Education you can use whether or not you ever hire us.
Guides and a glossary built to help you understand acquisition decisions, documents, and risks, and to know when it's time to bring in specialized help.
Start here for the questions that matter most.
How to Evaluate a Small Business Acquisition
Start by separating the decision into layers: is the business real (financially verified), is it durable (revenue quality and customer concentration), is it operable without the current owner, and can the economics support your financing and your income needs? Most buyers jump straight to price. Price is only meaningful once the first three questions have real answers.
Quality of Earnings & Financial Verification
Seller-provided P&Ls are a starting point, not a conclusion. Reconcile reported revenue against bank deposits and tax filings, identify add-backs and confirm each one is genuinely non-recurring or personal, and check whether cash flow actually converts from reported earnings. Treat any add-back you can't independently support as unverified, not as a discount to the purchase price you're entitled to assume.
SBA Acquisition Cash Flow & Debt Service
Lenders and buyers should model debt service coverage using normalized (not seller-optimistic) earnings, and should stress-test the model against a weaker year, not just the trailing twelve months. Build in a reasonable owner salary before calculating what's left to service debt; a deal that only works if you underpay yourself is a fragile deal.
Construction & Service-Business Diligence
Generic checklists miss what actually breaks these deals: licensing qualifiers who don't transfer, backlog that looks strong in aggregate but is thin project-by-project, bonding capacity, public works compliance requirements, and safety/workers' compensation exposure. See our Industries page for the specific items to request.
Customer & Project Concentration
Ask for revenue by customer for the trailing 24-36 months, not just a summary statement that "no customer is more than X%." Concentration risk also hides in single-project dependence, referral-source dependence, and general-contractor relationships that may not transfer with a change of ownership.
Owner Dependence & Transition Risk
Ask directly: what does the owner do every week that nobody else does? Sales relationships, estimating, licensing qualification, and vendor relationships are the most common hidden dependencies. A transition plan should name who performs each of these functions after closing, not just promise a vague consulting period.
Licensing, Insurance & Safety Exposure
Confirm which licenses are tied to the business entity versus a specific individual, and what happens to each at closing. Review the workers' compensation experience modifier and claims history: a rising trend often signals an operational or safety issue not yet reflected in current premiums.
Working Capital & Accounts Receivable
Confirm the working capital you're actually acquiring, not just its book value. Aged receivables, especially retainage in construction, may be worth materially less than face value. Negotiate a working capital target and true-up mechanism before closing, not after.
Asset Purchase vs. Stock Purchase
Structure affects what liabilities you assume, how licenses and contracts transfer, and tax treatment for both parties. This is a legal and tax question requiring your attorney and CPA, but you should understand the basic tradeoffs before structure gets locked into a letter of intent.
Deal Red Flags & Walk-Away Conditions
Define your walk-away conditions before you're emotionally invested in the deal. Evidence of intentional misrepresentation, inability to verify material earnings, unfundable working capital needs, or licensing that won't transfer are common conditions that should stop a transaction regardless of how attractive the headline numbers look.
These guides are general education, not a substitute for a full diligence engagement or professional advice specific to your transaction.
Acquisition terms, defined plainly.
| Add-Back | An expense removed from reported earnings because it's considered personal, discretionary, or non-recurring; should be independently supportable, not just asserted. |
| Backlog | Contracted or awarded work not yet completed; quality matters as much as size, check margin by project. |
| Bonding Capacity | The dollar amount of surety bonds a contractor can secure, which limits the size of projects it can bid. |
| Change Order | A modification to a construction contract's scope, price, or schedule after work has begun. |
| Debt Service Coverage Ratio (DSCR) | Cash flow available to cover loan payments, divided by the loan payment amount; lenders typically require a minimum ratio. |
| Earnout | A portion of purchase price contingent on the business achieving specific future performance targets. |
| Qualifying Individual | The licensed individual whose credentials allow a contracting business to hold its license; dependence on this person is a key transition risk. |
| Quality of Earnings (QoE) | An analysis reconciling and normalizing reported earnings to determine what's real, verified, and sustainable. |
| Retainage | A percentage of a construction contract payment withheld until project completion, affecting cash flow and receivables value. |
| Seller Financing | Financing in which the seller accepts a note for part of the purchase price, paid over time by the buyer. |
| Working Capital Peg | The agreed target level of working capital included in a transaction, with a true-up mechanism if actual working capital differs at closing. |
| Work-in-Progress (WIP) Schedule | A report showing revenue recognized versus billed on active construction projects; critical for spotting under- or over-billed positions. |