Off-Market Business Acquisition: Buying A Business That Is Not For Sale

Why Buyers Go Off-Market

Listed businesses draw many buyers, and the best ones often get several offers. Off-market deals are different. The owner has not hired a broker, may not have a price in mind, and is talking only to you.

That brings real advantages:

• Less competition. You are not bidding against a dozen buyers.
• More time. You can learn the business and build trust with the owner before you talk numbers.
• Better fit. You choose the businesses you approach, so every conversation starts inside your buy box.

It also brings more work. Nobody has organized the financials, written a CIM or set the owner's expectations on price. You do that, with help from your advisors. Many buyers work off-market outreach alongside brokers and marketplaces, as described in how to find a business to buy.

Where To Find Off-Market Owners

Start with a list of businesses that fit your buy box, then narrow it down:

• Maps and directories. Search your target industry and area and build a list of companies with a website, a physical location and signs of a steady team.
• State business records. Secretary of State filings show how long a company has existed and who its officers are. A business formed decades ago often has an owner nearing retirement.
• Trade associations and suppliers. Members lists, trade shows and distributors who know which owners are slowing down.
• Professional advisors. CPAs, estate attorneys and wealth advisors often know clients who want to sell but have not said so publicly.
• Your own work history. Former employers, customers and vendors in your industry.

Prioritize owners who have run the business for a long time, have a team in place and run a business type lenders finance easily: profitable, with tax returns that show it.

How To Approach An Owner

Owners get unsolicited offers from private equity firms and aggregators all the time. Most ignore them. What works better is a short, personal note that sounds like a person, not a fund.

A good first letter or email:

1. Says who you are and why you want to own and run this kind of business.
2. Shows respect for what they have built, with something specific about their company.
3. Explains what happens to their people. Owners care about employees and customers, so say you plan to keep the team and the name.
4. Asks for a conversation, not a price. "Would you be open to a short conversation about your plans for the business?"

Follow up a few weeks later. Many deals start with an owner who said "not now" and called back a year later.

The First Conversations

When an owner says yes to a conversation, listen more than you talk. Learn why they built the business, what they worry about and what a good exit looks like for them. Price comes later.

Once there is real interest, ask for the financials. Most owners have never prepared a business for sale, so be specific:

• The last three years of business tax returns
• Year-to-date profit and loss and balance sheet, and the same period last year
• A list of personal or one-time expenses run through the business, with support
• Basic staff details: roles, tenure and pay
• The lease, or the details of any real estate the business owns

Offer to sign an NDA so the owner feels safe sharing. If the owner's books are messy, suggest they ask their CPA to tidy them up. Clean numbers help them get a better price and help you get financed.

The SBA Rules Still Apply

Buying without a broker does not change how the lender underwrites the deal:

• Independent valuation. The lender orders a business valuation from a credentialed appraiser, prepared for the lender. If the price is above what it supports, the difference comes from more Down Payment.
• Verified earnings. The seller's financials are checked against IRS transcripts, and the lender tests the cash flow at a debt service coverage of at least 1.25.
• Seller exit. In a standard purchase, the seller cannot stay as an owner, officer or employee. They can consult for up to 24 months in total.
• No earnouts. SBA does not allow seller earnouts. A seller note on full standby is the usual tool for bridging a gap. See earnouts and SBA loans.
• Down Payment. At least 10% of the total project cost, and it cannot be waived on an Initial Acquisition.

When The Owner's Price Is Above The Valuation

Off-market owners often start with a number based on a friend's sale or a rule of thumb. Before you respond, anchor the conversation in the business's verified earnings. Walk the owner through how buyers and lenders look at value: the cash flow the tax returns support, a fair salary for whoever runs the business, and a multiple that reflects size and risk. Our guide on how to value a business covers the methods.

It also helps to explain the independent valuation early. The owner is not negotiating only with you. Whatever price you agree on, a credentialed appraiser working for the lender has to support it. If the lender's valuation comes in lower, the extra has to come from equity, not the SBA loan.

You have three ways to close that gap: negotiate the price down to the valuation, bring more cash, or ask the seller to carry the difference. SBA allows extra seller financing for a price above the valuation, but it must be on full standby, with no payments for the life of the SBA loan. Read more in negotiating price and terms and seller notes on full standby.

Buying From Your Employer Or A Family Member

Many off-market deals involve someone the buyer already knows. A few rules change in these cases:

• Employees with 24 months or more. If you have worked at the business for at least 24 months and are buying 100% from a single owner, SBA treats it as an Owner Buyout, not an Initial Acquisition. For Owner Buyouts the lender may reduce or even eliminate the Down Payment when the business has enough liquidity and working capital, and no Quality of Earnings report is required. See partnership and owner buyouts.
• Under 24 months. If you have worked there for fewer than 24 months, it is an Initial Acquisition with the standard rules.
• Close relationships. On very small deals, a lender can value the business itself when the Business Purchase Price is $350,000 or less, but not when there is a close relationship between buyer and seller, such as family.

Build Your Deal Team Without A Broker

Without a broker, nobody is managing the process but you. Put a small team around the deal early: a CPA for the financials and taxes, an attorney for the letter of intent and purchase agreement, and a financing partner who knows SBA acquisitions. This is general information, not legal or tax advice.

Encourage the owner to have their own CPA and attorney too. A seller with good advice usually moves faster and has fewer second thoughts near closing. Once you agree on terms, put them in a letter of intent with a financing contingency, a due diligence period and exclusivity, so the owner does not start shopping your offer to other buyers.

We help off-market buyers get pre-qualified before they approach owners, review the numbers when they arrive, and take the deal to the lenders that fit. Learn more on our SBA business acquisition loan page.

Real loans we placed. Borrower and lender names are kept private. See all closed deals.