The 3 Most Critical Issues in Buying or Selling a Business

Updated April 8, 2022

Top 3 issues in buying or selling a business.

These are the top 3 issues involved in buying or selling a business.

As a business broker with offices in Fairhope, Alabama and Baton Rouge, Louisiana,  I’m often asked what the top critical issues are in buying or selling a business.  If the top three issues discussed below in the sale or purchase of a business are not properly addressed, then there is a good chance the transaction will fail.

So to get to the core of the question, these are in my opinion the top three issues involved in buying or selling a business:

Critical Issue #1: Confidentiality

Confidentiality is critical to the successful transfer of a business.  If word gets out that a business is for sale, several things start happening and none of them are good for the seller or buyer of the business.  First, key employees start looking for other jobs, fearing that a new owner may not retain them.  In the uncertainty, customers may begin shopping elsewhere.  Suppliers get nervous.  Competitors can take advantage of the situation.

This is why a prospective business buyer will be asked to sign a non-disclosure confidentiality agreement early in the process of looking at a possible business acquisition. In this agreement, the potential buyer confirms that he/she will not disclose the fact that the business is for sale except to professional advisors.

If you show that you take the need for confidentiality seriously, you will be regarded as the professional that you are.

Critical Issue #2: Valuation

Nothing causes the buyers and sellers of businesses more anxiety than the issue of valuation. The question of selling price haunts both parties. The seller doesn’t want to price his business too low and “leave money on the table.”  On the other hand, the buyer of the business is afraid he’ll pay too much and not get the best possible price.

Formal, fully documented business appraisals are now readily available.  In addition, there are rules of thumb guidelines that can be used to quickly estimate the value of a business.  As just one example, we know that a full-service restaurant with a liquor license is worth about 30% of its annual gross revenue as an ongoing business.  This assumes – big assumption – that the business is earning the average bottom line profit for its peer group.

There are rules of thumb guidelines for almost all categories of business from ice cream stands to manufacturing plants.  But again, these guidelines provide only quick estimates.  And written, fully documented business appraisals are now done by several respected national firms at a cost similar to real estate appraisals.

Critical Issue #3: Financing

Financing is always a concern, as hardly any business buyer has the financial capacity to write a check for the purchase price of a business.  If they did, they would most likely be living off of investment income rather than buying a business.

These are five possible sources for business acquisition loans:

BANKS – Although most people seeking a loan to buy a business will think first of a traditional bank loan, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.  There are exceptions but they’re rare.

SBA – The SBA, through its approved lenders, provides business acquisition loans.  The SBA does not make direct loans, but rather guarantees a portion of the loan that is made by the approved lender.   It’s known as the SBA 7(a) program.  Wells Fargo Bank is currently the top volume SBA lender nationally.

The SBA route for a business acquisition loan is sometimes frustrating because of the time and detail that is involved.  However, keep in mind that the SBA will approve loans that others have turned down and will usually approve them with a smaller down payment.  In most cases, it’s worth the wait.

FAMILY – Many times the older generation in a family will loan the down payment or the entire amount needed to a promising member of the family’s younger generation.  If your family is willing to loan you the money, one word of advice is in order.  Have a very clear understanding as to how the debt is to be handled and put it in writing in the form of a legal note.

THE SELLER – In a significant percentage of the business transfers that I handle as a business broker, the owner of the business finances a portion of the purchase price for the buyer.  Some sellers cannot offer owner financing for a variety of reasons, but when they can, it conveniently solves the problem of financing.

The fact that the business owner is willing to finance the sale of his company provides more than a convenient finance plan.  More importantly, it provides strong validation of the owner’s belief that the business will support the owner and earn enough cash to pay back the loan.  You can’t get any better recommendation on the business than this.

The normal down payment for owner financing ranges generally from around 30% to 50% of the purchase price of the business.  Interest rates are generally market-driven but there is more flexibility here than in other forms of financing.

401(K) FUNDS AND IRA ACCOUNTS – The use of these funds to buy a business, without tax penalty, is a fairly recent development.  Several national CPA and attorney groups have developed a plan, approved by the IRS, which allows you to use your funds for business acquisition.  There are legal and accounting fees involved, but they are a small fraction of the tax penalty that would be assessed for cashing in these accounts early.

 The above ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­five sources of financing are not exclusive to each other.  I recently handled a transaction in which three of the five sources were used to buy the business.

It’s called creativity!

To order our complimentary 62-page booklet entitled “How to Buy a Business in a Safe and Organized Way,” please see the ordering information in the upper right area of this page.  To subscribe to this blog and get notices of updates, please find the subscribe button top right.  We will not spam you!

If I can assist you with any considerations involved in the valuation and transfer of ownership, please don’t hesitate to email or call me.

For further reading, here are additional related articles:

#     #     #

William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership.  He currently serves as president of the American Business Brokers Association.  His practice includes consulting services nationally on issues of business valuation and transfer.   With offices in Fairhope, Alabama and Baton Rouge, Louisiana, he may be reached at (251) 990-5934 (Fairhope), 225-465-5799 (Baton Rouge) or by email at  The firm’s most recent closings can be viewed here.


About William Bruce

President, American Business Brokers Association / Business Broker and Accredited Business Intermediary assisting business buyers and sellers with the transfer of ownership since 1986 / Author: How to Buy a Business.
This entry was posted in Business Valuation & Appraisal, Valuing, Buying or Selling a Business and tagged , , , , , , , , , , , , , . Bookmark the permalink.

24 Responses to The 3 Most Critical Issues in Buying or Selling a Business

  1. Gary Kane says:

    Great post. As a business broker based in NY, I would add that screening buyers is also key in the process of selling the business. Finding the right buyer can go a long way to a successful transaction.

    Gary Kane

  2. Thanks Gary. I agree.

  3. Pingback: Tweets that mention Top 3 Issues Involved When Buying or Selling a Business | The William Bruce Discussion --

  4. Pingback: 2010 in review | The William Bruce Discussion

  5. Pingback: Amid Confusion, There are Definite Signs of an Improving Economy | William Bruce on Business: A Discussion

  6. Pingback: Twitted by WilliamBruce

  7. Daren says:

    It’s really a really good read in my view, Have to admit that you actually are one of the top bloggers I ever saw.Appreciate your posting this informative article.

  8. Admiring the dedication you put into your site and detailed information you present.
    It’s nice to come across a blog every once in a while that isn’t the same
    out of date rehashed material. Great read! I’ve bookmarked your site and I’m adding your RSS
    feeds to my Google account.

  9. Carmon says:

    Good site you have got here.. It’s difficult to
    find excellent writing like yours these days. I truly appreciate individuals like you!
    Take care!!

  10. Waldo says:

    Spot on with this write-up, I honestly feel this amazing
    site needs much more attention. I’ll probably be back again to read more,
    thanks for the info!

  11. Pingback: Selling a Business: The Issue of Buyer Acquisition Financing | William Bruce on Business: A Discussion

  12. abc tv shows says:

    Nice post. I learn something totally new and challenging on blogs
    I stumbleupon on a daily basis. It’s always interesting to read through articles from other
    authors and practice a little something from other websites.

  13. Pingback: The 3 Financial Benchmarks All Business Owners Should Monitor. | William Bruce on Business: A Discussion

  14. Very good info. Lucky me I recently found your blog by accident (stumbleupon).
    I have book marked it for later!

  15. R. F. Perry says:

    Mr. Bruce: Excellent articles and website with terrific guidance and commentary, I came upon your site by accident. Here at a Small Business Development Center (SBA Funded), we are sometimes asked to come up with a “quick and dirty” business valuation for both sellers and buyers. We don’t pretend to be experts in the field and usually recommend an appropriate subject matter expert. Nevertheless, we try to come up with a reasonable figure. That figure tends to disappoint most clients who believe their business to be worth much more than it actually is.
    Thanks for sharing your wisdom and experience. I will keep your site bookmarked for future reference. R. F. Perry in North Alabama

    • Mr. Perry, thanks for stopping by. I have also found that a lot of business owners tend to overvalue their businesses. The market sets the price and there are some fairly well established guidelines for determining market value. Let me know if I can assist the Center in any way.

  16. Jack Lynch says:

    One of my clients is interested in acquiring a company in the powerline hardware manufacturing and distribution industry nationwide.

  17. Pingback: Who Will Buy Your Family Business? - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clients with these issues since 1986. Selling a family busine

  18. Pingback: Seven Reasons to Retain A Business Broker When Selling Your Business - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clients with these issues s

  19. Pingback: Selling Your Business? Be Aware of the Differences in a Financial Versus a Strategic Buyer. - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clie

  20. Pingback: Here's How to Value an HVAC Business - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clients with these issues since 1986.

  21. Pingback: Selling a Business? Ask These 5 Questions to Separate Serious Buyers From Tire Kickers - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clients with thes

  22. Pingback: Here's How to Value a Manufacturing Business - Everything about valuing, buying, or selling a business in one place. Click the "Resources" tab below to explore. William Bruce has been assisting clients with these issues since 1986.Everythin

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.