You found a listing on BizBuySell. The numbers look decent, the owner seems motivated, and the idea of skipping the painful startup phase is genuinely appealing. Maybe it’s a local cleaning service, a small e-commerce store, or a café that already has regulars. You’re thinking: why build from scratch when someone already did the hard part?
That instinct isn’t wrong. Buying an existing business can be a smart path — you get an established customer base, existing revenue, and proven operations. But the listings that look cleanest on the surface sometimes hide the messiest problems underneath. The seller knows things you don’t. Your job, before you hand over a dollar, is to close that gap.
Here’s what to actually check — in plain language, in the order that matters.
Start With Your Own Numbers, Not Theirs
Before you dig into the seller’s financials, get clear on yours. First-time buyers frequently skip this step — they fall in love with a listing before they’ve figured out how much they can actually spend, how they’ll fund the purchase, and how much working capital they’ll need to keep the business running after closing day.
Working capital is the cash on hand to cover day-to-day expenses — payroll, inventory, rent — while revenue is coming in. Buying a business that’s already operating doesn’t mean the bills pause while you get settled. Know your number before you start negotiating.
The SBA’s guidance on buying an existing business is a good place to understand the full landscape, including how financing options like SBA loans work for acquisitions.
Ask for Three to Five Years of Financial Records
This is non-negotiable. You want to see profit and loss statements (P&Ls) and tax returns for the past three to five years. A P&L shows revenue coming in and expenses going out. Tax returns are harder to fudge — they’re filed with the IRS, so they tend to reflect reality more accurately than a seller-prepared summary.
What you’re looking for:
- Is revenue trending up, flat, or declining? A business that earned $200,000 three years ago and $140,000 last year is telling you something important.
- Are the margins healthy? High revenue with thin profit margins can mean the business works hard for very little.
- Do the tax returns match what the seller is telling you? If the pitch is “we do $300K a year” but the returns show $180K, ask why.
If a seller is reluctant to share tax records, that reluctance is itself information.
Find Out Why They’re Really Selling
Sellers will almost always give you a reasonable-sounding answer: retirement, health, relocating, wanting to try something new. Sometimes that’s completely true. But sometimes “I’m ready to move on” means “this business is about to hit a wall and I want out first.”
You can’t always know for certain, but you can ask follow-up questions that make it harder to give a rehearsed answer:
- What does a typical week look like for you right now?
- What’s the hardest part of running this business?
- What would you do differently if you were starting over?
- Have you tried to sell before? If so, why didn’t those deals close?
Listen for what they avoid as much as what they say.
Test for Owner Dependency — This One Catches People Off Guard
This is one of the most underappreciated risks in buying a small business. Owner dependency means the business runs on the seller’s personal relationships, reputation, or skills — and when they leave, those things leave with them.
Imagine buying a small accounting practice where the owner has been the trusted advisor to every single client for fifteen years. The clients like her, not the business. The day she walks out, so might half of them. Business acquisition advisors flag owner dependency as a critical risk factor that first-time buyers consistently underestimate.
Questions that reveal owner dependency:
- Who do your top customers call when they have a problem — you personally, or whoever answers?
- Do any customers have a relationship only with you?
- Could your employees run this for two weeks without you?
- Are any key supplier relationships based on your personal history with them?
A business where the answer to all of these is “mostly me” isn’t worthless — but it’s riskier than the financials alone suggest, and the price should reflect that.
Look Hard at Customer Concentration
Customer concentration is when a large percentage of revenue comes from a small number of customers. If one client makes up 40% of a business’s income, you’re not buying a stable business — you’re buying a single relationship with some overhead attached.
Ask the seller to break down revenue by customer. You’re hoping to see a wide spread. If the top three customers account for the majority of revenue, ask: Are those customers under contract? How long have those relationships been in place? Do they know the business is being sold?
Review Every Contract and Agreement
Contracts, leases, supplier agreements, and customer contracts can carry obligations — and liabilities — that transfer to you at closing. Before you sign anything, you or a lawyer should review:
- The lease: Is it transferable? How long is left? What are the terms?
- Supplier contracts: Are there minimum purchase commitments you’ll be locked into?
- Employee agreements: Are there any non-compete clauses, severance obligations, or pending HR issues?
- Outstanding loans or liens: Debts attached to the business assets can follow the business to its new owner.
This is where a business attorney earns their fee. Even a few hours of legal review before closing is cheap compared to inheriting a lawsuit you didn’t know existed.
Your First Step This Week
If you’re seriously considering a purchase, start with the SBA’s guide to buying an existing business — it’s free, official, and gives you a clear framework for the process from evaluation through financing.
Then, before your next conversation with a seller, write down your three biggest unanswered questions about the business. Bring those questions to the table. A seller who answers them openly is a good sign. A seller who deflects them is telling you something important — for free, before you’ve spent a dime.
Due diligence isn’t about being suspicious. It’s about being ready. The more clearly you see what you’re buying, the more confidently you can decide whether it’s the right move — and negotiate a price that actually makes sense.