Interested In Buying A Small Business? Here Is My Initial Screening Process As A Full-Time Investor To Determine If A Business Is Worth A Second Look

A great real estate deal is made you buy — not when you sell.

Businesses have similar attributes. I meet with small business owners and brokers actively selling their businesses. It’s incredible how many are trapped in a lousy business model. Many of their issues are systemic and can’t be fixed in a turnaround acquisition. However, you can usually spot the problems early.

Here are my initial screening questions (in order) to assess if a business for sale is actually a deal:

1. 📅 How long has the business been operating?
2. 💼 What is the annual free cash flow (FCF) or seller’s discretionary earnings (SDE)?
3. ⌛️ What is the average employee tenure?
4. 🎯 Who is the customer (industry and core target)?
5. 🛡️ How durable is the customer relationship moat?
6. 🤔 What is the customer’s pain point or problem?
7. 🔁 How often do customers have this problem?
8. 💰 How much do customers currently pay to solve this problem?
9. 🛠️ Is the company dependent on technical innovation to win? If yes, pass.
10. ⚙️ How well is the operating business rhythm optimized for execution speed?
11. 😊 Are the employees happy?
12. 👩‍💼 What CEO am I going to hire to run the company?

This sequence is intentionally sequenced to place more quantitive filters at the beginning and qualitative filters towards the end. The current product or service matters but is a low priority. The offering can shift if the customer relationship moat is strong (defensive, high-willingness to pay, trusted).

The best businesses for sale are like real estate — only buy deals.