Buying a business- what I learnt the hard way

★★★ signal-strong r/smallbusiness · ↑ 227 · 💬 69 · 2025-08-22 · kw: buy box price · open on reddit ↗

Tool

none

Issue

Business valuation tools and brokers systematically overvalue acquisitions by 50%+ (e.g., $500k ask vs $250k reality), with brokers pulling multiples arbitrarily and misrepresenting seller motivation, causing buyers to waste 100+ hours evaluating 16 serious prospects before finding 1 legitimately motivated seller.

Cost

$250,000+ (per transaction; opportunity cost of 12+ months search time across 100 listings)

Recommendation

Build custom cash flow analysis instead of relying on SDE/EBITDA; scrutinize owner distributions, bank balance growth, W2 salary, and debt payments; bypass brokers and sell direct; demand 60+ day transition periods and full expense documentation

extracted with

anthropic/claude-haiku-4.5 · 2026-05-08

Body

It’s been a year since my business buying hunt began. Since this group has many businesses I wanted to share my observations. I started by looking for something in a very specific niche but after talking to few sellers and looking at an exorbitant ask, I decided to expand and look at similar businesses. I don’t have any personal connections with a business so these have all been interactions with strangers (sellers I found on broker websites). In total I have now looked at 16 businesses seriously (over 100 overall). Here goes: Almost 90/100 times - the business is overvalued - not just a little over but really overvalued - think $500k ask = $250k reality. A lot of them are getting this number from metric calculator or AI. They choose 1-2 years maybe 10 years ago to demonstrate “profitability”. Often, sellers are not realistic unless they genuinely engage with the buyer. Also, they often come up with numbers based on an upcoming life goal. Like a ladies kids were graduating and she wanted $79k for their tuition so she was adamant on the price. It had nothing to do with the books. Remember, you’re not here to buy someone’s retirement home. Brokers are the worse- at least the 29 of them I’ve interacted with. None of them come from finance and multiples are pulled from the magic hat. A lot of them misrepresent. There is a hands off business (absentee owner) floating on business for sale. When you talk to the manager- you find out he’s the owners father. For first time sellers- brokers also set up lots of call to show you that you have so many people interested but they don’t wet sellers and sometimes don’t tell the seller what the business is about. They do this so you don’t bring down the price. Know that a lot of buyers you’re meeting may not know everything about your operations because they are told - “seller does not want to release anything till you talk to them”. However, if they know you’re in the industry or have bought before - they are usually nicer (based on my friends experience not mine). 10/100 sellers don’t want to sell. They are just browsing to see what’s the market and who will pay for their ask (a random number from their magic hat). These are usually sellers- who will just talk, ask for a number and won’t ever send you any documents or will send a screenshot from some excel for one year (3 years ago) where the business made $$$. Tip: don’t waste your time if they don’t have books. 10/100 sellers are actually selling for legit reasons. Retirement, relocation and ill health are the most common legit reasons. These sellers are hard to find. Most sellers ask for projections and potential of the business. Like skin care is a billion dollar industry. They make 100k/year and ask is $5mil- because it’s a billion dollar industry. Most pull potential and expansion plans from Google- like pay more for more marketing, add more sales people etc. etc. - if it was true, they’d have done it. A lot of businesses are bleeding money- you need to know where to look. Someone on Reddit mentioned this when I first started research and I didn’t take it seriously. I was fixated on clean books. But now I know better- ask about every expense in the books. It doesn’t matter whether it’s $1 or $10k. Even small things like hidden memberships, trade shows etc. - ask for proof or Google to see if they were in attendance etc. Accountants and lawyers will only give you advise- they won’t negotiate for you. You have to be proactive. Ties into - #7 - a stationary receipt is an expense but not for a business that’s pressure washing- dig and you’ll find it could be their child’s back to school stuff. It’s fine for a few expenses here and there but you should know where it’s coming from. Make seller transition exhaustive- paying 6figures? Don’t take a one week or one month transition. You won’t learn anything. Unless you’re a pro from the same industry. If the business has been running for 2 years - ask for 60 days and add a business that ran for 10 years - ask for 6 months. Don’t be flexible. Sellers disappear if they’re not obligated by the agreement. Also, be fair - don’t exploit their time. Service businesses- clients could be tied to the personal goodwill of the seller. Can’t elaborate more as I didn’t look too deep in this. Don’t pay what you can’t handle. Know your budget. Know that when you buy- you’ll need to enter and clean house to make it profitable. That money can’t go to the Seller. It’s like buying a house- qualifying for the mortgage is different from buying furniture when you get the house. Don’t take out loans - you can’t payback. Don’t over leverage. It’s not worth it. The best value is to ask yourself- can I do a better job starting this with money I have versus paying it to the seller- if yes don’t buy it. Buying a Business should help you skip a few steps and get ahead faster - not something that leaves you recovering for years. While you don’t need to be super passionate- you do need to know what you’re doing and like it. If you’re not technical (like me) don’t look at SaaS- it’s a waste. Don’t think you can outsource everything. People will take you for a ride. Good sellers (based on positive experiences): They want to work with you. They will be more reasonable if you point out issues politely. They want their brand to continue beyond them- you can tell from their voice and passion that they want the business to succeed after them- they will try their best to set you up for success. These are the nicest sellers. They’ll tell you when they made a mistake - yes they don’t want you to mess up so they’ll tell you what they tried and why it didn’t work. They want to be included for a while with the transition- they don’t want to dump it on you and run the next day. They are open to creative ways of financing if they like you (not always true- sometimes they do need the money). They care about long term employees. Lessons: Don’t buy a business on autopilot- it doesn’t exist. Don’t buy a single owner operated business- like crafts or custom work unless you know the skill. Don’t be attached to the business before you close. Talk to the seller. Listings can be deceiving. Walk if you don’t like them- it’s not worth the hassle. Pay what you’re comfortable with not for potential, cash money etc. If you can start it and make it succeed faster then don’t pay for it- do it. Don’t buy a business to quit a job. If you’re a seller what has your experience been? I am curious.

Top comments (7)

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[score=49] brknprop

Great write up! One thing I found out multiple times is if they have to keep "re-working" their books, just move on. The headache involved in going through all the random expenses after dealing with one such seller were not worth the trouble, or the time. The other part is how long a search for the right type of business can take. Sometimes it feels like I look at many of the same types of challenges with many businesses. I once found a service type of business that borrowed around 700K and clearly was spending 80 percent of it on advertising. The gross revenues for that year were great, but the net revenue was extremely low.

[score=23] ofcourseIwantpickles

It’s a shitshow for SDE under $250k. It often gets more professional as you move up in price, but most listings are overvalued (keep in mind strategic buyers will pay a higher multiplier than you).

[score=12] captian_kirk

From my experience, the one thing I totally agree and think get missed, is you need to build your own cash flow plan because you likely can’t run the business the same way. Ie it’s got agencies & va’s, but it’s too expensive to run this way. You’ll take on more work to get cash flow. Now you have a job. Or there’s no real profit because the one man shop running it just has a job that they think is a business. Once you give someone that job, there’s no money left. As someone else noted this is especially true on the lower end 6 figures. I’ve looked at maybe 100 in that category over the years. I think there is one I regret not buying.

[score=13] Boxer_the_horse

Very good points. No disrespect to legit brokers but I’m convinced that the brokers are the weakest point in selling a business. They don’t help sellers price accordingly, don’t vet sellers to make sure that they have the documentation that is going to be needed to close the sale, and don’t return calls. I’m positive that lot of them don’t have any licensing and are just winging it. It’s beyond ridiculous that they want 10% commission while doing nothing. I was able to sell my business on my own and we closed the deal in 2 months from me listing it online. No way it could’ve been done with a broker in the middle.

[score=8] lmaccaro

As someone who has bought three business and then drew up numbers to prepare to sell one.. Ask for this: How much owners distribution did you take in the trailing twelve months Plus How much did your business bank account balance grow during the trailing twelve months Plus How much did you pay yourself on W2 + FICA + health insurance Plus How much did you spend on long term debt payments Plus A list of potential addbacks / capital expenses (one time upgrades or one time expenses that are not operational) and you'll want to scrutinize that heavily. = a decent representation of true cash flow. Net income, EBIDTA, SDE, etc are all easy to confuscate you with BS numbers. The above is pretty difficult to snow you on. You can ask if there's anything else they want you to consider. Overall number shouldn't be more than about 35% of revenue for brick and mortar businesses. With some kind of software business it could be much higher though. As a rule of thumb I wouldn't expect to pay more than about 80% of revenue for any company under about $2m in revenue. Realize in year 1 you are going to be lucky to hit 70-80% of their revenue also. Because for the first year you are going to suck at the job. Then try to understand - if you did want to double their revenue, what would the capital cost be to accomplish that? How many more trucks, salary, inventory, advertising, etc., would that take? How long would it take you to save that up out of cash flow, and after debt service? Some industries are very capital intensive. It matters more than you think, after you buy you really need to scale to "grow out" of your loans.

[score=12] manujaggarwal

Thanks for sharing, this is a goldmine of lessons for anyone buying a business. I’ve noticed the same with overvalued listings and brokers padding numbers. Curious: when you found a seller who was genuinely motivated and transparent, what specific red flags or signals helped you trust them versus someone who was just browsing or inflating their price?