The Art of the Deal – Buying Your First Business

How to Spot a Great Business Deal (and Avoid Bad Ones)

Do you want to buy a highly profitable business that frees you from the 9-to-5 grind?
Want an easier way to become a business owner without starting from scratch?

Then you need to become an expert at spotting good deals.

There’s no shortcut. You need reps – analyzing businesses, breaking down financials, and asking the right questions.

Here’s what that process looks like.

Step 1: Build Your Business Buying Muscle

Start by visiting a marketplace like Flippa.com and analyzing 100 businesses.
Your goal? Be able to answer these questions with confidence:

• How does this business make money? (Selling a product, service, subscription, etc.)
• How do customers find them? (Organic traffic, ads, referrals, partnerships?)

Once you understand the basics, it’s time to dig into the numbers.

Step 2: Understanding the P&L (Profit & Loss Statement)

The P&L is the business’s financial report card. It shows revenue, expenses, and profit on a monthly basis.
At a minimum, get 12 months of data. This lets you spot seasonal trends, revenue spikes, or sudden cost increases. All things you’ll want to ask about.

But here’s the catch:

• Many sellers are new to creating P&Ls, and they may leave out business expenses that are paid from their personal accounts.
• Some may have temporary free trials or credits that artificially lower costs today – but you’ll be paying full price later.

Ask about all expenses – rent, employees, software, marketing, fulfillment, everything.

Step 3: Valuing the Business

Businesses are usually priced as a multiple of their earnings (profit).
You’ll hear terms like EBITDA, Net Income, Profit, or Seller’s Discretionary Earnings (SDE) – they all relate to how much money the business actually makes.

For businesses selling for less than $1M, a 1-4x multiple of Net Income is typical.
For example:

• A business making $100,000 per year in Net Income might sell for $100K – $400K.
• If it sells for $100K, that’s a 1x multiple.

The multiple depends on:
✅ The industry
✅ Growth potential
✅ How risky the business is to operate

Step 4: Avoiding Bad Deals

You might find businesses that seem “undervalued”, selling at a low multiple.
Don’t assume that’s a good thing.

Most low-multiple businesses might be cheap for a reason – they have flat or declining revenue, high churn, or bad operations.

Golden rule: Don’t bet on your ability to “fix” a struggling business.
It’s far easier (and less risky) to buy a growing, profitable business than to turn around a failing one.

Step 5: Talking to the Seller

Once you find a business that looks promising, get on a call with the seller.
Your job? Be like Richard Feynman – keep asking questions until you fully understand the business.

By the end of the call, you should be able to explain the business to a 5-year-old (or the most skeptical investor you know).

What you’re trying to figure out:

• Can you keep making money with their existing customer acquisition strategy?
• Are there opportunities to grow revenue without a major overhaul?

Everything we learn goes into Google Sheets so we can compare deals over time and spot pricing trends.
Flippa’s sold listings also give you a reference point (“comp”) for what similar businesses have sold for.

Step 6: Making an Offer

A business’s asking price is just a starting point.
Everything is negotiable:
✔ The price
✔ The ownership split (maybe the seller keeps 10-20%)
✔ The payment structure (cash up front vs. payments over time)

Example: You could offer to buy 80% of a $500K business for $250K—paying $150K now and $100K in 6 months.

Expect some back and forth before you land on a final deal.

Step 7: Sealing the Deal

Once the offer is accepted, you need a legal agreement to buy the business.
There are two ways to structure this:

1. Buying the company’s shares (taking over the entire entity)
2. Buying the company’s assets (taking the website, customer list, IP, etc., but not the legal entity)

Key tip: In your agreement, spell out everything in detail – what the seller is expected to do, and what happens if they don’t follow through.

For example:

• Do you want them available for a 1-hour call every week for the first 3 months? Write it in.
• Are you expecting specific software accounts, documents, or inventory to be included? List everything.

Expect to go through several revisions before both sides are happy.

Step 8: Using Escrow for a Safe Transaction

Once the agreement is signed, never send money directly to the seller.
Instead, use an escrow service. Your money goes into a secure third-party account and is only released when you confirm you’ve received all the assets.

Step 9: Get to Work!

We’ll talk more in upcoming posts about what we recommend doing for the initial period. You’ll probably laugh when you hear our number one tip.