Buying a business felt like cheating. Everything we had built took years — customers won one at a time, staff trained slowly, systems assembled out of nothing. Here was a company doing the same thing we did, in a region we did not cover, with an owner who wanted out and a price that looked, on the face of it, entirely payable.
We got as far as signing heads of terms, instructing solicitors and lining up the funding. Then we spent a week actually looking at it properly, and walked away. That week cost us several thousand pounds in fees and about two months of attention. It remains one of the better investments we have made.
Why buying looked smarter than building
The logic was sound and I would use it again. Organic growth into a new region meant hiring people who did not know the work, in a place where nobody knew our name, and waiting eighteen months to find out whether it worked. Buying an existing operation meant customers, staff, a known name and revenue from day one.
The seller was straightforward about wanting out — approaching retirement, no family in the business, tired. That is the healthiest reason a small business goes up for sale, and far better than the ones where the owner is fleeing something that has not surfaced yet.
What the seller actually showed us
The pack we received was professionally put together. Three years of accounts, a customer list with revenue by account, a staff schedule with salaries, and a summary page with the number the whole thing hung on: adjusted EBITDA of £140,000. The asking price was £420,000. Three times adjusted profit, for a business with real customers and a real order book, in a sector we understood.
The word doing all the work in that sentence is adjusted. Every business for sale is presented on adjusted profit, and the adjustments are where the negotiation actually lives. They are not dishonest — a seller is entitled to show what the business would look like in a buyer's hands rather than in theirs — but each one is an argument, and every argument deserves testing.
The add-backs that made the profit disappear
Working through it line by line, illustratively:
The owner's salary of £45,000 had been added back, on the basis that the buyer would not be paying it. Reasonable in principle. Except the owner was working full time in the business, quoting jobs and managing the team, and replacing that with a manager would cost around £42,000 including employer's National Insurance and pension. So £42,000 of that £45,000 add-back was not a saving at all. It was a job that still needed doing.
A £12,000 rebrand had been added back as a one-off cost. It had also appeared, under a slightly different description, in each of the two preceding years. A cost that happens every year is not a one-off, whatever the invoice calls it.
There was £9,000 of vehicle and travel costs relating to the owner personally. That one was a genuine add-back, and we allowed it in full.
Run it through and the £140,000 becomes roughly £95,000 of maintainable profit. At the same three times multiple the seller had applied, that is a business worth about £285,000, not £420,000. Same accounts, same multiple, a £135,000 difference — entirely in the adjustments.
Every business for sale is priced on adjusted profit, and every adjustment is an argument. Test each one against a simple question: after you own this, does that cost genuinely go away?
The thing that actually killed it
The valuation gap alone would not have ended the deal. Gaps like that get negotiated, and we would have gone back with £290,000 and a chunk of it deferred.
What killed it turned up in the contracts. The business bought the bulk of what it resold from a single supplier on preferential terms built up over fifteen years, and that arrangement contained a change-of-control clause. On a sale of the company, the supplier could terminate. Not would — could. Nobody had asked them.
When we modelled the same business buying at standard trade prices instead of the preferential ones, the maintainable profit fell to around £60,000. So the actual question was not what the business was worth. It was whether we were buying a business or buying a conversation with a supplier who held all the cards and knew it.
Underneath that sat a second problem the customer list had been hiding. The three largest accounts, worth a little over a third of revenue between them, had been won and were still managed by the owner personally. Their loyalty was to a man who was leaving, not to a company that was staying. The paperwork transferred perfectly; the relationships were never the seller's to sell.
What it cost us to walk away
Roughly £6,000 in legal and accountancy fees, and two months in which I was substantially distracted from a business that needed me. That is not nothing, and for a while it stung.
Set against it: we did not spend £420,000 on £60,000 of maintainable profit, and we did not take on the borrowing that would have required. The alternative version of the last two years — servicing that debt while renegotiating supply terms from a position of no leverage and watching a third of revenue quietly leave — is not one I enjoy thinking about. Diligence that kills a deal has done its job just as well as diligence that clears one.
The other thing worth naming is that the seller was not trying to con anyone. He genuinely believed his business was worth £420,000, because he had never had to separate his own labour from its profits, and it had honestly never occurred to him to ask his supplier what would happen on a sale. That is the normal state of a small business owner who has never sold before, which is most of them. The gap between what a business is worth to the person running it and what it is worth to a buyer is covered in how much is your business actually worth, and it is a gap that cuts both ways.
What I would do differently next time
Four changes, all of which move work earlier.
First, ask for the contracts before the accounts. Everyone starts with the numbers because numbers feel like diligence. The deal-breaking facts in a small acquisition are far more often in the lease, the supply agreements and the key customer contracts — specifically, in what any of them say about a change of control. That is a two-hour job that could have happened in week one rather than week six.
Second, price the owner's replacement before doing anything else with the adjusted profit figure. Write down what it would genuinely cost to hire someone to do everything the seller currently does, at a market rate, including employer's National Insurance and pension, and deduct it. If the deal does not work after that, it does not work, and everything else is decoration.
Third, agree the structure before the number. Deferred consideration and an earn-out are not haggling tactics — they are how you handle the fact that the risks in a small acquisition sit almost entirely with the buyer. Money paid over two or three years, tied to the customers actually staying, converts an argument about valuation into a mechanism that settles it with evidence. It also keeps the seller invested in a smooth handover, which is worth more than the discount.
Fourth, and this is the one I would insist on now: talk to the key supplier and the largest customers before exchange, under an NDA, with the seller's blessing. Sellers hate it, because it makes the sale real to people they have not told. But a deal that cannot survive that conversation was never a deal, and finding out afterwards costs a great deal more than finding out in week two. If you are borrowing to fund it, the lender will want much of the same evidence anyway — see what a lender actually asks for before they approve a business loan.
We still want to buy something. We are just no longer in a hurry, and we now start with the contracts.
Common questions
What is an add-back, and why does it matter so much?
An add-back is a cost in the accounts that a seller argues would not exist under new ownership, added back to profit to show what the business would earn for a buyer. Common ones are the owner's salary, personal vehicle costs and genuine one-off expenses. They matter because the asking price is usually a multiple of adjusted profit, so every pound added back can be worth three or four pounds on the price. Test each one with a single question: once you own this business, does that cost actually disappear, or does someone still have to be paid to do it?
How long should due diligence take on a small acquisition?
For a business under about £500,000, four to eight weeks between heads of terms and completion is normal, and much of that is waiting for other people. The sequencing matters more than the duration. Get the contracts, lease and key supplier agreements in the first week, because deal-breakers hide there and there is no point paying for detailed financial work on a deal that a change-of-control clause is going to kill. Financial and tax diligence can follow once you know the commercial foundations of the business will still be there the day after completion.
What is a change-of-control clause?
It is a term in a contract that gives the other party rights if ownership of your company changes hands, typically the right to renegotiate or to terminate. They appear routinely in supply agreements, leases, licences, franchise agreements and larger customer contracts. In an acquisition they are critical, because a business whose economics depend on one favourable supply arrangement is only worth what it is worth if that arrangement survives the sale. Ask for every material contract early, search each one for the phrase, and where you find it, establish the other party's intentions before you commit.
Should I use deferred consideration or an earn-out?
Usually both, and for different reasons. Deferred consideration simply spreads the price over time, which protects your cash flow and gives you something to set claims against if a warranty turns out to be wrong. An earn-out ties part of the price to the business actually performing after completion, which is the honest answer to a disagreement about whether the customers will stay. Sellers resist both, because they want certainty and a clean exit. The compromise most small deals land on is a solid cash payment at completion with a meaningful balance over 12 to 24 months.
