The 6 Steps To Buying A Business

Before you look at a single target, you need clarity on why you're buying: multiple arbitrage, geographic expansion, or revenue/cost synergies.

From there, set your target criteria across financial (revenue, profit, growth), operational/people (geography, service offering, founder mindset), and deal structure (ownership %, size constraints).

Finally, lock in your funding model; cash, debt, or a mix, and the timing of payments. This groundwork lets you disqualify bad targets fast and know exactly what a good deal looks like before you start.

Identify targets through passive methods (brokers, referrals) or proactive sourcing (industry databases, cold outreach). Proactive wins you proprietary deal flow and avoids competitive bidding, passive is, well passive.

Then screen hard: get an NDA in place, verify high-level financials, and watch for red flags like unresponsive owners or unexplained inconsistencies.

Expect 80–90% of targets to drop out at this stage. Rank what's left and take only 5–10 (ideally five) into due diligence, backfilling as targets screen out.

This is where you verify everything a seller has told you and uncover what they haven't disclosed, you're closing the information asymmetry gap.

It spans four workstreams: financial (tying P&L to bank statements, assessing earnings quality), operational/commercial (assets, processes, customer/supplier relationships), people/HR (founder intent, key employee risk, culture fit), and legal (contracts, change-of-control clauses, litigation, IP ownership).

Thorough diligence now avoids costly disputes and damages claims after the deal is signed.

Once you're confident in a target, issue a non-binding Letter of Intent, a 1–2 page alignment on price and key terms before investing further in legal costs.

Valuation is built from precedent transactions, comparable public companies, and discounted cash flow analysis.

Then structure the deal: cash upfront, deferred consideration, and/or earn-outs tied to performance targets. Earn-outs are especially useful for closing the gap between seller expectations and buyer valuation.

The term sheet builds on the LOI with more detail, giving lawyers a roadmap for the full contract and reducing legal fees.

The binding contract includes reps and warranties, the seller's promises about their financials, litigation, and disclosures, which protect you if anything's later found to be misrepresented.

Signing makes the deal legally binding, but it's not complete: a list of conditions precedent (new employment agreements, lease transfers, etc.) must be cleared before closing, typically within a week or two.

Most Australian deals close on a cash-free, debt-free basis. The purchase price is adjusted up or down for the target's actual cash and debt at signing.

A working capital adjustment follows too: if the business is handed over with more or less working capital than the agreed target, the price shifts accordingly.

Once the business is officially yours, integration begins, typically guided by a 100-day plan to execute everything assumed throughout the deal process.