Direct Derek - Buying Businesses

The Best Small Business That Never Reaches BizBuySell

2026-05-21T00:00:00+00:00

A marketplace search produces a clean inventory of businesses for sale: industry, location, asking price, revenue, cash flow. Everything sits in the correct column.

Every result also shares one prior decision. The owner has agreed to become visible.

That condition excludes the auto-repair owner who worries a public listing will unsettle employees. It misses the operator who might sell, but only to someone trusted not to disturb customers. It also misses owners who have considered leaving but never contacted a broker.

There is no confidential information memorandum, asking price, saved-search alert or listing ID. The business may be transferable under the right conditions, but the owner has not declared it inventory.

If willingness emerges only through a discreet relationship, what exactly is the search box supposed to index?

Too important for one buyer, too small for a fund</h2>
The capacity question comes first.
BizBuySell reported a median sold price of about $320,044 in the third quarter of 2025. In surrounding periods the figure was closer to $345,000–$350,000. For 2025, the median sold business generated approximately $703,000 of revenue and $158,950 of cash flow.
One acquisition at that size can rearrange an individual buyer’s finances. It barely qualifies as administrative debris to a fund that needs to deploy serious capital.
The diligence burden does not shrink neatly with purchase price. A $320,000 business can still have customer concentration, deferred capital spending, weak records and an owner performing several undocumented jobs. Each problem requires attention even if the enterprise value would disappear inside an institutional portfolio’s rounding policy.
The buyer mix reflects that reality. BizBuySell's Q1 2025 buyer survey found 59% of prospective buyers had never owned a business, and 46% described themselves as corporate refugees; serial entrepreneurs were about 15%. These are mainly individual operators, not private-equity firms wearing smaller shoes.
An individual needs to untie one operational knot. A fund would need hundreds of them.

The visible market measures declared supply</h2>
BizBuySell tracked 2,368 closed transactions in the first quarter of 2025 and 2,599 in the third quarter. Those are marketplace-tracked transactions, not every U.S. small-business transfer and certainly not a count of buyers.
There is no reliable denominator for the full off-market universe. Confident claims about the percentage sold privately should therefore be handled with gloves.
Even declared supply struggles to clear. A figure repeated throughout the exit-planning industry holds that roughly 80% of listed businesses fail to sell within twelve months. It traces to the Exit Planning Institute rather than to any published dataset, and should be treated as folklore with a plausible direction rather than a measurement. A listing creates a sale process, but the underlying business still has to be transferable at a price someone will pay.
Public marketplaces reduce search friction. Buyers can sort inventory, compare asking prices and review broker packages at the same time. That convenience draws more eyes to the same businesses, especially when a listing arrives with a polished memorandum, professional photographs and organized financial information.
Competent presentation deserves respect. It should not be confused with operating performance.
A polished package shows the seller or broker knows how to market an asset. A weak package may conceal bad records, or it may reflect someone who repairs plumbing better than PDFs. Cash flow remains stubbornly indifferent to font choice.

Proprietary search is paid for with time</h2>
Off-market sourcing begins before the first owner contact. Criteria have to be narrow enough to make a response useful: industry, geography, business size, the owner’s operating role and the presence or absence of recurring revenue.
Then comes the unglamorous part. Build a list of owners outside active listings. Contact them directly by email, telephone or mail. Follow up more than once, because readiness changes and “not now” is a more common answer than anything resembling a deal.
The first conversation is not an invitation to announce a multiple. It tests whether a transaction is conceivable. Would the owner ever sell? What timing might matter? Who must not know yet—employees, customers, competitors or someone else entirely?
Only then can a real sequence begin:

Establish credibility.</li>
Obtain and examine the records.</li>
Normalize earnings.</li>
Test whether customers, staff and operations will transfer.</li>
Discuss price and structure.</li> </ol>
A listed buyer selects among owners already advertising. A proprietary buyer searches for an owner who may become willing.
The cost is rejection, repeated contact and uncertain timing rather than auction competition. Most names remain a firm “no”; a smaller number become “not yet,” and perhaps one eventually reaches “possibly.” That is where the actual work starts. Calling a spreadsheet proprietary does not make it so, nor does swapping an owner’s first name into a mail merge.
Access does not suspend arithmetic</h2>
Main Street businesses are generally valued using seller’s discretionary earnings, or SDE. The calculation starts with net profit, then adds the owner’s salary, perks and defensible discretionary or non-recurring expenses.
“Defensible” carries most of the weight. Sellers tend to discover add-backs with the enthusiasm of archaeologists finding a new civilization.
The basic mechanic is straightforward:
Estimated value = normalized SDE × appropriate multiple
Across industries, the average multiple for sold businesses in 2024 was approximately 2.57 times SDE. BizBuySell reported businesses closing at a median of 94% of asking price in 2025 — a median dominated by listings that actually sold, which says nothing about the larger population that never cleared.
Do not combine a median cash-flow figure from one period with a median sale price from another and call the result representative. Different samples can produce a ratio that looks precise while describing no actual business. The records have to survive on their own.
An off-market owner may have no asking price and no urgency. That can eliminate an auction, but it can also eliminate any reason to accept a discount. Evidence is still needed for the earnings, every owner add-back and the condition of the operation after the seller leaves.
Financing deserves the same caution. The IBBA and M&A Source Market Pulse survey for Q3 2025 put cash at close between 81% and 88% depending on deal size. Seller financing or earnouts fill much of the remaining 12%–19%. A direct relationship may help two parties negotiate those terms; it does not obligate the seller to finance a buyer’s optimism.
Discretion and concealment initially look alike. An owner may avoid listing to protect employees and customers. The same silence can cover concentrated revenue, deferred capital spending or earnings that vanish when the owner stops answering the telephone. Owner dependence is consistently named among the leading reasons small-business sales collapse, though the specific percentages circulating in advisory marketing do not trace to a published study.
A business wholly dependent on its seller may be employment wearing an acquisition multiple. After access is granted and the add-backs are stripped out, what cash flow remains?
The edge has a small carrying capacity</h2>
Owner availability behaves the way effective float does. The total number of businesses is not the usable supply. What matters is the much smaller group of owners who are willing, able and eventually ready to transact.
One buyer can hold a handful of genuine conversations at a time. A national outreach machine is a different thing entirely, and it works by replacing patience with automation. Patience is also not a repair tool: it will not fix bad records or make owner-dependent earnings transferable.
Crowding accelerates the decay. Search funds and acquisition entrepreneurs have professionalized outreach in popular essential-service verticals, including HVAC. The more buyers repeat the same promises of discretion and stewardship, the less proprietary their approaches become.
This method works for a small buyer because one successful relationship can be enough. Large pools of capital need repeatable volume, while the very conditions that produce these openings—tiny deal sizes, uncertain timing and one-to-one trust—resist scale.
The search page eventually runs out of results. Somewhere beyond it sits one operating business, one undecided owner and no listing, because the owner has not yet agreed to become inventory.

Seller Financing as a Test of the Owner’s Confidence

2026-05-17T00:00:00+00:00

Two businesses each carry a $400,000 asking price and report $150,000 of seller’s discretionary earnings, a valuation near 2.7 times SDE.
Seller A wants every dollar at closing.
Seller B accepts $300,000 at closing and carries a $100,000 note for six years, subordinated to the senior lender.
The valuations match on paper, but the two sellers are not promising the same thing.
Seller B leaves 25% of the purchase price exposed to the owner’s departure, customer handoffs, operating mistakes and senior debt service. They can still be wrong about all of it, but they are paying to express the opinion.
Add-backs and “durable customer relationships” cost nothing to defend across a conference table. A subordinated note puts the claim in the payment queue. At closing, one seller takes the wire and leaves. The other waits on the cash flow they just sold.
Why the signal exists down here</h2>
In 2025, BizBuySell's tracked broker transactions showed a median sale price of approximately $350,000, with median SDE of about $158,950 — a broker-reported sample rather than a census. The average cash-flow multiple was 2.61 times, and the median transaction took roughly 170 days to close.
Those numbers describe a structurally awkward market. A business producing $150,000 of SDE is usually too small to absorb institutional diligence, legal and monitoring costs. Fixed transaction expenses do not become charming merely because the target is inexpensive, and a fund would spend roughly the same six-figure process cost here as it would on a deal a hundred times the size.
The same business is often too operational for passive capital. SDE adds back the owner’s salary, benefits and discretionary expenses because the buyer is expected to replace the owner. If the plan is to hire a manager instead, some of the advertised cash flow immediately acquires a payroll number.
That leaves a narrow buyer pool: individual operators willing to accept illiquidity, run the company and use acquisition debt. The seller knows which customers belong to the business and which belong to them personally. The buyer sees tax returns, contracts and explanations assembled after the fact.
Seller financing pushes some of that information asymmetry back onto the person who holds the information. The question worth asking is how much of their own valuation the seller will finance, for how long and behind whom.
Standby has a specific meaning</h2>
The SBA 7(a) program supplies much of the financing plumbing at this end of the market. The maximum loan is $5 million, with SBA guaranty exposure capped at $3.75 million. For loans above $150,000, the guaranty is up to 75%, and a standard business-acquisition term can extend to ten years.
Under SOP 50 10 8, effective June 1, 2025, a complete change of ownership requires an equity injection of at least 10% of total project cost. A seller note can satisfy no more than half of that requirement, capped at 5% of total project cost, and the qualifying note must remain on full standby for the life of the SBA loan. No principal or interest gets paid during that period.
On a $400,000 project, the minimum injection is $40,000. At most $20,000 can come from a qualifying standby seller note; the other $20,000 must be buyer cash. A larger note can sit outside the required injection as additional subordinated financing, subject to the deal’s debt-service capacity.
“Seller financing available” is a listing checkbox; the useful information sits in the note’s terms.
Read the whole confidence dial</h2>
Start with the amount. A token note equal to 5% of the price creates less exposure than one covering 25%. Neither proves confidence, but they are not equivalent commitments.
Then read maturity. A seller exposed for six months is mainly underwriting the handoff. A seller exposed for six years remains dependent on customer renewals and the business’s ability to function after they leave. Industry sources put the typical note somewhere in the five-to-seven-year range at roughly 8% to 10%, though the underlying data is broker-reported rather than measured.
Amortization shows how quickly that exposure disappears. Immediate principal payments can return much of the seller’s money before the buyer sees a normal operating year. Interest-only periods and balloons distribute the risk differently, even when the face amount is identical.
Standby determines when payment is prohibited. Full-life standby behind a ten-year SBA loan leaves the seller’s capital exposed far longer than a brief payment holiday. Subordination controls the queue: the senior lender gets paid first, and the seller collects afterward.
Take a $100,000 note amortized over six years at 8%. Annual debt service is roughly $21,000. The interest rate is the loud number, so it attracts the discussion. The payment waterfall matters more. That $21,000 comes after senior debt and must be measured against cash flow after replacement labour, maintenance spending and working-capital needs — not against the full $150,000 of advertised SDE.
The customer pays the business, the business pays the bank, and the seller waits.
Resistance is a diligence map</h2>
Resistance to a proposed note is not an accusation. It is a way to locate the assumption that needs more work.
If the seller resists a maturity extending beyond a major contract renewal, check renewal history, termination rights and who owns the relationship: the company or the departing owner. If they want repayment completed before transition support ends, test whether revenue survives without their involvement. If they will finance tangible assets but not goodwill, isolate how much of the price depends on transferable earnings.
If they reject financing tied to claimed add-backs, strip those add-backs out and rerun the coverage.
A large balloon deserves the same scrutiny. It lowers current payments by pushing risk toward a date when refinancing may become necessary, which can be sensible structuring but does not make the risk disappear. It moves the appointment.
SDE also needs correction before it can be used for debt capacity. If the departing owner performs work the buyer cannot or will not perform, deduct market-rate replacement compensation. If one customer supplies 35% of revenue, the proposed note should stay outstanding through that customer’s next renewal. Advisory rules of thumb put the multiple haircut for concentration at that level somewhere around half a turn to two turns, but those are practitioner heuristics rather than measured coefficients. The concentration itself is not a heuristic.
What changes in year three that makes year two acceptable and year four impossible?
Confidence can be sincere and wrong</h2>
An owner can refuse seller financing for a straightforward reason: they want a clean exit. They may also distrust the buyer, which is not irrational. A buyer’s willingness to purchase a business does not establish that the buyer is more competent than the person leaving it.
The reverse is equally dangerous. A large seller note can reflect confidence, or it can reflect a thin buyer pool and an owner who overestimates how well their relationships will transfer. Two people can agree enthusiastically on the cash flow and still be wrong together. The note merely determines whose capital absorbs the error first.
It cannot replace tax returns, bank statements, contracts, payroll records, customer histories or working-capital analysis. A seller’s willingness to support their own number is not a reason to accept debt the business cannot carry. The note is evidence, not insurance.
It is also worth admitting what this framework cannot see. The confidence dial reads the terms a seller will accept, and a seller accepts terms for reasons that have nothing to do with the numbers — a health event, a divorce, an heir who finally said no, a broker who told them what the market expects. The signal is real and it is also contaminated, and no amount of arithmetic separates the two.
Leave uncertainty with the informed party</h2>
The all-cash seller is not automatically rejected and the one carrying $100,000 is not automatically approved. The proposed terms are used to find the specific claim they will not finance, verify it independently and reprice or restructure around what that verification turns up.
Debt capacity gets sized against distributable cash flow after the owner has been replaced and the business maintained. Advertised SDE is the opening submission. The seller brings years of operating memory; the buyer brings months of diligence; the senior lender takes the first claim.
Before all the proceeds leave on closing day, the question is why none of the purchase price can remain exposed through the first difficult renewal. Once the transition calls stop and the bank begins collecting, the balance still owed to the seller tells you how much of their certainty survived contact with the terms.