I spend a lot of time writing about selling your business. What happens when the shoe is on the other foot? Let's say a call came in this morning. Your competitor wants to sell their business, and you might be in a position to buy it.
How do you react? It could be a significant growth opportunity, but at what cost?
This article will help you answer those questions.
Know what you are buying before you talk about price.
The allure of acquiring a competitor can often cause business owners to make emotional decisions without first examining the facts. What exactly are you buying? The answer typically lies in one of the following three categories:
- Customers. You want their revenue relationships. This is the most common motive and the most fragile, because customers belong to people, and people leave.
- Capability. You want something they can do that you cannot: a license, a certification, a piece of equipment, or a crew with a skill you have not been able to hire.
- Capacity. You want more of what you already do: a second location, another route, more chairs, more square footage.
Pick one. A deal justified by all three is usually justified by none, and the price you can defend depends entirely on which one you choose. Capacity you can build yourself, and what it would cost you to build it, is your ceiling. You often cannot build capability at any speed that matters, which is why it's worth paying a premium for.
Read their numbers the way a buyer will someday read yours.
We covered quality of earnings from the seller’s side in a recent article. An acquisition puts you on the other side of that table, and the review runs in reverse. The tax returns tell you what the seller reported. The add-back schedule tells you what the seller would like you to believe. The distance between those two documents is where your money is.
Six requests cover most of the questions to ask when buying a business.
| What to ask for | What it actually tells you |
| Three years of tax returns and financial statements | Whether earnings are consistent, and whether the statements tie to the returns |
| Revenue by customer, by month | Concentration, seasonality, and whether growth is real or one large account |
| A full list of add-backs, with support for each | How much of the reported cash flow actually survives your ownership |
| Payroll register and organization chart | What it will cost to replace the owner and anyone who leaves with him |
| Aged receivables and payables | Whether working capital is being funded by stretching vendors |
| Contracts, leases, and licenses | What transfers to you, and what has to be renegotiated on day one |
The market is rewarding buyers who do this work. In the second quarter of 2026, 2,117 small businesses changed hands nationally, down 10% from the prior quarter and the prior year, while the average cash flow multiple rose to 2.7 and the median sale price held near $349,250. Fewer deals, better businesses. Buyers are not paying less. They are paying for less risk and walking away from everything else.
Four findings should end the conversation.
Most of what diligence turns up is negotiable. The four points below are non-negotiable:
- The owner is the business. If customers buy from him rather than the company, you are buying a payroll expense with a goodwill invoice attached.
- Books do not match returns. This is not a bookkeeping problem you can clean up later. It is a credibility problem, and it will end your ability to finance the deal.
- One customer is more than a quarter of revenue. You are not buying a business. You are buying a contract that nobody has signed.
- Deferred maintenance is doing the work of profit. Equipment, systems, and facilities that should have been replaced three years ago are the reason the margins look as good as they do.
If the seller will not stand behind the numbers—no note, no escrow, no meaningful representations—they likely know something they are not telling you. An owner confident in his business is usually willing to leave something at risk after closing.
Almost nobody pays for an acquisition with a check.
Almost nobody writes a check. Most acquisitions come from four sources, and the mix determines whether the deal is survivable.
| Source | What it does for you | What it costs you |
| Your own cash | Fastest close and the strongest-looking offer | Working capital you are likely to need after closing |
| SBA 7(a) loan | Finances most small acquisitions over a long amortization period. | Personal guarantee, equity injection, and a real underwriting timeline |
| Seller note | Bridges a valuation gap and keeps the seller invested in the handoff | Standby terms that many sellers find unattractive |
| Earn-out | Prices the disagreement instead of arguing about it | Years of potential disputes over how earnings get measured |
Two SBA rule changes reshaped the math this year.
Roughly eight in ten buyers expect to use SBA financing to complete an acquisition, so you should read the rulebook before you write the offer.
Under the current SOP, a complete change of ownership requires an equity injection of at least 10% of total project costs, and a seller note counts toward that injection only if it sits on full standby, with no payments, for the life of the loan.
More federal capital is also available than a month ago. As of July 4, 2026, qualified borrowers can combine 7(a) and 504 loans for up to $10 million in total SBA-backed financing, double the previous cumulative limit.
Seller financing bridges the rest of many small deals, and it is where expectations collide.
In BizBuySell's latest surveys, 90% of buyers expect seller financing to be part of the deal. By comparison, only 29% of owners plan to offer it—buyers who can close that gap with structure, price, or patience usually do.
The day after closing is the most significant challenge.
Most buyers spend months negotiating the purchase price and barely think about those first few weeks of ownership. That's a mistake. Beyond the operational tasks, you'll need to merge payrolls, bookkeeping, and software stacks. And don't forget about the cultural work needed to meld two workforces into one. That requires careful planning.
Customer retention is another area of concern.
Customers need to know the company is still there to serve them, even after ownership changes hands. To avoid confusion, compose a statement that tells customers exactly what to expect. If possible, have the seller help by doing their own outreach. Communication is critical for customer retention.
A correctly priced acquisition, poorly integrated, could result in a loss.
We've seen owners pay a favorable price for an acquisition and then lose profits from their other business while repairing damage during the transition. Your objective is to grow. There's a right way and a wrong way to do that. My team can help you with that, too.
Successfully buying a competitor is a challenge. Get help.
The most expensive mistake in a small acquisition is bringing in your advisors after you've put the price in writing. By then the terms that matter most—the structure, the working capital target, and what the seller has to stand behind—are already anchored. The week the opportunity lands is the week to make the call.
The Novyx Group works both sides of these transactions. We know what a buyer will find in a competitor's records because we spend the rest of our time making sure it is never in our own clients' records. That is the value of a partner who combines CFO-level financial analysis, tax planning, and M&A advisory year-round, not just at the closing table. If a business in your market has come up for sale, bring us the numbers before you respond.
To get started, schedule a discovery call.
Talk soon,
Jeremy A. Johnson, CPA, CEPA®
Founder & CEO
The Novyx Group
Sources
- BizBuySell Insight Report, Second Quarter 2026 (https://www.bizbuysell.com/insight-report/): transaction volume, valuation multiples, median sale price, and buyer financing expectations.
- U.S. Small Business Administration, SOP 50 10, Lender and Development Company Loan Programs (https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs): equity injection and seller note standby requirements for a change of ownership.
- U.S. Small Business Administration, "Small Businesses Now Eligible for $10 Million in SBA Financing" (July 7, 2026) (https://www.sba.gov/article/2026/07/07/small-businesses-now-eligible-10-million-sba-financing): combined 7(a) and 504 loan limit effective July 4, 2026.
