Business Acquisition: How to Buy and Grow a Company

Why I Started Buying Businesses Instead of Just Building Them

I've built and sold five SaaS companies. Around exit three, I realized something: buying an existing business with revenue, customers, and systems already in place is often faster and less risky than starting from scratch.

Business acquisition isn't just for private equity firms with massive funds. Solo entrepreneurs, agency owners, and small teams are buying profitable businesses every month. The playbook is learnable, and the opportunities are everywhere if you know where to look.

The M&A market has seen significant activity recently. Deal volume is up, and middle-market transactions in the $500k to $5M range represent massive opportunity for individual buyers and small investment groups. While megadeals grab headlines, the real opportunity for most of us sits in smaller, profitable businesses that founders are ready to exit.

This isn't theory. I'm going to walk you through the actual process I've used and seen work repeatedly.

Where to Actually Find Acquisition Targets

Most buyers waste months looking in the wrong places. Here's where real deals happen:

Business-for-sale marketplaces like Flippa, Empire Flippers, and Acquire.com list hundreds of profitable online businesses. These platforms handle escrow and basic verification, which reduces risk. The downside is everyone can see these listings, so competition drives up multiples.

I've had better luck with direct outreach to business owners. Most profitable small businesses aren't formally listed for sale. The owner is tired, ready to retire, or wants to move on to something else, but hasn't taken steps to sell yet.

Build a list of businesses in your target niche. If you're in marketing, target marketing agencies. If you run a SaaS company, look at complementary SaaS tools. Use tools like ScraperCity's B2B database to find owner contact information, or leverage people finder tools to track down decision-makers.

Send a direct, honest email: you're looking to acquire a business in their space, you respect what they've built, and you'd like to have a conversation if they've ever considered an exit. No hype, no pressure. I've sourced multiple deals this way that never hit the public market.

Your own network is underrated. Tell people you're looking to acquire. Post about it. Most business owners considering a sale talk to people they trust first, not brokers. Be that person in your circle.

Industry brokers and intermediaries can also surface quality deals. Business brokers who specialize in your target industry often have exclusive listings and can match you with sellers before deals go public. The trade-off is you'll typically pay a broker fee, but access to vetted opportunities can be worth it.

Defining Your Investment Thesis

Before you start looking at deals, you need to know exactly what you're looking for. Most buyers skip this step and waste months chasing deals that don't fit their skills, capital, or goals.

Your investment thesis is your acquisition criteria. It keeps you focused and prevents emotional decisions. Here's what to define:

Business size and earnings range. What's the revenue or profit range you can afford and manage? If you're a first-time buyer, staying in the $50k to $500k range makes sense. You can learn the process without betting everything.

Industry and business model. Stick to industries you understand or can learn quickly. If you've never run an ecommerce store, buying one as your first acquisition is risky. SaaS, agencies, and service businesses are often easier for operators with a marketing or sales background.

Geographic considerations. Are you buying a business that requires you to be on-site, or can it run remotely? Location matters more for brick-and-mortar businesses, less for online businesses.

Time commitment. How many hours per week can you dedicate? Some businesses need a full-time operator. Others run with part-time oversight if systems are solid. Be honest about your capacity.

Deal-breakers. What factors automatically disqualify a business? High customer concentration, declining revenue, legal issues, or heavy reliance on the founder are common red flags. Define these upfront so you don't waste time on bad deals.

Write this down. When you're looking at your tenth potential acquisition and getting excited about a deal that doesn't fit your criteria, this document will save you from making a costly mistake.

Due Diligence: What to Actually Check Before You Buy

This is where most buyers either save themselves from disaster or walk into one. Due diligence isn't optional.

Financial verification comes first. Request at least 12 months of profit and loss statements, ideally 24-36 months. Don't just take the seller's word. Ask for bank statements, payment processor records (Stripe, PayPal), and tax returns. Revenue should match across all documents. If it doesn't, walk away or dig deeper.

Look for trends. Is revenue growing, flat, or declining? A business with declining revenue for six months straight is a red flag unless you have a specific plan to reverse it.

Customer concentration risk kills businesses post-acquisition. If one customer represents more than 20% of revenue, that's a major risk. If they leave, your investment is in trouble. Ask for a customer revenue breakdown. Diversified customer bases are safer.

Verify traffic and lead sources. Get access to Google Analytics, ad accounts, and any tools they use for traffic or lead generation. Make sure the numbers match what they claim. I've seen sellers inflate metrics or hide traffic drops. If they're running paid ads, check that ROI is actually positive and sustainable.

Check the customer list and contracts. How many customers are on month-to-month versus annual contracts? Are customers actually happy? Read support tickets. Talk to a few customers if possible. Churn rate matters more than most buyers realize.

Review all legal and operational items. Who owns the domain, hosting accounts, social media profiles, and intellectual property? Make sure everything transfers cleanly. Check for any outstanding legal issues, disputes, or liabilities.

If the business has employees or contractors, understand their roles, compensation, and whether they'll stay post-acquisition. Losing a key team member right after you buy can tank the business.

Technology and systems audit. For online businesses and SaaS companies, review the technology stack. Is the code documented? Are there security vulnerabilities? What's the technical debt situation? If you're not technical, hire someone to audit this for you.

Contracts and obligations. Review all existing contracts - vendor agreements, customer contracts, leases, employment agreements, and partnership deals. Some contracts have change-of-control clauses that require consent or trigger termination rights. Identify these early so you can address them before closing.

Asset Purchase vs Stock Purchase: Structure Matters

How you structure the acquisition has major tax and liability implications. Most small business buyers don't understand this until their accountant explains it post-deal, which is too late.

Asset purchases mean you're buying the business's assets - equipment, inventory, intellectual property, customer lists, contracts - but not the legal entity itself. You pick what you want and leave behind what you don't. This structure gives you significant advantages:

You get a step-up in tax basis, meaning you can depreciate or amortize the purchased assets based on their current fair market value, not the seller's old depreciated basis. This creates valuable tax deductions. You also avoid inheriting unknown liabilities. If the seller has pending lawsuits, tax issues, or undisclosed problems, those stay with the old entity.

The downside: asset purchases require more paperwork. Every asset needs to be retitled. Contracts may need to be reassigned, and some require third-party consent. If the business has valuable permits or licenses that can't be transferred, an asset purchase might not work.

Stock purchases (or equity purchases for LLCs and partnerships) mean you're buying the entire legal entity. Everything transfers automatically - all assets, all liabilities, all contracts. This is simpler and faster, which is why some buyers prefer it.

The advantage for sellers: stock sales typically result in more favorable capital gains tax treatment. The advantage for buyers: continuity. Contracts, licenses, and relationships stay intact without needing consent or reassignment.

The major risk: you inherit everything, including liabilities you don't know about. If the seller has pending lawsuits, unpaid taxes, or warranty obligations, they become your problem. You also don't get the stepped-up tax basis, which means fewer depreciation deductions.

In most small business acquisitions, buyers push for asset purchases and sellers prefer stock sales. The final structure usually depends on negotiation leverage and specific circumstances of the deal. Consult with an M&A attorney and tax advisor before you commit to a structure.

Valuation: What You Should Actually Pay

Online businesses typically sell for 2x to 5x annual profit (SDE - Seller Discretionary Earnings). SaaS companies with strong retention can command higher multiples, sometimes 4x to 6x ARR depending on growth rate and churn.

Current market data shows private SaaS valuations ranging from 3x to 10x ARR, with the median around 4.7x for smaller businesses. Companies growing faster than 40% annually can push toward the higher end. Slower-growth or lifestyle SaaS businesses typically sell for 3x to 5x ARR.

For traditional businesses valued on earnings multiples, the range is typically 2x to 4x SDE for small businesses under $1M in profit. Businesses with strong systems, diversified revenue, and growth potential command higher multiples.

The multiple depends on risk factors: revenue stability, customer concentration, profit margins, growth trajectory, and how dependent the business is on the owner.

A business that runs semi-autonomously with strong systems and a solid team is worth more than one where the owner is the only person who knows how anything works.

Don't overpay because you're excited. Run the numbers cold. What's the realistic ROI timeline? Can you improve the business and increase profit, or are you buying at peak performance?

I generally aim for deals where I can see a clear path to 30-50% profit growth in year one through better operations, marketing, or sales. If I can't see that path, I'm paying for what exists, which limits upside.

The Rule of 40 for SaaS acquisitions is worth understanding. Add the revenue growth rate and profit margin. If the total is 40% or higher, you're looking at a healthy SaaS business. A company growing 30% with 10% margins hits the benchmark. Companies exceeding this rule typically justify premium valuations.

Financing Your Acquisition

You don't always need cash upfront. Here are the common structures:

All-cash deals give you full control immediately and often get you a better price. Sellers like certainty. If you have the capital and the deal is solid, this is the cleanest path.

Seller financing means the seller acts as the bank. You pay part upfront (often 30-50%) and the rest over time, usually 1-3 years. This aligns incentives-the seller wants the business to stay healthy while you're paying them. It also reduces your upfront capital requirement. Most small business acquisitions include some seller financing.

Earnouts tie part of the purchase price to future performance. For example, you pay a base amount, and if the business hits certain revenue or profit targets over the next year, the seller gets a bonus. This protects you if performance drops post-sale.

SBA loans are available for certain business acquisitions in the U.S. The Small Business Administration backs loans up to $5 million for buying existing businesses. SBA 7(a) loans are the most common program used for acquisitions.

To qualify, you typically need a credit score of 650 or higher (some lenders require 690+), the business must have been operating profitably for at least two years, and you'll need to provide a down payment of 10-20% in most cases. The SBA guarantees 75-85% of the loan, which reduces lender risk and allows you to access financing you might not qualify for otherwise.

Loan terms are favorable: up to 10 years for business acquisitions, up to 25 years if the purchase includes real estate. This keeps monthly payments manageable while you're growing the business.

The catch: SBA loans take time. Expect 60-90 days from application to funding, sometimes longer. You'll need extensive documentation - tax returns, financial statements, business plan, purchase agreement, and business valuation. Work with an SBA Preferred Lender if possible; they have delegated authority to approve loans faster.

Investors or partners can provide capital in exchange for equity. If you don't have the cash but have the skills to grow the business, bring in a financial partner. Structure it clearly upfront.

The First 90 Days After Acquisition

This is where deals succeed or fail. The transition period is critical.

Keep the seller involved for at least 30 days, ideally 60-90. You need to learn the systems, meet key customers, and understand the daily operations. Build this into the purchase agreement. A good transition process protects your investment.

Don't change everything immediately. New owners love to rebrand, redesign, and overhaul processes in week one. That's how you lose customers. Spend the first month learning and observing. Make small improvements, but don't blow up what's working.

Communicate with customers. Send a simple, reassuring email introducing yourself. Let them know the business is in good hands, service will continue uninterrupted, and you're excited to serve them. Address concerns quickly. Retention during the transition is everything.

Lock in key team members. If the business has employees or contractors who are critical to operations, talk to them immediately. Make them feel secure. Offer incentives to stay if needed. Losing your best people in month two is a fast way to kill the business.

Document everything. Most small businesses run on tribal knowledge. The seller knows how things work, but it's not written down. During the transition, document every process, login, contact, and system. Create a wiki or use a tool like Trainual to build a knowledge base. This protects you and makes the business sellable again later.

Audit the financials immediately. Verify that what you were told during due diligence matches reality. Check bank balances, outstanding payables and receivables, recurring revenue numbers, and churn rates. Sellers are usually honest, but discrepancies happen. Catch them early.

Set up proper accounting and reporting systems. If the previous owner ran financials through spreadsheets or had messy bookkeeping, clean it up immediately. Implement proper accounting software, establish clear revenue recognition policies, and set up monthly reporting. You can't improve what you don't measure.

How to Grow the Business Post-Acquisition

Buying the business is step one. Increasing its value is where you make real money.

Fix broken sales and marketing. Most small businesses are terrible at outbound sales, email marketing, and lead generation. If the business relies on referrals or organic traffic alone, there's huge upside in adding structured outbound. I cover this extensively in the 7-Figure Agency Blueprint, but the basics apply to almost any B2B business.

If the company has a weak follow-up process, implement a CRM like Close and build out email sequences with tools like Lemlist or Smartlead. Consistent follow-up alone can increase close rates by 20-40%.

If the business needs better lead data, use email finding tools to build prospect lists, or leverage email validation to clean existing lists and improve deliverability.

Improve pricing. Small business owners chronically underprice. If you're delivering real value and retention is strong, test a price increase on new customers. Grandfather existing customers if you're worried about churn, but don't leave money on the table with new sales.

A 10% price increase with minimal churn impact can increase profit by 30-40% in many service businesses. Test it. Most buyers are shocked at how little resistance they get.

Add complementary products or services. If you buy a SaaS tool, what else do those customers need? Can you build or acquire a second product that serves the same audience? Expanding average revenue per customer is one of the fastest growth levers.

Cross-sells and upsells to existing customers are cheaper and faster than acquiring new customers. Look at what adjacent problems your customer base has and solve them.

Automate and systematize. Most acquired businesses run inefficiently. Look for repetitive manual tasks and automate them. Hire a VA or use software to eliminate busywork. This increases profit margins without adding revenue.

Every hour you or your team spend on non-revenue-generating work is wasted margin. Audit your operations monthly and look for automation opportunities.

Expand to new markets or niches. If the business serves one vertical well, can you replicate that success in adjacent markets? Sometimes the product is solid, but the previous owner only marketed to a narrow audience. Broaden the reach.

For local businesses, geographic expansion can work if the model is proven. For online businesses, targeting new customer segments or industries can unlock growth without changing the core offering.

Improve customer retention and reduce churn. For subscription and recurring revenue businesses, reducing churn by even 5% can dramatically increase lifetime value and business valuation. Implement better onboarding, regular customer check-ins, and proactive support to keep customers longer.

When Acquisition Makes More Sense Than Building

Buying a business isn't always better than starting one, but here's when it makes sense:

If you want revenue and cash flow immediately, acquisition beats a startup. You're buying an income stream, not building one from zero.

If you have capital but limited time, acquisition is faster. You skip the 1-2 years of building product, finding product-market fit, and generating initial traction.

If you're acquiring to add a new service line or product to an existing business, buying can be cheaper and faster than building in-house. I've seen agencies acquire complementary agencies to instantly add new capabilities and clients.

If you're good at operations and growth but not at starting from scratch, acquisition plays to your strengths. You're taking something that works and making it better, not creating something new.

If you want to learn an industry or business model, buying a small profitable business is cheaper than an MBA and gives you real-world experience with immediate cash flow.

Common Mistakes That Kill Acquisitions

Overpaying because of excitement. Emotion clouds judgment. Run the numbers conservatively. If the deal doesn't make sense at 3x profit, don't convince yourself it's worth 5x.

Skipping due diligence. Every shortcut here costs you later. Verify everything. Trust, but verify harder.

Assuming you can fix everything. Some businesses are unfixable. If churn is 15% monthly, customer satisfaction is terrible, and the product is outdated, you're not buying a business-you're buying a problem.

Ignoring culture and team fit. If the existing team hates the idea of new ownership, or if you don't respect how the business operates, the transition will be brutal. Make sure there's alignment.

Changing too much too fast. Respect what the previous owner built. Improve incrementally. Don't burn down the house because you think you know better after two weeks.

Underestimating working capital needs. Many buyers focus on the purchase price and forget about working capital. You'll need cash to cover payroll, inventory, operating expenses, and growth initiatives post-acquisition. Plan for 3-6 months of operating capital beyond the purchase price.

Failing to secure key relationships. If the business depends on a few key vendors, partners, or distribution relationships, make sure those will continue post-acquisition. Some relationships are tied to the previous owner personally and won't transfer automatically.

Ignoring legal and regulatory requirements. Different industries have different licensing, regulatory, and compliance requirements. Make sure you can legally operate the business post-acquisition and budget for any necessary licenses or certifications.

Tax Considerations You Can't Ignore

The structure of your acquisition has major tax implications for both buyer and seller. Most first-time buyers don't think about this until tax time, which is a costly mistake.

In an asset purchase, buyers benefit from a stepped-up tax basis in acquired assets. You can depreciate equipment, amortize goodwill over 15 years, and potentially claim bonus depreciation on qualifying assets. This creates significant tax deductions that improve cash flow post-acquisition.

Sellers typically prefer stock sales because they result in capital gains treatment rather than ordinary income. For a C-corporation selling assets, there's potential for double taxation - once at the corporate level and again when proceeds are distributed to shareholders. S-corporation sellers avoid this double taxation.

For buyers, stock purchases mean you inherit the target's existing tax basis in assets with no step-up. You can't increase depreciation deductions, which reduces tax benefits. However, you may inherit valuable tax attributes like net operating loss carryforwards, though their use is often limited post-acquisition.

A Section 338(h)(10) election allows certain stock purchases to be treated as asset purchases for tax purposes, giving buyers the tax benefits of an asset deal while maintaining the legal simplicity of a stock purchase. This requires both parties to agree and is most commonly used in S-corporation acquisitions.

Work with a tax advisor who specializes in M&A transactions. The tax savings from proper structuring can be worth tens of thousands of dollars on even modest acquisitions.

Building a Repeatable Acquisition Strategy

Once you've successfully acquired and grown one business, you have a playbook. Many serial acquirers build wealth by repeating the process: buy, improve, hold or sell, repeat.

The skills you develop during your first acquisition compound. You get better at spotting opportunities, faster at due diligence, and more confident in negotiations. Your second acquisition takes half the time of your first.

Some buyers build holding companies that own multiple businesses in related industries. This creates operational synergies - shared back-office functions, combined purchasing power, and cross-selling opportunities between portfolio companies.

Others follow a buy-and-flip strategy: acquire underperforming businesses, implement operational improvements, grow revenue and profit, then sell at a higher multiple. This can generate significant returns in 2-3 years if executed well.

The key is treating acquisition as a skill to develop, not a one-time transaction. Each deal teaches you something. Document what works, what doesn't, and refine your process.

If you're building an acquisition strategy and want to learn from others doing the same thing, the community inside Galadon Gold includes entrepreneurs who've successfully acquired and scaled multiple businesses.

Final Thoughts

Business acquisition is one of the best wealth-building strategies I know. You're buying cash flow, systems, and customers that already exist. The risk is lower than starting from scratch if you do proper diligence, and the upside is huge if you can grow the business post-purchase.

Start small. Look for deals in the $50k to $200k range if this is your first acquisition. Learn the process, make mistakes on a smaller scale, and build from there.

The opportunities are out there. Most profitable small businesses have owners who are tired, burned out, or ready to move on. Be the person who gives them a clean exit and takes what they built to the next level.

Focus on industries you understand, be disciplined about valuation, and don't skip due diligence. The deals that look too good to be true usually are. The boring, profitable businesses with solid fundamentals are where real wealth gets built.

If you want to go deeper on deal structure, negotiation tactics, and post-acquisition growth strategies, check out the Discovery Call Framework for conversation structures that work in acquisition negotiations, or download the 7-Figure Agency Blueprint for growth strategies that apply to most B2B acquisitions.