Buying a small business is getting more attention than it used to. That is good. There are a lot of solid companies whose owners are ready to step back, and many of them would be better off in the hands of a buyer who intends to run them rather than flip them.
It also means more people are approaching acquisitions as a spreadsheet exercise. The multiple matters. It is rarely what decides whether the deal works.
Having built and sold businesses, and having looked at many more than I have bought, these are the things I pay the most attention to.
Where does the revenue actually come from?
Not the total. The composition.
How many customers make up most of the revenue? How long have they been customers? Do they buy because of the company, or because of a relationship with the owner? Is the work recurring by contract, by habit, or not at all?
A business with concentrated revenue and owner-dependent relationships can be a fine acquisition, but you are not buying a company. You are buying a book of relationships that may or may not follow you. The price should reflect that, and so should the transition plan.
What does the owner do all day?
This is the most revealing question in small business due diligence, and it is often skipped because it feels personal.
If the owner is the only person who prices jobs, approves exceptions, talks to the largest customers, and fixes problems on the floor, then a large part of what you are buying leaves when they do. I want to sit with an owner long enough to understand the actual week, not the org chart.
The best small acquisitions often have a capable second-in-command who has been running more than anyone gives them credit for. Finding that person, and keeping them, can matter more than any line in the financials.
Are the books describing the business?
Small company financials are frequently accurate and still misleading. Personal expenses run through the business. Family members are on payroll at numbers that do not reflect the market. Owner salary is set for tax reasons rather than to reflect the cost of replacing that work.
None of this is unusual, and most of it is not a red flag on its own. But you need a clean picture of what the business earns once it is paying a market rate for every role, including the one the owner fills today. That is the number you are buying, not the one on the tax return.
What has been deferred?
Equipment that should have been replaced. Software that should have been upgraded. A key hire that has been put off for three years. Prices that have not moved since before the last few rounds of cost increases.
Owners nearing a sale have every reason to defer spending, and many do it without thinking about it. Each deferred item is a cost you inherit on day one. Make a list, estimate it, and treat it as part of the price.
How do the employees feel about the change?
You will learn this more after closing than before, but you can learn some of it early. How long have people been there? How do they talk about the owner? Is there a sense of what the business stands for, or is it just a place to work?
The people who stay through a transition are the business. Treating them well is not a soft consideration. It is the single biggest factor in whether the first year goes smoothly. I try to walk into every acquisition asking how I would want to be treated if someone bought the company I worked for, and the answer to that question shapes most of the first ninety days.
Is there anything you would not want to explain?
Every business has a few practices you would change. Some have practices you would not want your name attached to: billing that relies on customer confusion, corners cut on safety or compliance, vendor arrangements that only work because nobody looks closely.
These are not always visible in diligence, and when you find one late it is tempting to rationalize it. I would rather walk away from a good price than own something I would be uncomfortable explaining to a customer or an employee.
What the multiple does not tell you
A low multiple on a business that depends entirely on the seller is not a bargain. A higher multiple on a business with a stable team, diversified customers, and clean practices can be the better deal by a wide margin.
The price you pay is set once. The quality of what you bought shows up every month after that. In a holding company built to keep what it buys, that second part is what counts.