided basic entrepreneurial guidance, which was helpful.”

The SBA provides a variety of free and low-cost services to aspiring business owners. Consider reaching out to:

• •Small Business Development Centers (SBDCs): These centers provide local, in-depth assistance on everything from business planning to financial analysis.
• •SCORE: A network of volunteer business mentors offering free advice and workshops.
• •Women’s Business Centers: Offers training, including guidance on loan management and business planning, to women entrepreneurs.

In addition to these organizations, consider engaging with:

• •Business attorneys: They’ll help with reviewing contracts, leases, and other legal documents.
• •Commercial real estate agents: If a business acquisition involves property, an agent can help navigate the real estate transaction.
• •Business consultants or advisors: They can offer specialized expertise in areas such as business plan writing, creating financial forecasts, developing and monitoring key performance indicators, developing marketing strategies, and more.
• •Mentors: Tap into organizations like your local Chamber of Commerce to build relationships with experienced business owners who can offer advice.

Start your journey to buying a business

Joe’s journey to transforming Ski’s Hideaway into Joe’s All American Tap Cafe shows the power of careful planning and thorough preparation.

If you decide to buy a business, follow the eight steps that Joe laid out.

From market research to financial forecasting and ongoing management, consider using LivePlan like Joe does to run his business. It will help you document each step of your journey, and it includes a one-page plan builder with a built-in AI Assistant to help generate ideas and draft sections of your plan, and step-by-step walkthroughs to build a full lender-ready business plan with ease.

Elon Glucklich

Elon is a marketing specialist at Palo Alto Software, working with consultants, accountants, business instructors and others who use LivePlan at scale. He has a bachelor’s degree in journalism and a Master of Business Administration from the University of Oregon.