Should I Buy a Business in 2025? Multiples, Financing, and 180-Day Plan

Tue, Oct 28, 25

Should I Buy a Business in 2025? Multiples, Financing, and a 180-Day Plan

Buying an existing company can be a faster, less speculative path to entrepreneurship than starting from scratch. This guide answers the core question — is buying a business a good idea in 2025 — and gives practical tools to evaluate fit, value, financing, diligence, and execution.

Quick answer

Buying a business can be a good idea in 2025 if you can verify stable cash flow, pay a fair multiple, and finance conservatively. Start from scratch if you need a clean slate, lack industry fit, or cannot support the down payment and working capital.

Executive summary
Buying vs. starting
Self-assessment
Small business valuations and multiples
Financing your acquisition
Deal process and timeline
Due diligence
Asset vs. stock purchase and tax basics
The first 180 days
Returns and risks
Market conditions in 2025
Decision framework
Resources

Executive summary

When buying makes sense: You want immediate cash flow, a proven customer base, and usable systems; you have relevant operating skills and enough equity to secure financing; you prefer operating over inventing.
When starting may be better: You have a novel product, minimal capital, or a desire to build from a blank slate without legacy risks.
Key risks: Overpaying, hidden earnings issues, customer concentration, key‑person dependency, and weak controls. Diligence and conservative structure mitigate these.

Buying vs. Starting: Which is a better bet?

The case for buying: immediate cash flow, customers, and systems

An acquisition can deliver day‑one revenue, staff, processes, and vendor relationships. It can shortcut product‑market fit and accelerate your path to salary replacement and growth initiatives.

The case for starting: lower entry cost, higher upside, clean slate

Starting can require less initial cash, avoid legacy liabilities, and enable full control of vision and culture. The upside can be significant, though timelines to revenue and profitability are uncertain.

Risk comparison: survival rates and why existing cash flow matters

New ventures are fragile. According to the U.S. Bureau of Labor Statistics, about 80% of new establishments survive year one, about 50% survive five years, and about 35% survive 10 years. Acquiring an operating business does not eliminate risk, but verified, stable cash flow reduces go‑to‑market risk versus a startup.

Fit matters: operator vs. builder personality

Owner‑operators enjoy running teams, driving sales, and fixing processes. Builders prefer creating new products and markets. Align the path with your temperament and lifestyle goals.

Buying vs. starting: quick compare

Pros (Buying): Immediate cash flow; trained team; established customers and vendors; process maturity.
Cons (Buying): Higher upfront cost; legacy systems and contracts; integration and transition risk.
Pros (Starting): Clean slate; full control of culture and tech stack; lower initial spend possible.
Cons (Starting): Longer time to revenue; higher product‑market fit risk; limited initial resources.
Typical timeline: Buying often closes in 4 to 8 months; starting can take many months to first revenue.
Risk profile: Buying concentrates risk in valuation and transition; starting concentrates risk in demand validation and funding runway.
Cost profile: Buying requires equity plus debt service and working capital; starting requires seed capital and time, with uncertain burn.

Should you buy a business? A self‑assessment

Skills and experience

Industry knowledge: Understand demand drivers, seasonality, regulation, and competitors.
Leadership and sales/ops acumen: Comfort with hiring, pricing, customer retention, and workflow is critical.

Capital and risk tolerance

Down payment: SBA 7(a) loans typically require a minimum 10% equity injection (SBA).
Liquidity buffer: Maintain cash for working capital and surprises; leverage magnifies both returns and stress.

Time and commitment

Owner‑operator: Hands‑on daily leadership.
CEO with management team: More delegation, typically larger targets.
Search model: Raise equity to acquire and operate one company (see the Stanford GSB Search Fund Study).

Personal goals

Income replacement: Buy stable cash flow and protect it.
Growth and exit: Prioritize scalable markets and systems to expand multiples.

How small business valuations work (multiples 101)

SDE vs. EBITDA

SDE (Seller’s Discretionary Earnings): Owner salary and benefits added back to profit; common for Main Street deals.
EBITDA: Earnings before interest, taxes, depreciation, and amortization; used more as size and sophistication increase.

Typical multiples by size

Under $500,000 SDE: around 2.0x SDE (industry dependent).
$500,000 to $1,000,000 SDE: around 2.5x SDE.
$1,000,000 to $2,000,000 SDE: around 3.0x SDE or higher for quality assets.
$2,000,000 to $5,000,000 enterprise value: about 4.0 to 5.5x EBITDA.
$5,000,000 to $50,000,000 enterprise value: about 5.5 to 7.0x EBITDA.

Recent data from sources such as the BizBuySell Insight Report and the IBBA Market Pulse show median Main Street SDE multiples around 2.5 to 2.7x and revenue multiples near 0.6x, with size being a major driver of price.

Industry effects and indicative ranges

Home services: Many Main Street transactions cluster in the roughly 2.0 to 3.0x SDE range; recurring maintenance, strong reviews, and low capex can push higher (see IBBA and BizBuySell sector breakouts).
Professional services: Often around 2.0 to 3.0x SDE; documented processes and diversified clients support stronger outcomes.
Light manufacturing: Commonly underwritten on EBITDA at roughly 4.0 to 6.0x depending on customer concentration, backlog, and equipment condition.
Software (SMB/SaaS): Smaller firms may trade on SDE or revenue; durable growth and low churn can support above‑average EBITDA or revenue multiples. Ranges vary widely by scale and quality.

Sources: IBBA Market Pulse, BizBuySell Insight Report.

What moves a multiple

Up: Consistent growth, high margins, recurring or repeat revenue, diversified customers, documented SOPs, low owner dependence.
Down: Concentration, cyclicality, regulatory risk, weak or inaccurate financials, high capex needs.

Working capital and deal structure

Many deals include a normalized level of working capital at close. Shortfalls post‑close can strain cash. Define working capital targets, peg calculations, and post‑close true‑ups clearly in the purchase agreement.

Financing your acquisition

SBA 7(a) basics

The SBA 7(a) program supports acquisitions with long amortization and typically requires at least 10% equity injection (cash and/or qualified standby seller note per SBA SOP). See the SBA SOP and current SBA interest rate guidance for details. Interest rates change; confirm current caps and lender terms.

Debt terms and DSCR

Amortization: Often up to 10 years for business acquisitions.
Personal guarantee: Common with SBA‑backed loans.
DSCR targets: Many lenders underwrite at about 1.25x or more debt service coverage.

Simple DSCR example

Assume annual free cash flow available for debt service of $500,000.
Annual debt service (principal plus interest) equals $380,000.
DSCR equals 500,000 divided by 380,000, or about 1.32x. Lenders generally prefer a cushion above 1.25x.

Seller financing

Many Main Street deals include seller notes, often 10% to 20% of the price, which align interests and can support bank underwriting (see IBBA Market Pulse).

Equity sources

Personal cash and rollover equity.
Partners or investors (including entrepreneurship‑through‑acquisition funds).
Performance‑based earnouts in select cases.

Example capital stack

For a $2.0 million purchase: $1.4 million SBA senior loan, $300,000 seller note on standby, $300,000 buyer equity. Result: 15% equity and 85% debt‑like structure. Sensitivity‑test cash flow for interest rate changes and seasonality.

The deal process and timeline

Finding deals

Brokers and advisors: Explore IBBA‑affiliated intermediaries (IBBA).
Marketplaces: Review listings and closed‑deal data on BizBuySell.
Proprietary outreach: Direct contact to owners in targeted niches.

Evaluating targets: quick screen

Normalize SDE or EBITDA; validate add‑backs with source documents.
Check customer concentration, margin quality, churn or repeat rates, and backlog.
Confirm working capital needs and key‑person risks.

LOI to close

Financial review or quality‑of‑earnings assessment.
Legal diligence: contracts, licenses, liens, and compliance.
Financing, definitive documents, and transition planning.

Time‑to‑close often averages about 6 months in Main Street and about 8 to 10 months in the lower middle market (see IBBA Market Pulse).

Due diligence: avoiding landmines

Quality of earnings: Validate revenue recognition, seasonality, add‑backs, and tax consistency.
Customer and supplier concentration: Be cautious if a single party exceeds about 20% to 30% of revenue or supply; seek contracts or backups.
Key‑person risk: Plan transition, training, and non‑compete agreements.
Legal and regulatory: Licenses, zoning, HR and benefits, sales and use tax, environmental and safety exposures.
Operations: SOPs, tech stack, KPIs, inventory controls, data security basics, and insurance coverage.

Asset vs. stock purchase and tax basics

Asset purchase

Pros: Select assets and assumed liabilities; potential step‑up in tax basis and future depreciation; often preferred by buyers for risk isolation.
Cons: May require contract assignments, permit reissuance, new vendor accounts, and potential sales or transfer taxes depending on jurisdiction.

Stock purchase

Pros: Continuity of contracts, employees, and licenses; potentially simpler operational transition.
Cons: Buyer generally inherits more historical liabilities; more emphasis on indemnities, representations, and warranties.

Tax considerations (high level)

Purchase price allocation: Allocate among tangible assets and intangibles (including goodwill), which affects future depreciation and amortization.
Section 338(h)(10): In certain eligible stock deals, parties may elect tax treatment similar to an asset sale; consult qualified tax advisors and see IRS guidance on section 338 elections (IRS).
Indemnities and R&W: Negotiate survival periods, caps, baskets, and exclusions; representations and warranties insurance may be available in larger deals.

The first 180 days after close

Stabilize

Retain staff and customers; communicate clearly and often.
Secure vendor terms; manage cash weekly and monitor covenants.

Professionalize

Implement or upgrade accounting, CRM, and reporting dashboards.
Document SOPs, close controls gaps, and tighten permissions.

Grow

Improve pricing discipline and quoting accuracy.
Build a repeatable marketing and sales motion; align capacity and lead flow.

De‑risk

Diversify customers and suppliers; reduce single‑point failures.
Cross‑train roles and build a succession bench.

Returns and risks: what the data suggests

Buying at fair small business multiples and using prudent leverage can deliver strong equity returns, especially with operational improvements. Search fund research has reported long‑run aggregate pre‑tax IRRs in the mid‑30% range with significant dispersion and risk of loss (Stanford GSB).

Downside scenarios include overpaying relative to true earnings, losing a key customer or manager, or facing a cyclical downturn. Conservative underwriting and tight post‑close execution help mitigate these risks.

Market conditions in 2025

Seller supply: An estimated 2.9 million businesses are owned by baby boomers (55+) employing about 32 million people, implying an ongoing transition wave (Project Equity).
Valuation climate: Multiples remain bifurcated by size and quality; larger, diversified, systematized firms command higher prices.
Financing environment: SBA appetite and lender standards are active but sensitive to interest rates and DSCR; see the Pepperdine Private Capital Markets Project for lending trends.

Should you buy a business? A decision framework

Checklist: the five Fs

Fit: Skills match the business model and industry.
Financing: Clear path to down payment, SBA eligibility, and DSCR.
Findability: A realistic pipeline of targets and sourcing plan.
Feasibility: Verifiable SDE or EBITDA covers debt and salary with cushion.
Fallback: Contingencies if a key customer or manager leaves.

Go or no‑go scorecard

Must‑haves: Three or more years of stable or growing earnings; manageable concentration; clean legal standing; workable transition and training plan.
Red flags: Aggressive add‑backs, poor books, expiring contracts, unfunded working capital, heavy owner dependence.

Resources

Answering “should I buy a business?” requires aligning personal fit with verifiable cash flow, fair pricing, and disciplined execution. With the right target, structure, and 180‑day plan, buying a business in 2025 can be a compelling path to ownership and value creation.