What a Buyer Should Have Ready Before Making an Offer on a Business

An offer on a business is a promise that you can close. Have a signed confidentiality agreement, a written picture of the company you will actually buy, proof the down payment is real, a financing path that fits the price, and a lawyer and a CPA who have read a purchase before you put a number on paper. Sellers and their advisors sort buyers by that file. A price with none of it is a guess, and a guess does not earn exclusivity.

The short answer: get ready in this order. Sign the NDA. Decide the size, the industry, and whether you will operate the company or hire someone who already can. Show where the equity injection comes from, in an account you can actually use at closing. Match the rest of the price to a lender, a seller note, a partner, or your own cash — and know that a single SBA 7(a) loan stops at $5 million. Name who signs, including a partner if you have one. Then write the offer. Diligence is what happens after a seller accepts that offer. It is not a substitute for showing up able to perform.

At Bridge Point Business Brokers, we ask for this file before we introduce a buyer to an owner. Start on the buyer page, or talk with us about a specific company through M&A advisory. If you are still learning how a price is built, the valuation guide is the earnings side. This article is the buyer side of the first letter.

This article is not legal, tax, or lending advice. What a lender will advance, what an NDA lets you do with the numbers, and what your counsel should mark in a letter are facts for those professionals on your draft. The ranges later in this piece are directional. They are not a quote for a company you have not underwritten.

What Ready Means Before You Name a Price

Ready does not mean you have finished diligence. You have not. You have not toured every site, talked to customers, or watched a quality-of-earnings review land. Ready means you can survive the first week after a seller says yes.

That week is when the seller stops talking to other buyers, if you asked for exclusivity. It is when a lender asks for your personal financial statement, your resume, and the source of the down payment. It is when your lawyer asks whether you are buying stock or assets. If those answers are still "we will figure it out," the seller has granted you a freeze for a buyer who is not a buyer yet.

Think of the offer as a cover page on a file you already built. The file has six parts.

You can be missing a line and still send a careful indication of interest. You should not ask a seller to go off the market while the missing line is the money or the operator.

The Business You Are Actually Offering to Buy

Write down the company you want before you fall in love with the one in front of you. Industry. Rough revenue and earnings. Whether you need a business you can run yourself or a business that already has a manager. Geography you will actually live with. A customer mix you understand. A price band your cash and your lender can reach.

That page keeps the offer honest. A Main Street service company priced on seller's discretionary earnings is a different purchase from a managed company priced on adjusted EBITDA. An owner-operated company, where you will be the manager, often trades around 2x–3.5x Seller's Discretionary Earnings (SDE) after a real wage for that job. A company with a lead already in place can move toward 2.5x–4.5x SDE. A managed company that a bank or a sponsor will underwrite is more often priced on adjusted EBITDA, commonly around 3x–6x when the price is near $10 million. Those bands are directional. Industry, concentration, and the buyer move them. How the same price can be three different multiples is what multiple a $10 million business sells for.

Know which earnings number you are multiplying. If the teaser quotes revenue, you do not have a price yet. If it quotes SDE and you plan to hire a general manager on day one, put that wage into your model before you offer. The seller's lifestyle is not your earnings.

Also decide what you are not buying. Real estate is often a separate conversation from the operating company. Equipment and inventory may sit inside or outside the multiple, depending on the deal. Excess cash is not a bonus you should assume you are purchasing. Read the definition in the materials you have. If the materials do not define it, your offer should define it, or you should wait until they do.

Sign the NDA Before You Ask for the Numbers

The confidentiality agreement is the ticket to the financials, the customer list, and the reason the owner is selling. Brokers use it so a competitor cannot shop the file and so employees do not hear about a sale from a stranger. Send the offer after you have signed it and read what you were given. Asking for tax returns in the same email as your first hello tells the seller you do not know the sequence.

Read the NDA for what you may do with the information. Most buyers may use it to evaluate a purchase. They may not recruit the staff, call the customers, or share the file with a lender, a partner, or an investor until the agreement allows that disclosure. If your lender needs the returns, ask the broker how that release works before you forward them. A casual forward is how deals leak.

If you are buying through a broker, the NDA is also how you get on the record as a real party. Bridge Point sends that request through the NDA page. Have your legal name, the entity if you already have one, and the email you will actually monitor. A personal Gmail and a half-finished LLC that nobody can find on a secretary of state site slow the introduction down for no reason.

You can form an opinion from a teaser. You should not stake a binding process on a teaser. The teaser is a summary. The offer should follow the confidential package, even if the package is still thin. Say what you have seen. "Based on the three-year summary in the memorandum" is a different sentence from "I will pay this for the business," as if you had the general ledger.

Proof You Can Fund the Down Payment

Sellers do not need your net worth story. They need to know the cash at closing can arrive. Proof of funds is a current statement for the account that will wire the equity injection, plus a plain explanation of whose money it is.

Liquid means you can use it at closing without a second transaction you have not started. Cash and marketable securities in an account you control are the usual evidence. A house you have not refinanced is not proof. A retirement account you have not confirmed you can tap, and whose penalty and tax you have not modeled with your CPA, is not proof. A parent's verbal promise is not proof until that person is a signer or the money is in your account.

Match the date on the statement to the week you are offering. A December snapshot attached to a June letter invites the question of where the money went. If the balance moved, say so. Brokers would rather see a smaller honest number than a larger stale one.

The amount has to fit the deal you are proposing. If your offer is $2 million all cash, the file should show you can write that check and still pay closing costs, working capital you may need to add, and a cushion for the first payroll. If your offer is $2 million with a bank loan and a seller note, the file should show the equity injection that lender will require, not the whole price. Lenders set that injection. It is their credit policy. It is not a single percentage written into federal law that you can recite for every deal. Ask the lender before you tell the seller a percent.

On a larger price the same rule gets stricter. A buyer who says "SBA will cover it" on an $8 million or $10 million company has not done the arithmetic. The 7(a) cap is $5 million. The rest is equity, another lender, a seller note, or a combination. How that stack is built is how buyers finance a $10 million acquisition when SBA cannot cover the check. Show the stack in the offer. A seller can accept a lower certainty of financing only if you have told them what the other pieces are.

A Financing Path That Matches the Price

Prequalification is about you. Approval is about you and this company. A lender can like your credit, your liquidity, and your experience, and still decline the business because the cash flow, the concentration, or the collateral does not work. Do not write "financing is approved" if what you have is a conversation that you are a plausible borrower.

For a Main Street acquisition that fits under the cap, the useful pre-offer step is a lender who has seen your personal financial statement and told you what equity injection and what cash-flow coverage they will look for. Bring them the confidential numbers only through the process the NDA allows. The SBA guide is the loan menu. Your lender is the one who says whether this company qualifies.

If the price is above what one 7(a) loan can fund, name the path in the letter. Buyer equity of a stated amount. A conventional lender or a sponsor. A seller note, with a term you can describe. An earn-out only if you can define the target. An earn-out you have not defined is not financing. It is a hope, and the earn-out structure is easy to write badly.

Say what happens if the loan comes in short. More of your cash. A larger note, if the seller will hold it. A lower price. A right for both sides to walk. A letter that says only "subject to financing," with no duty to pursue a loan and no consequence if the loan fails, is an option on the seller's company. Serious sellers decline it, or they shorten exclusivity until you have an indication. The binding and non-binding pieces of that letter are covered in the letter of intent on a $10 million sale. The same habits apply at $1 million. The dollars are smaller. The sequence is the same.

Have a personal financial statement that matches the proof of funds. Lenders use a standard form. Fill it out before you need it on a Friday. List the liabilities. A statement that shows the brokerage account and omits the home equity line is how a credit memo stalls in week three of exclusivity. You will sign it. Sign a true one the first time.

Who Will Run the Company on Tuesday

Every seller of a company that depends on the owner asks the same question: who does my job? Your offer should already have an answer.

If the answer is you, your resume belongs in the file. Industry experience, P&L responsibility, and a reason this company is the one you can run. A seller of a plumbing contractor wants to know you have managed crews or jobs, not only that you have capital. A seller of a professional firm wants to know whether licenses, credentials, or a transition of client trust are required before you can even hold the revenue. Put the gap on the table. "I will hire a licensed operator in the first ninety days, and here is the role" is a plan. Silence reads as a surprise the lender will also hate.

If the answer is the manager who already works there, say you intend to keep that person and that your price assumes they stay. You cannot promise their loyalty. You can show you have budgeted their compensation and that your model does not depend on firing them to "make the multiple work."

If the answer is a partner who will be the operator while you are the capital, that partner should be in the process before the offer. Their background, their time commitment, and their signature on the economics belong in the file. A capital partner who offers alone, and mentions an operator "we are still recruiting," is asking the seller to bet on a hire that has not happened.

This is also where your lifestyle has to fit the business. A company that requires the owner on site five days a week is a job as well as an investment. Buyers who live three states away and plan to "check in monthly" should say that, and should expect the seller and the lender to test it. Some businesses support an absentee owner. Many do not. The ones that do already have the manager. You will see that person in the org chart, or you will not.

The Entity, the Partner, and Who Signs

Decide who the buyer is before the letter goes out. You, personally. A new limited liability company. An existing company making an add-on acquisition. A partnership.

If the buyer is a new entity, you can still offer, but be ready to say who owns it and who guarantees the financing. Lenders often want a personal guarantee on a Main Street loan. A seller who is taking a note wants to know who is behind the signature. "We will form an LLC at closing" is normal. "We have not decided who the members are" is not.

If you are buying with a partner, write the economics down before you offer. Who puts in the cash. Who works in the business. Who has authority to sign the letter, the loan, and the purchase agreement. What happens if one of you wants out in year two. A one-page agreement between you is enough to stop the offer from being two different deals. You do not need every operating provision finished. You do need to know you are offering the same price.

Spouses belong in this conversation when the down payment is marital property or a lender will ask for a signature. Surprises at the commitment letter are how closings slip. Have the conversation at the kitchen table before you have it in a seller's conference room.

If the buyer is a company you already own, say whether this is a platform or an add-on, and whether the seller should expect to report to you or to a division manager. That single fact changes how an owner hears your offer. Owners who have run the company for thirty years hear "subsidiary" differently from "I will be on site." Use the word you mean.

Counsel and a CPA Before the Letter

Hire the lawyer and the accountant before you need them to rescue a draft. A general business lawyer who has closed company purchases will see the exclusivity clause, the financing condition, and the working-capital language. A lawyer who has not read a purchase agreement will treat the letter like a casual email. It is often not. Parts of it bind you the day you sign.

The CPA's job at this stage is narrower than a full quality-of-earnings review. They should tell you whether your model is using SDE or EBITDA, whether the add-backs you are accepting are the kind a lender will accept, and how a stock sale and an asset sale would treat you differently. Buyers often prefer assets so the tax basis steps up. Sellers often prefer stock. The price moves with that choice. Leaving it blank means someone else will choose it while you are exclusive. The two paths are stock versus asset sale.

You do not need a finished quality-of-earnings report before an offer on a small company. You do need to know that the offer is based on the tax returns and the recast you were shown, and that those numbers can still move. Say that in the letter. "Price is based on the seller's discretionary earnings as presented, and it will be confirmed in diligence" is an adult sentence. "This price is final" before you have seen a bank statement is how buyers end up stuck, or how sellers stop trusting the number.

Ask your counsel to read the draft before it goes to the seller. The expensive version of this meeting is the one that happens after you have already promised sixty days of exclusivity. The diligence guide is what the seller experiences on the other side of your signature. Read it so your timeline matches the work, not a calendar you invented to look decisive.

What the Offer Should Already Be Able to Say

When the file above exists, the letter is short. It should still be specific. These are the lines that separate an offer from a compliment.

Price, and the earnings it sits on. Name the number and whether it is enterprise value on a cash-free, debt-free basis. If you are offering a multiple, name the earnings. "$2.4 million, being 3.0x the $800,000 of SDE in the recast" can be checked. "$2.4 million" alone will be argued later when someone disagrees about add-backs.

Cash, debt you will not assume, and anything that is not cash. How much wires at closing. Whether there is a seller note, and the rough term. Whether any of the price is an earn-out. A seller can compare two offers only if both of them show cash at closing. An all-cash offer and a larger offer that is half a note are not the same check.

Stock or assets. Pick one, or say you will buy assets unless diligence shows a reason to buy stock, and that the price may change if you switch. Do not leave the line empty.

Working capital. You can say the peg will be set from a trailing average and confirmed by the accountants. You should not pretend the peg does not exist. A price that assumes you may sweep the operating account is not the price the seller heard.

What is outside the business. The building, if the seller owns it. Whether you want to lease it, buy it, or have no interest. A lease you have not thought about becomes a closing condition you cannot satisfy.

Exclusivity, as a request. Buyers often ask for 60 to 90 days. That is a request, not a rule. Match the clock to the work: lender diligence, a draft purchase agreement, and the questions you already know you have. Ask for a date. Do not ask for an extension you can take by sending an email.

Financing. Your equity. The lender you are talking to. What you will do if the loan is smaller. Your obligation to pursue it in good faith.

Who you may contact. Employees and customers are not your diligence team in week one. The seller will want those calls gated. Agree to that in the letter so you are not tempted later.

Which sentences bind. Exclusivity and confidentiality often bind. Price often does not. If you do not know which is which, you are not ready to sign your own letter. Have counsel mark your draft the same way you would want a seller to mark theirs.

A buyer who can fill those lines in one sitting is ready to offer. A buyer who needs a week to learn what a working-capital peg is should take the week. The seller will use it anyway.

Main Street Offers and Larger Offers Are Not the Same File

On a company a single SBA buyer can afford, the file is personal. Your credit, your liquidity, your resume, a lender who knows SBA acquisitions, and a plan to be on site. The seller is often comparing you to two or three other individuals. Speed and cleanliness matter as much as the last dollar. An offer that is complete will beat a higher offer that cannot name its down payment.

As the price moves toward the top of what one 7(a) loan can do, and then past it, the file becomes a capital structure. Sources and uses. Equity commitment. A second lender or a seller note with a real term. Sometimes a partner or a small fund. The seller is reading whether you understand enterprise value, debt, and the cash that has to be left in the business. The person across the table may be a business broker or an M&A advisor, and they will know the difference between a buyer who has done this once and a buyer who is describing a loan product they read about last night.

In both bands, the mistake is the same. Leading with a price to "get the conversation started," while the money, the operator, and the lawyer are still hypothetical. Sellers who have already lived through a failed exclusivity will not start another one for that. If you are early, send a shorter note: you have signed the NDA, you have the funds for a deal of this size, and you will offer after you have read the package. That note gets you the package. The offer comes next.

The Mistakes That Get an Offer Ignored

Buyers lose the process in a few repeatable ways.

They offer before the NDA, or they forward the financials to a friend, a lender, or an investor the agreement does not allow. The seller hears about it. The process ends.

They attach proof of funds that cannot be used. Retirement savings they have not cleared with a CPA. Equity in a house. A partner's account that partner has not agreed to pledge. The broker asks one follow-up question and the number shrinks.

They assume SBA will fund any price under a round number they remember from a podcast. The cap is $5 million on the 7(a) loan, and the business still has to qualify. A price above that cap with no second source is incomplete.

They forget the operator. The model works only if the buyer's salary is zero and the owner stays forever. Lenders do not underwrite that. Sellers do not believe it.

They ask for a long exclusivity with no milestones and no financing plan. The seller hears a free option. The answer is no, or the answer is a shorter clock.

They copy a letter from a different deal. The earnings definition, the state, the license, and the lease are not interchangeable. A letter that still has another company's name in it has happened. Do not let it be yours.

None of these requires you to be a professional buyer. They require you to assemble the file before you ask someone else to stop their life for your process.

Talk With Bridge Point

If you are preparing an offer, or you have found a company and you are not sure your file is ready, Bridge Point Business Brokers can tell you what a seller will ask for before you send the number. Start on the buyer page, with a confidential business valuation if you need the earnings side, or through M&A advisory. Contact us or call (352) 515-0226.