Evaluating a Business for Purchase: What Buyers Must Know

Buying a business is one of the most significant financial decisions you will ever make. Unlike purchasing real estate or stocks, acquiring a private company requires you to verify every claim the seller makes — from revenue to customer relationships to the actual condition of equipment and leases. There is no MLS, no audited financials filed with the SEC, and no standardized disclosure form.

At CBH Business Group, we work with buyers every day across Florida's lower-middle market — businesses doing $1M to $30M in revenue. We have seen deals die on the diligence table because buyers moved too fast, and we have seen buyers walk away from legitimately strong businesses because they didn't know how to read the numbers. This guide gives you the framework to do it right.

Step 1: Gather the Right Financial Documents

Before you evaluate anything else, you need the right source documents. Many sellers will hand you a broker-prepared recast P&L or a one-page seller summary. These are starting points, not endpoints. The documents you actually need are:

• 3 years of federal business tax returns (Form 1120, 1120-S, or Schedule C) — These are the hardest documents to fabricate. If reported income on the returns doesn't reconcile with what the seller claims, stop and ask why.
• 3 years of internally-prepared P&Ls — Monthly is better than annual. Look for consistent revenue patterns, seasonal trends, and gross margin stability.
• 12 months of bank statements — Deposits should match reported revenue within a reasonable margin. Cash-heavy businesses — restaurants, retail, service — require especially close scrutiny here.
• Accounts receivable and payable aging reports — Stale receivables (90+ days) signal collection problems. Large payables owed to vendors may indicate the seller is stretching payments ahead of the sale.

If a seller is reluctant to provide tax returns early in the process, that is a significant red flag. Legitimate sellers — and their advisors — expect this request from any serious buyer.

Step 2: Calculate and Normalize EBITDA

Once you have the financials, your next job is to calculate EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — and then normalize it. This is the number that drives valuation in private M&A transactions.

Normalization means adjusting reported earnings to reflect what a new, arms-length owner would actually earn operating the business. Common add-backs include:

• Above-market owner compensation (if the owner is paying themselves $300,000 but a replacement manager would cost $120,000, add back the $180,000 difference)
• One-time expenses that won't recur (legal fees for a resolved dispute, non-recurring equipment replacement, a one-time marketing push)
• Personal expenses run through the business (vehicle, phone, personal travel)
• Related-party transactions not at market rates (owner rents the building to the business at above or below market rent)

Be appropriately skeptical of large add-back stacks. A seller who normalizes EBITDA from $400,000 to $1.2M with $800,000 in adjustments needs to explain every dollar with supporting documentation. Ask for backup on every line item.

Step 3: Apply an Industry-Appropriate Multiple

Once you have a clean EBITDA figure, apply an industry-appropriate multiple to establish a fair value range. Florida's lower-middle market follows national private-equity benchmarks with some nuance driven by local buyer demand and industry mix. Well-run businesses with recurring revenue and strong management teams trade toward the top of their range. Businesses with owner dependency, customer concentration, or revenue volatility trade toward the bottom — or below it.

Use the CBH Business Valuation Calculator to run a quick estimate on any business you're evaluating. It won't replace a full quality-of-earnings analysis, but it gives you a defensible starting range in under five minutes.

Step 4: Identify and Quantify the Key Risk Factors

Valuation is only part of the evaluation. The more important question is whether the risks embedded in this business are quantifiable and manageable. The four risk areas that kill or restructure the most Florida acquisition deals are:

Customer concentration. If 20% or more of revenue comes from a single customer, you are buying customer dependency, not a stable business. This is not always a dealbreaker — but it typically justifies an earnout or escrow structure where a portion of the purchase price is contingent on post-close retention of that customer relationship.

Owner dependency. If the seller is the primary relationship holder for major accounts, the technical expert for key processes, or the public face of the brand, proceed carefully. Ask specifically: "What would happen to this business if you were unavailable starting day one after closing?" The answer tells you more than a full year of financial statements.

Lease and vendor risk. Review all material contracts before you sign a purchase agreement. Is the commercial lease assumable? Is it up for renewal in 12 months? Are there key vendor relationships that require seller guarantees or expire on change of ownership? Unassumable leases and single-source vendor dependencies are among the most common sources of post-close value destruction.

Regulatory and licensing exposure. In Florida, many service businesses operate under state or county licenses that do not automatically transfer on sale. Confirm the license transfer situation before you are deep into a deal. HVAC, electrical, plumbing, healthcare, and childcare businesses are particularly sensitive here — a license issue discovered late in the process can add months to the timeline or blow the deal entirely.

Step 5: Run a Structured Due Diligence Process

Due diligence is not a checklist — it is an investigation. Most buyers underinvest in operational and customer diligence and overinvest in legal review. A clean legal package does not protect you if the top salesperson resigns on day 31 or the largest customer doesn't renew because they had a personal relationship with the seller, not the business. A well-structured process covers six areas:

• Financial — Reconcile reported revenue to tax returns, verify each EBITDA adjustment, review working capital requirements and seasonality
• Legal — Review all contracts, confirm no pending litigation, validate IP ownership, check for UCC filings and liens on assets
• Operational — Visit the facility in person, interview key employees (with seller permission), assess equipment condition and technology dependencies
• Human resources — Review compensation structure, identify key-person risk, understand turnover history and team culture
• Customer — Review the top 10-20 customer relationships, confirm contract terms, understand renewal dynamics and relationship ownership
• Environmental and regulatory — Particularly for manufacturing, construction, auto repair, and food-service businesses operating in Florida's regulated environment

Step 6: Negotiate Working Capital and Deal Structure

The purchase price is only one component of the acquisition. Working capital — the cash, receivables, and inventory required to operate the business from day one — is equally important and frequently overlooked by first-time buyers.

Most deals include a working capital target called a "peg" that specifies how much normalized working capital transfers with the business at closing. If working capital at close is below the peg, the seller pays a true-up. If it is above, the buyer pays more. Buyers who don't negotiate this mechanism carefully often find themselves funding operations out of pocket in the first 30 to 60 days because the seller swept cash before the closing date.

Deal structure also matters for managing risk. In transactions with significant uncertainty — high owner dependency, large customer concentration, pending regulatory approvals — an earnout can bridge the gap between what a seller believes the business is worth and what a buyer can confidently commit to. Seller financing is common in Florida's lower-middle market and typically signals seller confidence that the business will service debt post-close.

If you are evaluating a business to acquire in Florida, start with our free business valuation calculator to understand what fair value looks like for the industry you're targeting. For a more detailed conversation about available deals in our pipeline or guidance on evaluating a specific acquisition, contact CBH Business Group or call us directly at (407) 908-3845. We match qualified buyers with pre-vetted Florida businesses across every industry we serve. Visit cbhbusinessgroup.com/resources for additional acquisition guides and market data on Florida deal activity.