Buying a small business can be an easy way to hit the ground running without the uncertainty of starting from scratch — especially if it is already established and has customers. But what happens if the current team does not do well with change, or customers keep coming back because of the person selling and they are part of the brand?
Other times the revenue numbers look great, making it seem like a wise investment, but there is about to be an increase in customer churn as the current user base is aging out and the existing owner never tested the water with new demographics.
None of these worries should stop you from buying a small business. Acquiring an existing one comes with vendor and supplier relationships, an established customer base, skilled employees who need little to no training, and it makes it easy to expand your footprint or offerings.
Below you will find seven things to research before you decide to buy a small business. This way you can feel more confident in your decision — or look for an alternative with fewer concerns. If you discover an unforeseen issue during this process, you will be able to negotiate better terms, like having the previous owners stay on longer to pass customer trust, or get a better price if there is more work needed because of previously unknown obstacles.
Your Goals for the Company
One of the most important things to think about is what you want to accomplish in the first few months while you start taking over, and then after the original owner exits. Goals might include keeping it running as-is because it is profitable and working, opening a second or third location, going through a rebrand with modernization, or launching new product lines or services to grow revenue.
For expansions, the company may be amazing and have the best products, but if there are no similar communities or audiences that fit your vision, you will not be able to grow it into nearby markets. It could be a novelty gift shop that appeals to people with disposable income. A smaller city may only have one or two communities where this works, and if you do not want to expand to a new city and travel frequently, this may not be the right business to purchase.
When you offer HVAC services and your customers are always asking for electrical or plumbing work, buying a local plumbing or electrical business can increase your profits from your existing customer base through a horizontal acquisition. Now your company becomes the home repair and maintenance specialist, and you may be able to use this new positioning to move into new cities and markets.
How Long the Owner Needs to Stay
With all of the excitement of buying a new company, do not forget that the current owners may play a big part in its success. Staff may love them and stay because of their leadership, and their personal brand may be the reason customers keep coming back — a pizza shop owner who greets regulars by name, or a veterinarian who knows each pet’s name and favorite treats. When negotiating the deal, include clauses for extensions on the owner’s time with the company in case there is still hesitation from the people who matter most.
As the current owners begin to transition out when their contracted time expires, reassure staff that they are not going to be let go and that this is still the same company they love working for. Try bonding with the team through outings, implement some of the changes they have wanted for a while (as long as they are reasonable and make sense), and spend time with the customers who relied on the previous owner so you can begin earning their trust.
Pro-tip: Get notes on each customer and team member from the previous owner so you can provide the same personal and professional details they would. These are the small things that can make or break a small business.
A Plan for Staff Changeover and Confidence Building
Some staff will leave when you take over, and others may need to be let go if they will not get on board. If the person leaving is a leader or a central part of the team culture, this can have a ripple effect on everyone else — and it is one of the ways rumors start.
Have a plan to keep morale high in these situations and to address rumors before they spread and take on a life of their own. The same applies to customers. If a team member moves to a competitor, you may not be able to stop them, but their loyal customers can often be retained if you keep them happy.
Word of mouth is one of the most powerful marketing tools for small businesses because people trust their inner circles and colleagues when deciding where to go or who to hire. You do not want your customer base following departing team members — especially in hospitality spaces like a local restaurant, hotel, or bar. Make sure customers become loyal to your company, not just to a specific person.
Hiring can also feel threatening to your core team. If you bring in a new manager, a digital strategist, or people to start a new division, the existing team may wonder what it means for them. If someone has always handled a certain task and you reassign it, they may assume the worst — when in reality, having a dedicated person in that role can simply make the company more efficient.
There is no single right way to handle these situations, but a few approaches that help:
- Hold a team meeting where you are open and honest about what happened and why you are hiring or making changes
- Keep your door open for team members who want to talk or share concerns
- Share your vision for the future and invite their input so they feel like part of something bigger
- Reassure the rest of the team that their jobs are secure
Numbers That Impact Revenue You May Not Have Seen
There are numbers you might not think to ask about when buying a small business, and without knowing them you could end up in the red fast. Before you sign on the dotted line, make sure you have looked at:
- New customer acquisition: How many new customers are coming in each month or quarter?
- Retention and win-back rates: What percentage of customers stay, and for those who leave, how long before they return? Knowing the average gap can help you time your remarketing efforts.
- Marketing performance: What is currently working and what is not — and is there room to expand, or has the market been tapped out?
- Outstanding debts and personal guarantees: Where has the previous owner made personal guarantees? You may need to replace them with your own.
- Systems and equipment: What needs to be replaced or upgraded, and do you know how to use each one? Once the owner is gone several months out, you will be on your own with their spreadsheets and systems.
- Margins over time: What are the current margins, and how have they grown or shrunk over the last five to ten years? This tells you whether you need to make near-term changes to reverse a downward trend — especially if rent or inventory costs are rising and your customers are price sensitive.
Paying for Renovations and Upgrades
Renovating and rebranding is expensive, and the true cost is often unclear until you are already in the middle of it. You have to get permits, pay for materials and labor, and advertise to let people know you are still the same company — just with a fresh new look.
While you may have strong cash flow right now, buying the business will reduce your reserves, so think carefully about:
- What you can self-finance versus what requires a small business loan.
- When to buy materials. Some items like display fixtures and appliances often go on sale during slower retail seasons — it is worth timing purchases strategically when possible.
- When to do the work. You may not be able to keep your doors open during a renovation, which means no revenue coming in while you still have payroll to cover. Account for delays and make sure you have enough runway to rebuild momentum and reopen before your busy season begins.
Data and Access to All Systems
Make sure you obtain all data from marketing and advertising, accounting and finance, past inventory and warehousing records, and IT logins. This includes access to active campaigns, platform accounts, and historical performance data.
Having the campaigns and selling points that worked gives you a head start on growing your customer base after the acquisition. It can also signal whether there is limited room to grow in your current market — which is important to know before you commit.
Reviewing what did not work is equally valuable. There may have been errors or faulty assumptions that you can correct, giving you another avenue to explore. At the very least, it keeps you from spending money making the same mistake twice — which matters more than ever when you have just bought a business and cash is tight.
If the owner does not know where the logins to the domain or email accounts are, do not sign on the dotted line until they do. There are countless stories of IT and advertising vendors who control these assets and sometimes refuse to hand them over. Search “IT companies that hold domain names hostage” or “advertising company holds Google Ads account hostage” and you will see how common this is. Do not inherit someone else’s oversight.
Make sure you have:
- Results and account access for Google Ads, Meta Ads, and any analytics platforms, along with performance reports and spend history for TV, radio, and other marketing channels
- Demographic breakdowns that have been tested, as well as data on the current customer base
- Access to all platforms and channels — Google Business Profile, the domain registrar, email service provider, newsletter system, accounting software, ecommerce systems, and more — and confirm that all accounts are registered in the company’s name, not a vendor’s
- Full transfer of point-of-sale and accounting systems so you are not locked out or starting over
Pro-tip: Have the previous owner transfer the domain name and all email addresses to you on day one after the contract is signed. These can be extremely difficult — and sometimes impossible — to recover after the fact.
Your Exit Plan
Think about your future plans. Sometimes buying a small business is not your final destination, but a stop along the way. You might end up finding that your skills or interests do not align with the industry, or it simply does not play out the way you envisioned. Do you have an exit plan for that scenario?
This could be a fix-and-flip situation where you build value over a year or five, then move on to what you really want to do. Or it could be your long-term plan — something you stick with until you are ready to close or hand it off to the next owner.
None of these are wrong choices, and an exit is inevitable regardless. You will eventually retire, the business will close, or it will be sold. Planning for that exit before you become the owner means that when the time comes — expected or not — you are ready, both in business terms and mentally.
There is no single way to buy a small business, but going in with a clear-eyed look at the details, from staff dynamics and revenue numbers to systems access and your own long-term goals, puts you in a far stronger position. The more you uncover before signing, the better your chances of turning the business you are buying into the one you actually want it to be.
National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
