Buying a Business: 4 Things to Know Before Making an Offer
Before you make an offer on a business, ask yourself four questions: Can you actually run it? Will the earnings support your goals? Is there a realistic way to finance the deal? And what would make you walk away? Even a great-looking company can be the wrong fit if it doesn't meet one of those requirements.
You've found a business that looks promising. The industry is attractive. The location works. The company has a history of profitability, and the asking price seems reasonable.
Maybe you’ve even met the owner. You like what you hear, and you can see yourself at the helm.
Now you're thinking about making an offer.
Not so fast.
One of the biggest blunders a prospective buyer can make is mistaking an attractive opportunity for the right one.
A business can look great on paper and still be completely wrong for you. Maybe it needs experience you don’t have, more capital than you want to risk, or a hands-on role you never planned to take.
In my book, Sweat Equity Payday, I encourage sellers to consider whether they're genuinely prepared for a transaction, not just what they think their business is worth. Buyers owe themselves the same level of preparation.
Before you negotiate, understand what ownership will demand and whether the acquisition can realistically deliver what you expect.
1. Can You Actually Run This Business?
This is where I'd start. Not with the asking price. Not with the multiple. With the operating reality.
What exactly are you buying?
There's a big difference between buying a company with an established management team and buying one where the owner makes every important decision.
Consider a specialty services company with dependable customers and strong margins. On paper, it's doing everything a buyer would want. But the owner still estimates jobs, approves pricing, handles the biggest customers, solves scheduling problems, and makes every significant personnel decision.
Now picture that owner leaving six months after closing.
If you've worked in the industry for twenty years and plan to run the business full-time, you may be comfortable taking on those responsibilities. If you already own another company and expect this one to run with limited supervision, the math changes.
If you're leaving a corporate career to buy your first business, ask whether you want to run a company or just the idea of owning one.
Before making an offer, I want to know who does the work, who makes decisions, and who keeps customers coming back. Titles on an organization chart won't tell you all that.
I've discussed management continuity in a business sale from the seller's perspective. Buyers want proof that a business can perform after its owner leaves. For an acquirer, the question is more personal: if that continuity isn't there, can you create it, and can you afford to?
A short transition may be enough for a company with capable managers. It may be nowhere near enough when the owner's relationships and knowledge hold everything together.
You don't need a finished transition plan before an offer, but you do need a credible picture of your first few months of ownership.
2. Will the Business Provide the Earnings You Need?
Healthy earnings are attractive. But the numbers only matter when you compare them to what you need from the acquisition.
Are you replacing a salary? Building long-term wealth? Buying a company that can support its own management team while you run another business? Acquiring a platform for expansion?
The same business could satisfy one of those goals and fall short of another.
Suppose you're leaving a well-paying job. It's tempting to see several hundred thousand dollars in seller's discretionary earnings (SDE) and mentally convert that amount into your new income.
But the business may need to service acquisition debt, pay additional staff to replace the seller's work, and replace equipment. Even a slow quarter still requires payroll.
The number a seller presents is a starting point, not a promise about what ends up in your pocket.
My article on clean financials and buyer expectations explains why the records need to be consistent and defensible. As a buyer, unclear financials make it harder to decide whether the business can support the price you're considering.
Be careful with adjustments to reported earnings, too. Some are legitimate, while others won't translate into savings under new ownership. I've covered the add-backs buyers reject separately.
A thorough earnings review comes later, once you have access to more records and, when appropriate, accounting advisors. At this stage, decide what financial outcome you need and whether the available information suggests the business can plausibly deliver it.
If the deal only works when every optimistic assumption comes true, I'd be concerned.
3. Is There a Credible Way to Finance the Acquisition?
Many buyers get excited about a company before they've figured out how they'll pay for it.
Enthusiasm doesn't fund a closing.
You don't necessarily need final loan approval before presenting an offer. Lenders generally require company records, a proposed transaction structure, and further diligence before making a credit decision. But your plan should have a reasonable chance of working.
How much capital can you invest? How much financing will you need? Is seller financing part of the plan, or something you're hoping the owner will accept? If you're bringing in investors, are they genuinely prepared to evaluate this acquisition?
And here's a question some buyers don't always ask early enough: what happens to your cash reserves after closing?
Imagine negotiating a sensible price and securing financing, only to discover that the transaction has consumed nearly every dollar you had available. Then a customer pays late, a truck breaks down, or the company enters its slow season.
You own the business. But you may not have the liquidity to run it comfortably.
Budget for post-closing working capital and integration reserves. Loan approval doesn't guarantee you'll have enough cash left to operate the business and cover takeover costs.
If you're considering SBA financing, be aware that the rules changed on October 1, 2026. We covered what those changes mean for business acquisitions, and you can review the SBA's official guidance for the details.
Applicable program requirements can affect financing structure and equity requirements. Ask your lender to explain the rules for your transaction and any additional underwriting requirements it applies.
For a strategic acquirer funding the purchase internally, the question is different but equally important. Can the existing company absorb the purchase, plus the added management and working-capital demands, without jeopardizing its current operations?
You don't need every funding detail finalized today. You need a workable path to closing and enough financial flexibility to run the business afterward.
4. What Would Make You Walk Away?
I want buyers to answer this before they become attached to the deal.
Once you find a company you like, it's easy to start explaining away problems. Perhaps one customer accounts for too much revenue. The owner wants to leave sooner than expected. Or the operating role is much larger than you imagined.
You may tell yourself, "We'll sort that out in diligence."
Sometimes that's right. But the real question is whether the problem can be solved or whether it undermines your reason for buying the business.
Consider two buyers looking at the same company. One has spent decades in the industry and already employs an experienced general manager. The other is a first-time buyer without an operating team. If the seller alone understands the production process, the risk may be manageable for the first buyer and disqualifying for the second.
That's why I don't like generic lists of deal breakers that assume every buyer should react the same way. What matters is your threshold.
If the largest customer leaves, can the business still meet your financial requirements?
If the owner won't provide the transition you need, can you operate without them?
If your required equity contribution rises, how much more can you commit?
If earnings are lower than expected, is there a price at which the deal still works?
If a critical license, contract, or employee won't continue, is there a realistic solution?
Write down your answers. You may not be able to settle every issue before an offer, but you should know which findings would change your decision.
A lower price can address some concerns. A longer transition or a closing condition might address others. But you can't negotiate every operating problem out of existence.
The longer you stay in a deal, the harder it can be to walk away, even as the reasons become clearer.
What Should You Know Before the Letter of Intent?
You can't complete due diligence before making an offer, and you shouldn't expect the seller to disclose every sensitive detail at this stage.
But there's a big difference between having a question that still needs verification and not realizing the question mattered at all.
Before making an offer, identify the assumptions that matter most. If you need the owner to stay for a particular transition period, raise it early. If financing depends on certain earnings, flag them for further review. If a key contract must continue, work with your advisors to determine how that can be verified.
Have a transaction attorney review the letter of intent (LOI). While the main deal terms may be nonbinding, confidentiality, exclusivity, expenses, and other obligations can be legally enforceable, depending on the wording and applicable law.
You don't need every answer before making an offer. You need to know which answers could change your decision.
Know Your Requirements Before You Negotiate
Come back to four questions:
Operating fit: Do you have the experience, people, and plan to run the company?
Economic fit: Can it reasonably produce the income and returns you need?
Financing feasibility: Is there a credible funding strategy that leaves enough cash to operate?
Walk-away criteria: Which risks can you manage, and which would make the acquisition wrong for you?
Your answers may change as you learn more. That's what a disciplined acquisition process is for. But an offer should reflect your conclusions, not your excitement.
At HartmannRhodes, we provide buy-side M&A advisory services for individual buyers, entrepreneurs, and strategic acquirers considering lower-middle-market businesses. Whether you've identified a company or need help finding one, we can guide you through evaluation, negotiations, due diligence, and closing.
Great acquisitions start with smart decisions.
If you want an experienced perspective before moving forward, schedule a confidential buy-side discovery call.
Common Questions About Making an Offer on a Business:1. What should I know before making an offer to buy a business? Know enough to judge the fit: what the company does, who runs it, its historical earnings, what ownership will demand of you, and whether a credible financing path exists. You won't have all the diligence answers, but you should have assumptions to test. 2. Do I need financing approved before submitting a letter of intent? Not always. Lenders may need transaction documents and financial records before making a final decision. Discuss financing feasibility and likely equity requirements before submitting a serious proposal. Have your advisors address appropriate financing conditions in the LOI. 3. How can I tell whether a business is right for me? Compare the operating responsibilities, management depth, financial obligations, and industry requirements with your experience and objectives. A business can look attractive overall but still be unsuitable for the person who wants to own it. 4. Should I make an offer without seeing every financial record? It can be reasonable to make a conditional proposal with sufficient preliminary information, provided you identify what needs verification. The information available before an LOI varies by transaction. Don't treat unverified assumptions as facts. 5. What are reasonable deal breakers when buying a business? They may include an operating role you can't fill, financing you can't obtain on acceptable terms, earnings that won't support your needs, or material customer, licensing, contract, or management risks you can't resolve. The answer depends on the buyer and the deal. 6. Can a lower purchase price make a risky business worth buying? Sometimes. Price and structure can compensate for certain financial risks. But a lower price won't necessarily replace key employees, preserve customer relationships, or make an unsuitable business manageable. Decide whether the issue changes your price or your decision to buy. 7. When should I walk away from a business acquisition? When an essential requirement can't be met, a material risk has no workable solution, or the deal no longer supports your financial and operating objectives. Defining those limits early helps keep sunk costs and enthusiasm from driving the decision. |
Mark Hartmann is a former business owner turned M&A advisor—and the author of Sweat Equity Payday—who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO honoree, he led his own eight-figure sale and now helps business owners sell companies worth $1M to $25M. Mark understands that selling a business is personal, not just financial. That’s why he works closely with owners to maximize value, protect their legacy, and transition on their terms.
He holds an MBA from Eastern University and a master's degree in organizational change management from St. Elizabeth University, as well as Certified M&A Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB) credentials.
44 Washington Street, Unit #1080
Morristown, NJ 07960
(855) 652-7577
HartmannRhodes advises owners of companies typically valued between $1–$25 million. If you’d like a structured pre-sale valuation review and a readiness roadmap, we can walk you through the process and tailor it to your timeline and goals. Contact us today!
Blog: Buying a Business: 4 Things to Know Before Making an Offer