BiggerPockets Money Podcast

517: Everything You Need to Know Before You Buy a Business

5 snips
Apr 5, 2024
Thinking of buying a business? Learn how to evaluate its worth, use SBA loans, ask the right questions, and avoid financial pitfalls. Expert advice on due diligence, valuing assets, and success stories. Explore the journey to financial freedom through business ownership.
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INSIGHT

Buying Beats Starting For Many

  • Buying an existing small business is often a lower-risk path to wealth than starting one from scratch.
  • SBA-backed acquisitions succeed roughly 96% of the time versus very high failure for startups.
ADVICE

Value Businesses By EBITDA Multiples

  • Use EBITDA as the core valuation metric and expect healthy small businesses to trade around three times EBITDA.
  • Avoid paying more than ~3.5–4x EBITDA unless you have a clear, defensible reason.
ADVICE

Use LOI To Buy Time For Due Diligence

  • After initial interest, schedule a seller call then submit a Letter of Intent to enter due diligence with 60–120 day windows.
  • Use that due diligence period to finalize funding, purchase agreement, and run a quality-of-earnings review.
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