Emotion is the #1 enemy of a smart business purchase.
Here’s something that happens in almost every business purchase: at some point, the buyer falls in love.
Maybe it’s the location. Maybe it’s the concept. Maybe it’s imagining yourself behind the counter or in the owner’s chair. Whatever it is, emotion moves in — and logic starts making excuses.
“The revenue has been declining, but I’ll turn that around.” “The lease is short, but I’m sure the landlord will renew.” “The books look a little messy, but I’ll figure it out after closing.”
I call this the Halo Effect. And it costs buyers real money.
Here’s how to evaluate a business deal with your head, not your heart.
Step 1: Start With the Numbers
Before you visit the location, meet the employees, or taste the product, look at three years of tax returns and profit and loss statements. What you’re looking for: consistent or growing revenue, stable margins, and an SDE that justifies the asking price at a reasonable multiple.
If the seller won’t provide financials at this stage, that’s your answer. Move on.
Step 2: Understand Why the Seller Is Leaving
There’s always a reason. Sometimes it’s perfectly legitimate — retirement, health, a new opportunity. But sometimes there’s a story underneath the story. A good broker will help you understand the real motivation. Ask direct questions and watch the body language.
Step 3: Assess Customer Concentration
Ask for a revenue breakdown by customer. If any single customer represents more than 20% of revenue, you have concentration risk. If 3 customers represent 70% of revenue, you’re essentially buying their business relationships — and those might not transfer to you.
Step 4: Verify the Lease
Get the actual lease and read the assignment clause. When does it expire? What are the renewal options? What does the landlord have to approve? A great business in a great location with a bad lease is a gamble.
Step 5: Spend Time in the Business
Before you close, ask to observe operations for a day or two. Watch how employees interact. Watch how customers are handled. Notice what’s held together with duct tape. The visit will tell you more than any spreadsheet.
Build a Checklist and Stick to It
I recommend every first-time buyer build a 20-point checklist before they start looking — and commit to following it even when they fall in love. I’m happy to share the one I use with buyers.
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