Most people who dream of being their own boss think they need a brilliant new idea first. A new app. A new product. Something nobody has ever seen.
Here’s the good news: you don’t. Thousands of solid, profitable small businesses already exist, and many of their owners are ready to retire. You can buy one that already has customers, staff and cash coming in, and then make it better.
That’s the big idea behind Buy Then Build by Walker Deibel, a book about what he calls acquisition entrepreneurship. That’s a fancy name for a simple plan: buy a business that already works, then grow it. I’m Damon Nelson. I have built marketing software for more than twenty years, and this is one of the most practical paths to owning a business I know of. Here are the five lessons that matter most, in plain English.
1. Starting from scratch is the hard way
When you start a brand-new business, you fight two battles at once. You have no customers yet, so you’re guessing what people will buy. And you have no income yet, so your savings shrink every month while you figure it out. Many new businesses don’t survive that squeeze, and only a small share ever reach a million dollars a year in sales.
Buying an existing business skips that whole stage. On the day you take over, you already have:
- Paying customers who already like what the business sells
- A product or service that works, proven over years, not weeks
- Systems and people that keep things running every day
- Money coming in from the very first month
| On day one | Start from scratch | Buy a running business |
|---|---|---|
| Customers | None yet | Already buying |
| Income | Zero, and you’re paying the bills | Coming in from month one |
| Proof it works | A hunch | Years of sales records |
| Your main job | Find out if anyone wants it | Make a working business better |
2. You may need less cash than you think
Most people assume buying a business takes millions of dollars in the bank. Often it doesn’t.
In the United States, the Small Business Administration, or SBA, backs a loan program called the SBA 7(a) loan. For buying a whole business, these loans generally require a down payment of about 10 percent of the price, and part of that can sometimes come from a loan from the seller. The bank lends the rest, and the business’s own profits make the loan payments.
That sets up three ways a good business pays you back:
- It pays you a salary. You run the business, and it pays you from the first month.
- It pays off the loan. Every month, customer sales chip away at the debt, so you own more of the business over time.
- It grows in value. When you improve the business, it becomes worth more if you ever decide to sell.
That third point is where people like you have a big edge. Many older businesses still run on paper, phone calls and word of mouth. Adding simple automation, a better website and basic online marketing can lift sales without a huge budget. That’s the “build” part of Buy Then Build.
One honest note: a loan is still a loan, and rules change. Before you make any move, talk with an SBA lender, an accountant and a business attorney about your own situation. This post explains the idea. It isn’t financial or legal advice.
3. Look past the tax return to find the real profit
Small business owners work hard to pay as little tax as the law allows. They write off every business expense they can. So if you judge a business only by the profit on its tax return, it might look like it barely makes money.
To see what the business really earns, buyers use a number called Seller’s Discretionary Earnings, or SDE. It shows how much money one full-time owner actually gets out of the business each year. You start with the profit on the tax return and add back a few things:
- The owner’s salary, because that money goes to whoever runs the place, which will be you
- Depreciation, an accounting cost for equipment wearing out that isn’t cash leaving the bank that year
- Loan interest, because your loan will be different from the seller’s
- One-time costs, like a lawsuit or a big roof repair that won’t happen again
- Personal perks the owner ran through the business, like a car lease or health insurance
Here’s a simple example with made-up numbers, just to show how the math works:
| Line | Example amount |
|---|---|
| Profit on the tax return | $30,000 |
| Add back: owner’s salary | + $90,000 |
| Add back: depreciation | + $25,000 |
| Add back: loan interest | + $15,000 |
| Add back: one-time roof repair | + $20,000 |
| Add back: owner’s car lease and health insurance | + $20,000 |
| Seller’s Discretionary Earnings (SDE) | $200,000 |
A business that looked like it made $30,000 actually puts about $200,000 a year in the owner’s hands. Every add-back has to be proven with records, though. Deibel’s rule is to buy for the future but only pay for the past. In other words, pay for what the business has already earned, not for what you hope it will earn someday.
4. Do the math before you start shopping
The biggest beginner mistake is to look at your savings and treat the whole amount as your down payment. If you put every dollar into the deal, you’ll have nothing left when a surprise bill shows up in month two.
Deibel lays out a simple budgeting method to prevent that, which Zack Liu’s summary of the book calls the “Nancy Math.” It works in four steps:
- Set aside money for closing costs, like attorney fees, bank fees and an accountant’s review of the books.
- Set aside a cash cushion for the business, so a slow month or surprise expense doesn’t sink you.
- What’s left is your real down payment. With a 10 percent down loan, multiply it by ten to get the most you could pay for a business.
- Divide that price by the usual small business price range, which is often about 2.5 to 3.5 times SDE. That tells you how much yearly SDE to look for.
Here’s an example, again with made-up numbers:
| Step | Example |
|---|---|
| Your savings | $150,000 |
| Minus closing costs | − $25,000 |
| Minus cash cushion | − $25,000 |
| Your real down payment | $100,000 |
| Highest business price (down payment × 10) | $1,000,000 |
| SDE to look for (price ÷ 3.5 to 2.5) | About $285,000 to $400,000 a year |
Now you know exactly what to search for. You won’t waste months looking at businesses you can’t afford, or tiny ones that can’t pay you a real salary. Keep in mind that the bank will also check that the business earns comfortably more than the loan payments, so your final number may come in lower.
5. Write down exactly what you’re looking for
Deibel says that being vague is what slows buyers down the most. Before you look at a single listing, write a short “target statement” that spells out the business you want. Cover these points:
- Industry: the kinds of businesses you understand or would enjoy running
- Size: the SDE range from your math in step four
- Location: where you live, or whether the business can be run from anywhere
- Your role: whether you want to run it every day or oversee a manager
- Deal breakers: anything you won’t accept, like one customer bringing in half the sales
With that one paragraph in hand, you can say yes or no to most listings in a minute. Business brokers, the people who help owners sell, also take you more seriously when you know what you want.
Buy the engine, then make it faster
You don’t need a world-changing idea to escape the nine-to-five. You need a steady business, honest numbers and a plan to make it better. A plumbing company, a cleaning service or a local print shop can be a far better path to freedom than an app nobody downloads.
And the “build” part is where your skills shine. Bring modern marketing and automation to a business that has never had them, and you turn a good company into a great one.
This post is based on Zack Liu’s Solopreneur Lab article You Don’t Need a Disruptive Tech Idea to Escape the Corporate Grind, which walks through Walker Deibel’s Buy Then Build in more detail. The book is well worth reading before you make an offer on anything.
Want more plain-English guides like this one? Join the Pit Crew, my weekly email. One email a week, no pitch parade.
