How to Evaluate a Business for Sale Before Making an Offer

Finding a business that looks attractive is only the beginning of an acquisition process. Before making an offer, a buyer should determine whether the opportunity fits the acquisition mandate, whether the reported earnings are maintainable and whether the asking price reflects the risks that will transfer with the business.

Start with your acquisition mandate

Define the sector, geographic area, investment range and level of owner involvement you are prepared to accept. A profitable business can still be the wrong acquisition if it requires technical experience, working capital or day-to-day management capacity that the buyer does not have.

Separate turnover from maintainable earnings

Revenue demonstrates activity, but it does not establish value on its own. Review gross margin, operating expenses, owner remuneration, once-off costs and discretionary expenditure. The objective is to understand the earnings a competent new owner could reasonably maintain after the transaction.

Where the seller presents EBITDA, net profit or seller’s discretionary earnings, confirm exactly how the figure was calculated. Normalisation adjustments should be specific, documented and commercially defensible.

Test the quality and concentration of revenue

Consider how much revenue depends on a small number of customers, a single contract, one product line or the personal relationships of the current owner. Recurring and diversified revenue is generally more resilient than irregular project income, but every revenue stream should be tested against contracts, invoices and actual payment history.

Understand working-capital requirements

A purchase price may exclude the cash required to operate the business after transfer. Assess inventory levels, debtor collection periods, supplier terms, deposits and seasonal funding pressure. A business can appear profitable while still requiring substantial additional capital to sustain normal trading.

Evaluate operational dependence

Determine which functions depend on the owner, key employees, licences, premises, suppliers or specialised systems. Identify whether important staff are likely to remain, whether contracts can be transferred and whether the buyer will receive adequate training and handover support.

Review the assets and premises

Confirm which assets are included, their condition, ownership and replacement requirements. Where the business operates from leased premises, review the remaining lease term, escalation, renewal options, landlord consent and any obligations that may transfer to the purchaser.

Consider the transaction structure

An asset transaction and a share transaction can create different legal, tax, liability and continuity outcomes. The proposed structure should be reviewed with appropriate professional advisers before the offer becomes binding.

Use the listing as a screening tool, not final proof

A marketplace listing helps a buyer decide whether an opportunity deserves further investigation. It is not a substitute for independent financial, legal, tax, operational and regulatory due diligence. Buyers should verify all material claims and ensure that the funding plan includes both the acquisition price and the capital required after takeover.

Next step: compare opportunities using the asking price, annual earnings, annual revenue, operating format and confidentiality information shown in each BizBuySell listing.