What Is My Business Worth? An Indiana Broker Explains
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: Most Main Street businesses in Indiana sell for 2 to 3 times their annual seller’s discretionary earnings (SDE). Nationally, the median small business sold for $349,250 in Q2 2026 on median cash flow of $155,921 — an average multiple of 2.7x. But the multiple is the last step, not the first. What actually sets your number is earnings quality, how much the business depends on you, and how concentrated your customer base is. Two businesses with identical profit can be worth $600,000 apart because of those three things alone.
An owner called me last spring with a number in his head. He’d been told his HVAC company was worth “about a million.” He’d built a retirement plan around it. He’d told his wife.
His actual range was $1.6 million. He’d been under-planning his own retirement by six figures for years.
That happens in both directions, and it happens constantly. According to the UBS Investor Watch survey, 58% of business owners who planned to exit had never had their business formally appraised. Forty-eight percent had no formal exit strategy at all. That means most owners are making the largest financial decision of their lives using a number someone mentioned at a golf outing.
Here’s how the number actually gets built.
What Is My Business Worth? Start With SDE, Not Revenue
Revenue is the number owners quote. Buyers barely look at it.
What buyers and their lenders underwrite is seller’s discretionary earnings — your net profit, plus your owner salary, plus the personal expenses running through the business, plus depreciation and interest. SDE is the honest answer to “how much money does this business actually put in the owner’s pocket each year?”
Get SDE right and you’re most of the way to a valuation. Get it wrong and every conversation after that is wasted.
For scale: in Q2 2026 the national median small business transaction showed $692,087 in revenue and $155,921 in SDE. That’s a business with roughly 22% owner earnings on revenue. If your margins are meaningfully below that, the multiple conversation gets harder no matter how good your top line looks.
Add-backs have to survive a lender
This is where most owner-prepared valuations fall apart.
Owners add back everything. The truck, the phone, the family member on payroll, the trip to Scottsdale that was “partly a conference.” Some of that is legitimate. Some of it isn’t. And an SBA lender will strip out every add-back you can’t document with a receipt or a clear pattern.
I’ve watched a deal lose $180,000 of value in underwriting because $60,000 of add-backs couldn’t be supported. At a 3x multiple, undocumented add-backs are expensive.
Then the Multiple — and Why Yours Might Not Be 2.7x
The average cash flow multiple nationally is about 2.7x. Treat that as a starting point, not a promise.
Main Street businesses under roughly $250,000 in SDE tend to land between 2x and 3x. Once SDE clears $500,000 to $1 million, you move into lower middle market territory, buyers change from individuals to search funds and private equity groups, and multiples step up — often 4x to 6x EBITDA depending on the industry.
Industry matters too. In Central Indiana over the past 18 months, we’ve seen strong buyer demand for commercial service businesses — HVAC, plumbing, electrical, landscaping — with recurring or contracted revenue. Those trade at the top of their range. Businesses with one-time project revenue and no backlog trade at the bottom.
The Three Things That Actually Move Your Number
Same profit, different value. Here’s why.
Owner dependency. If revenue drops when you leave, a buyer isn’t purchasing a business. They’re purchasing your job. Every buyer prices that risk, and lenders price it harder. The fix is boring and it works: a real second-in-command, documented processes, customer relationships that belong to the company.
Customer concentration. One customer above 30% of revenue is a material issue. A top three above 50% is the central issue in the deal. It rarely kills a sale, but it reshapes the structure — more of the price moves into a seller note or an earnout tied to those accounts sticking around.
Clean, reconciled books. What actually kills deals isn’t price. It’s the seller’s books. If your P&L doesn’t reconcile to your tax return, a buyer stops trusting every other number you’ve given them. That distrust gets priced in, and it never gets priced in your favor.
Myth: A Valuation Means You’re Selling
This is the belief that costs owners the most money.
A valuation is a diagnostic. It tells you where the value is concentrated, what’s suppressing it, and what a buyer would flag. Then you have time to fix those things — which is the entire point of getting one early.
Fixing customer concentration takes two to three years. Building a management layer takes eighteen months. Getting three clean years of financials takes three years, by definition. None of that is possible at the moment you decide to sell.
There’s a practical reason too. Unsolicited offers arrive. A partner retires. Health changes. When you already know your range, you can evaluate an offer in a week instead of scrambling for three months while the buyer loses interest. That’s a real risk — we’ve seen what it costs owners who wait too long.
How a Broker Values a Business Differently Than a Formal Appraisal
There are two different products and owners often ask for the wrong one.
A certified appraisal is a defensible document for estate planning, divorce, litigation, or an ESOP. It costs several thousand dollars and follows formal standards.
A broker opinion of value answers a different question: what will the market actually pay right now? It’s built from comparable closed transactions, current buyer demand, and what lenders are willing to finance this quarter. For an owner thinking about a sale in the next one to five years, that’s usually the more useful number.
At Indiana Equity Brokers we’ve closed more than 880 transactions over 24 years, representing over $808 million in value. That transaction history is what makes a market-based opinion of value useful — we’re not pulling multiples off a chart, we’re pulling them off deals we closed.
Frequently Asked Questions
How much is my small business worth?
Most Main Street businesses sell for 2 to 3 times seller’s discretionary earnings, with the national average landing near 2.7x in Q2 2026. Businesses above roughly $1 million in earnings typically shift to an EBITDA multiple in the 4x to 6x range. Your specific number depends on owner dependency, customer concentration, and whether your financials reconcile cleanly.
What is SDE and how is it different from profit?
Seller’s discretionary earnings is net profit plus the owner’s salary, personal expenses run through the business, depreciation, interest, and one-time costs. It represents the total financial benefit to a single working owner. Net profit alone understates what the business produces, which is why nearly all Main Street valuations are built on SDE rather than net income.
How much does a business valuation cost in Indiana?
A certified appraisal generally runs several thousand dollars. A broker’s opinion of value is typically provided at no cost as part of an initial conversation about selling. They answer different questions — an appraisal is a defensible document for legal or estate purposes, while an opinion of value estimates what buyers will actually pay in the current market.
How often should I get my business valued?
Every two to three years if a sale is more than five years out, and annually once you’re inside a five-year window. Regular valuations show whether the decisions you’re making are actually increasing value, and they mean you can respond to an unsolicited offer with real information instead of a guess.
Will getting a valuation obligate me to sell my business?
No. A valuation is confidential and carries no obligation. Most owners who get one are not selling that year — they’re using it to identify what a buyer would discount and to fix those issues while there’s still time.
Know Your Number Before You Need It
Your business is probably your largest asset. Most owners can quote their home’s value within 5% and have no idea what their company is worth within 50%.
The gap matters most at the moment you can’t control — an unsolicited offer, a health event, a partner’s exit. Owners who already know their range make good decisions quickly. Owners who don’t make fast decisions with bad information.
If you’re curious what your business would bring in today’s market, a confidential conversation costs nothing and obligates you to nothing. Over 24 years I’ve helped Indiana business owners sell more than 880 companies, and most of those conversations started years before the listing did. Reach me at troy@indianaequitybrokers.com, or start with what we look at when we assess what makes a business worth more. If you’re further along, our guide to selling a business walks through what comes next.
Can You Sell a Business Without a Partnership Agreement?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: You can sell a business without a partnership agreement, but it costs you time, leverage, and usually money. Without one, every partner has to agree to the sale, the price, and the split — and any single holdout can stop the deal. In Indiana, partnerships with no written agreement fall back on the Indiana Uniform Partnership Act, which splits profits equally regardless of who invested what. The fix takes weeks if you handle it before going to market and can take months if a buyer is already waiting.
The worst call I get is the one where a business is under contract and the partners aren’t speaking.
It usually starts the same way. Two people who trusted each other started something. Nobody wanted to spend $3,000 on lawyers to document a relationship that felt obvious. Fifteen years later the business is worth $2 million, one partner wants out, the other wants to keep running it, and there is nothing in writing that says how that’s supposed to work.
At that point the business is fine. The partnership is the problem. And buyers can smell it.
Here’s what a partnership agreement actually does for a sale, and what happens when there isn’t one.
Why Selling a Business With Partners Gets Complicated
A single owner selling a business has one decision-maker. Every additional partner is another person who can say no — and they can say no to different things at different times.
Partner A wants to sell now. Partner B wants two more years. Partner C is fine selling but thinks the price is low. None of them are wrong. Without a written agreement establishing how that decision gets made, the default is unanimity, which means the most reluctant partner controls the timeline for everyone.
I’ve watched this stall businesses for years. Not because anyone was acting in bad faith — because nobody had ever written down what happens when smart people disagree.
What Indiana law does when you have nothing in writing
Indiana’s Uniform Partnership Act fills the gaps, and owners are usually surprised by how it fills them.
Absent a written agreement, profits and losses are split equally among partners regardless of capital contributed or hours worked. The partner who put in $200,000 and the partner who put in $20,000 are treated the same. So is the partner working 60 hours a week and the one working 10.
That default is fine right up until there’s a $2 million check to divide. Then it’s a lawsuit.
The Provisions That Actually Matter at Exit
Most partnership agreements cover ownership percentages and profit splits. That’s the easy part. The clauses that determine whether a sale goes smoothly are further down the document, and they’re the ones most often missing.
The buy-sell provision. This is the single most important clause for exit purposes. It says what happens when a partner wants out, dies, becomes disabled, divorces, or goes bankrupt. It should name the valuation method, the payment terms, and the timeline. Without it, a partner’s ownership stake can end up in the hands of a spouse, an ex-spouse, or an estate — none of whom want to run a business.
Drag-along and tag-along rights. Drag-along lets a majority force a minority to join a sale, so one 15% holder can’t block a full-company exit. Tag-along protects the minority by letting them sell on the same terms. Buyers want the whole company, not 85% of it. This clause is often what makes a clean sale possible.
The valuation method. Name it in advance — a multiple of SDE or EBITDA, a named appraiser, or a formula. Partners who agree on a method years ahead of time, when nobody knows who’ll be the buyer and who’ll be the seller, agree far more easily than partners negotiating it the week someone wants out.
Decision thresholds. Which decisions need unanimity, which need a majority, which are one partner’s call. Selling the company should be explicitly addressed.
Myth: A Partnership Agreement Means You Don’t Trust Each Other
This is the reason most agreements never get written, and it’s backwards.
An agreement isn’t a hedge against your partner turning out to be dishonest. It’s a plan for the situations neither of you controls. A partner’s spouse files for divorce and the ownership stake becomes marital property. A partner has a stroke at 54. A partner’s adult child expects to inherit a seat at the table. None of those are betrayals. All of them will freeze a business that has nothing in writing.
The partners I’ve seen handle exits best are the ones who wrote the agreement while they still liked each other. Nobody negotiates well from a hospital room or a courtroom.
What Buyers Do When They See Partner Risk
This is the part owners don’t anticipate.
A buyer evaluating a multi-partner business is asking one question: can all of these people actually deliver the company at closing? If the answer is unclear, the buyer responds in predictable ways. They discount the offer. They move more of the price into escrow or a seller note. They add representations and indemnities that survive closing for years. Or they walk, quietly, and buy something simpler.
Partner disagreement is one of the most common reasons a deal falls apart between agreement and closing — and it belongs on the short list of things that kill deals after the LOI is signed.
The good news is that this is fixable, and cheaply, if you fix it before going to market. Getting an agreement drafted or updated costs a few thousand dollars and a few weeks. Fixing it while a buyer waits costs leverage you can’t get back.
If You Already Have Partners and Nothing in Writing
Do it now, while there’s no deal on the table and no reason for anyone to posture.
Start with the buy-sell provision — what happens when one of you wants out. Agree on a valuation method before anyone knows which side of that transaction they’ll be on. Address death, disability, and divorce specifically. Then write down how the decision to sell the company gets made and what vote it takes.
At Indiana Equity Brokers we’ve closed more than 880 transactions across 24 years, and partner structure comes up in nearly every multi-owner deal we handle. We’re not attorneys and we don’t draft these agreements. But we can tell you exactly which provisions a buyer will look for, which ones we’ve watched cause problems at closing, and what needs cleaning up before you go to market.
Frequently Asked Questions
Can I sell my share of a business if my partner doesn’t want to sell?
It depends on what your agreement says. With a buy-sell provision, your partner typically has a right of first refusal at a defined price and terms. Without an agreement, you generally cannot force a sale of the company, and selling your individual interest to an outside buyer is difficult because few buyers want a minority stake in a business run by someone they’ve never met.
What happens if business partners disagree about selling in Indiana?
Without a written agreement, the Indiana Uniform Partnership Act governs, and major decisions generally require unanimous consent. That means one partner can block a sale indefinitely. The practical resolutions are a buyout of the objecting partner, mediation, or a court-ordered dissolution — all slower and more expensive than a drag-along clause written years earlier.
What is a buy-sell agreement and do I need one?
A buy-sell agreement defines what happens to a partner’s ownership stake when they exit, die, become disabled, divorce, or go bankrupt. It names the valuation method, the payment terms, and who has the right to buy. Any business with more than one owner needs one, and it’s the single most valuable clause in a partnership agreement when an exit finally happens.
How do partners split the money when a business sells?
By whatever the partnership agreement specifies, which is usually ownership percentage adjusted for capital accounts and any partner loans. With no agreement, Indiana law defaults to an equal split regardless of what each partner contributed. That default is the source of most partner litigation at exit.
How much does a partnership agreement cost in Indiana?
An attorney-drafted agreement for a small business typically runs a few thousand dollars. Compared with the cost of a stalled sale, a discounted offer, or partner litigation, it is one of the cheapest pieces of insurance a multi-owner business can buy.
Fix This Before You Need It
A partnership agreement is not a document about distrust. It’s a document about time — specifically, about making decisions while everyone is calm rather than while someone is angry, sick, or gone.
If you own a business with a partner and there’s nothing in writing, that’s the highest-return few weeks of work available to you right now. If there is something in writing, pull it out and read the buy-sell section. Most of the ones I see were drafted at formation and never touched again, and the valuation method in them stopped making sense a decade ago.
If you’re thinking about an exit in the next few years and want to know what a buyer will flag in your ownership structure, a confidential conversation costs nothing. Reach me at troy@indianaequitybrokers.com, or read more about why owners who plan their exit early sell for more. You can also see how we handle the sale process from valuation through closing.
How Do You Break a Deadlock in a Business Sale?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 6 min
The short answer: Most business sale deadlocks are not really about price. They stall because one side has a concern they haven’t said out loud — usually about employees, transition, or whether the money is actually going to arrive. The fastest way to break a deadlock is to stop trading numbers and start asking why the number matters. When the gap truly is money, structure resolves it more often than price does: a seller note, an earnout, or a longer transition can close a six-figure gap without either side moving their headline number.
Two parties, $150,000 apart on a $1.4 million business. Three weeks of silence. Both sides told me the other one was being unreasonable.
The actual problem was that the seller had promised his shop foreman a job for life and the buyer had mentioned “restructuring.” Nobody said that out loud. They argued about price for three weeks because price is the thing that’s easy to argue about.
We closed it in nine days once the real issue surfaced. The price didn’t change.
That’s not an unusual story. Over 24 years and more than 880 closed transactions, the deals that stall almost never stall for the reason stated.
Why Business Sale Negotiations Actually Stall
Price is the symptom. Here’s what’s usually underneath it.
The seller doesn’t trust that they’ll get paid. When a chunk of the price sits in a seller note or an earnout, the seller is financing a buyer they met four months ago. If they don’t believe the buyer can run the business, they’ll fight for a higher price to compensate — when what they actually want is more money at closing, not a bigger number.
The buyer found something in diligence. Customer concentration, a lease problem, add-backs that don’t hold up. Rather than saying “your SDE is $40,000 lower than represented,” they just make a lower offer and let the seller guess why.
Somebody’s identity is in the number. Sellers benchmark against what a competitor got, or what they told their brother-in-law the business was worth. That’s not a valuation dispute. It’s a pride issue, and no amount of comparable data solves it.
The seller isn’t actually ready to stop working. This is the quietest one. The price stops moving because the seller doesn’t want the deal to close. They’ll never say it, sometimes not even to themselves.
The Questions That Break a Deadlock
When a negotiation locks up, the move isn’t a better counteroffer. It’s a better question.
“What does this number need to do for you?” A seller who needs $1.5 million to retire has a real constraint. A seller who wants $1.5 million because that’s what the guy down the road got has a comparison problem. Those require completely different responses, and you can’t tell them apart from the offer sheet.
“If price were settled, is there anything else that would keep you from signing?” This is the single most useful question in a stalled deal. It surfaces the employee promise, the seller’s spouse who wants a different closing date, the buyer’s silent partner nobody mentioned.
“What would have to be true for this to work?” It moves both sides from defending a position to describing conditions. Conditions are negotiable in a way that positions aren’t.
“Can we split the difference?” Simple, and it works more often than it should — not because the math is compelling, but because it signals good faith. It tells the other side you’re trying to finish rather than win. I’ve had six-figure gaps close on that sentence alone.
Myth: The Highest Offer Is the Best Offer
This is the mistake that costs Indiana sellers the most money, and it costs them after closing, when it’s too late.
A $1.6 million offer with $400,000 in a three-year earnout tied to revenue targets is not better than a $1.4 million all-cash offer. It’s a $1.2 million offer with a lottery ticket attached. Earnouts miss their targets regularly — sometimes because the buyer runs the business differently than the seller would have, which the seller no longer controls.
What matters is how much is paid at closing, how much depends on future performance, what’s held in escrow and for how long, and whether the buyer’s financing is actually approved or merely “in process.” A buyer with an SBA pre-qualification letter and 15% down is worth more than a higher offer from someone still shopping for a lender.
We walk sellers through this in detail — deal structure determines what you actually keep, not the headline price.
Where Structure Solves What Price Can’t
When the gap is real, structure is usually the answer.
A seller note bridges a valuation gap while giving the buyer a reason to keep the seller engaged. A short earnout tied to something the seller can influence — customer retention rather than net profit — can be fair to both sides. A longer transition period costs the seller a few months and can be worth six figures to a nervous buyer. A consulting agreement moves money out of the purchase price into ordinary income, which sometimes helps the buyer’s lender and sometimes helps the seller’s tax picture.
None of these change the headline price much. All of them change risk, and risk is what the parties are actually arguing about.
The other thing structure does is protect the relationship. Sellers and buyers in a small business deal have to work together for six months to two years after closing. A negotiation that ends with both sides feeling beaten produces a transition that goes badly, and a transition that goes badly is how a seller note stops getting paid.
Why a Broker Helps More Here Than Anywhere Else
Direct negotiation between a buyer and a seller works fine until it doesn’t. Then it fails hard, because there’s no way to say something difficult without saying it to the person’s face.
A broker can deliver a hard message without the relationship absorbing it. I can tell a seller their add-backs won’t survive underwriting. I can tell a buyer their offer implies a multiple no lender in Indiana will finance. Neither party has to hear that from someone they’ll be working with for the next eighteen months.
Just as important, I’ve seen how these end. When a seller tells me a buyer’s behavior in week six is a bad sign, I usually know whether it is. That pattern recognition is most of what a broker is actually selling — and it’s why negotiating the sale of your business goes better with someone between the parties.
Frequently Asked Questions
What do you do when a business sale negotiation stalls over price?
Stop exchanging numbers and find out what the number represents. Ask each side what the price needs to accomplish and whether anything besides price would keep them from signing. Most stalls involve an unstated concern about employees, transition, or payment security, and those can be resolved through deal structure without either party moving their headline price.
How far apart do a buyer and seller usually end up?
Most gaps that reach a serious negotiation are within 10% to 15% of the final price, which is almost always bridgeable. Nationally, the median small business sold for $349,250 in Q2 2026, so a typical gap in a Main Street deal is in the tens of thousands rather than the hundreds of thousands. Gaps larger than 25% usually mean the parties disagree about the earnings, not the multiple.
Should I accept the highest offer for my business?
Not automatically. Compare cash at closing, the size and terms of any seller note, whether an earnout depends on performance you’ll no longer control, escrow holdbacks, and whether the buyer’s financing is actually approved. A lower all-cash offer from a pre-qualified buyer frequently nets more than a higher offer loaded with contingencies.
Is it a bad sign if a buyer lowers their offer after due diligence?
Not necessarily, but they owe you a specific reason. A retrade backed by documented findings — add-backs that don’t reconcile, a lease issue, customer concentration that emerged in diligence — is a normal part of the process. A retrade with no explanation is a warning sign about how the rest of the deal will go.
Can you negotiate the sale of a business without a broker?
Yes, and some owners do. The difficulty is that you have to deliver every hard message yourself to a person you’ll work alongside after closing, while also being the party with the most emotion invested. A broker absorbs that friction and brings pattern recognition from prior deals about which buyer behaviors predict a closing and which predict a collapse.
The Deal Usually Isn’t About the Number
Deals rarely die because two reasonable people couldn’t agree on a price. They die because nobody asked the right question early enough, and the silence hardened into positions.
If a negotiation on your business has stalled, the useful next step is not a revised offer. It’s a conversation about what’s actually in the way.
If you’re in the middle of one now, or thinking about a sale and want to know what buyers in this market will push back on, a confidential conversation costs nothing. Over 24 years I’ve helped Indiana owners close more than 880 transactions representing over $808 million in value, and most of that experience is in the gap between offer and closing. Reach me at troy@indianaequitybrokers.com, or see what we look at when helping a business sale reach the closing table.
What Are the Red Flags When Buying a Business?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: The most serious red flags when buying a business are owner dependency, customer concentration above 30% of revenue, financials that don’t reconcile to the tax returns, margins that have quietly declined for two or three years, and a seller who can’t give a straight answer about why they’re selling. None of these automatically kill a deal — every business has something. What matters is whether the seller volunteers it or you have to find it. A problem disclosed is a problem you can price. A problem discovered is usually a reason to walk.
Most buyers I meet are looking for reasons to say yes. That’s the wrong job.
By the time someone sits across from me with a signed NDA, they’ve already pictured themselves running the place. Excitement is fine. But the buyers who do well in Indiana are the ones who spend the first two weeks actively hunting for the reason not to buy. If they can’t find one, they’ve bought well. If they find one and it’s fixable, they’ve got leverage.
Over 24 years and more than 880 closed transactions, the same warning signs keep showing up. Here are the ones that actually matter — and the ones that scare buyers off for no good reason.
Red Flag 1: The Business Is the Owner
This is the one buyers underestimate most.
Ask a simple question: what happens to revenue if the seller disappears tomorrow? If the honest answer is “it drops by half,” you aren’t buying a business. You’re buying a job with a seller’s name on the customer relationships.
The tells are easy to spot once you look. The owner holds every key customer relationship personally. Pricing decisions live in their head, not in a system. There’s no second-in-command who could run a week without them. The owner works 60 hours and the business has no manager layer at all.
This doesn’t mean walk. It means structure differently. A longer transition period, a meaningful seller note, or an earnout tied to customer retention all shift risk back to the person who created it. What you don’t do is pay a full multiple for goodwill that’s about to leave the building.
Red Flag 2: Too Much Revenue From Too Few Customers
Customer concentration is the risk that shows up in every lender conversation. As a working rule, if one customer is more than 30% of revenue, treat it as a material issue. If your top three are over 50%, treat it as the central issue in the deal.
Then go one level deeper, because the percentage isn’t the whole story. Ask how long that customer has been there. Ask whether there’s a written contract or just a long habit. Ask whose relationship it actually is — the company’s, or the owner’s. A 40% customer under a three-year contract with a purchasing department is a very different risk than a 40% customer who golfs with the seller.
Lenders will ask the same questions. If concentration is heavy enough, an SBA lender may reduce what they’ll finance or decline the deal outright, which means this can end your acquisition before you ever get to negotiate.
Red Flag 3: The Numbers Don’t Reconcile
This is the flag that ends deals fastest, and it’s the easiest to test.
Line up three years of tax returns next to three years of internal profit and loss statements. They should tell the same story. When the P&L shows $600,000 of profit and the tax return shows $200,000, you need an explanation, and “we run some things through the business” is not one — at least not without documentation.
Every add-back needs a receipt. The owner’s personal vehicle, the family phone plan, the one-time legal settlement, the above-market rent paid to the owner’s own building — all legitimate adjustments, all things a buyer and a lender will want proof of. Add-backs you can document survive underwriting. Add-backs built on the seller’s word get stripped out, and the price comes down with them.
Bank statements are the tiebreaker. Deposits should track revenue. When they don’t, stop and find out why before you spend another dollar on diligence. This is exactly the kind of thing that surfaces during the due diligence weeks after an offer is accepted — and it’s much cheaper to catch it now.
Red Flag 4: A Slow, Unexplained Decline
Buyers focus hard on last year’s number. The trend matters more.
Pull five years if you can get it, three at minimum, and look at gross margin as a percentage rather than dollars. Revenue can hold flat while margin quietly erodes — that’s a business absorbing cost increases it can’t pass through, and it’s a much worse sign than a single soft year.
Watch for deferred maintenance too. Equipment nobody replaced. A truck fleet with 300,000 miles on it. Software the industry moved past four years ago. That’s real capital you’ll spend in year one, and it belongs in your valuation, not in your surprise column.
An owner who decided to sell three years ago and stopped investing leaves a very specific fingerprint. It’s usually visible in the fixed asset schedule.
Red Flag 5: The Seller Can’t Explain Why They’re Selling
Retirement, health, partner dispute, burnout, a move — all normal. Sellers who give you a clear reason and a consistent story are telling you the truth.
The concern is the vague answer. “Ready for a new challenge” from a 46-year-old with no next act tends to mean something else is coming: a lease that won’t renew, a franchise agreement expiring, a big customer that already gave notice, a regulation about to change, or a competitor moving in down the road.
Ask directly. Ask twice, at different points in the process. Then check the answer against the numbers.
What Isn’t a Red Flag
Some things scare buyers off that shouldn’t.
Messy bookkeeping is not the same as dishonest bookkeeping. A lot of good Indiana businesses are run by owners who are excellent operators and indifferent accountants. If the underlying numbers hold up when you rebuild them, disorganization is a discount opportunity, not a disqualifier.
An unglamorous industry is not a red flag either. Some of the best cash flow I’ve sold came out of businesses nobody would brag about at a dinner party.
And a seller who wants to stay involved isn’t automatically a problem. Sometimes that’s exactly what you want, as long as the terms are written down.
The real distinction is disclosure. Sellers who put their problems on the table early are usually telling you the truth about everything else. That’s the pattern I’d watch above any single metric. If you want the full framework, we’ve written a longer piece on how to evaluate a business before you buy it.
Frequently Asked Questions
What are the biggest red flags when buying a small business?
Owner dependency, customer concentration above 30% of revenue, financials that don’t reconcile to tax returns, gross margins declining over several years, and a seller who can’t clearly explain why they’re selling. Undisclosed litigation and deferred equipment maintenance round out the list.
How much customer concentration is too much when buying a business?
A single customer above 30% of revenue is a material risk, and a top three above 50% should reshape how you structure the deal. What matters as much as the percentage is whether the relationship is contracted, how long it has lasted, and whether it belongs to the company or to the departing owner.
What if the seller’s books don’t match their tax returns?
Stop and get an explanation before spending more on diligence. Legitimate add-backs — an owner’s vehicle, personal phone, one-time expenses, above-market owner rent — explain most gaps, but each one needs documentation. Undocumented add-backs get removed during lender underwriting, which lowers both the valuation and the loan amount.
Should I walk away from a business that depends heavily on the owner?
Not necessarily. Owner dependency is a structuring problem more than a disqualifier. A longer transition, a larger seller note, or an earnout tied to customer retention keeps the seller invested in the handoff. The mistake is paying a full multiple for goodwill that walks out the door at closing.
Is messy bookkeeping a reason not to buy a business?
Usually not. Many well-run small businesses have disorganized records simply because the owner is an operator, not an accountant. If the underlying numbers hold up when reconstructed against bank statements and tax returns, poor bookkeeping is often a negotiating advantage rather than a warning sign.
How do I check for red flags before making an offer?
Review three to five years of tax returns and P&Ls side by side, request a customer revenue breakdown, ask what happens to revenue without the owner, examine the fixed asset schedule for deferred maintenance, and ask the reason for selling more than once. A broker representing the listing can supply most of this before you commit to an offer.
The Buyers Who Do Best Ask Harder Questions
Every business has something. Twenty-four years in, I’ve never taken a company to market that was flawless. The buyers who do well aren’t the ones who find a perfect business — they’re the ones who find the problems early, price them accurately, and structure around them.
If you’re looking at Indiana businesses now, it costs nothing to have a conversation about what you’re seeing. You can browse our current business listings or read more about how we work with buyers.
Reach me directly at troy@indianaequitybrokers.com or visit indianaequitybrokers.com.
How Much Money Do You Need to Buy a Business?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 7 min
The short answer: For most Main Street acquisitions using an SBA 7(a) loan, you need a minimum 10% equity injection of total project cost — and the SBA allows up to half of that to come from a seller note on full standby. That means a buyer with 5% in cash plus a 5% standby seller note can meet the requirement. On a $1,000,000 business, that’s roughly $50,000 of your own money, not $250,000. You’ll also need cash on top for closing costs and working capital. Collateral matters less than most buyers assume; cash flow and your equity contribution matter far more.
The most common reason someone never buys a business is a number they made up.
Buyers tell me all the time that they’re waiting until they’ve saved 20% or 25% down. That figure comes from real estate, not from business acquisition, and it keeps qualified people on the sidelines for years. The actual requirement is usually a fraction of what they think.
Here’s what it really takes to buy a business in Indiana, where the money comes from, and what lenders care about instead of your personal net worth.
The 10% Rule — and the Half of It You Don’t Have to Fund
The SBA 7(a) program is how most Main Street acquisitions get financed in Indiana. Under the SBA’s current operating procedure, a change-of-ownership deal requires a minimum equity injection of 10% of total project cost.
The part buyers miss: up to half of that 10% can come from a seller note on full standby. Full standby means the seller receives no payments at all while the SBA loan is outstanding. The note accrues, and the seller gets paid after the bank does.
So the common structure is 5% buyer cash and 5% standby seller note. On a $1,000,000 purchase, that’s about $50,000 out of your pocket rather than $100,000 — and a long way from the $250,000 most buyers assume they need.
The equity has to be yours. Lenders verify it against bank statements and they want it seasoned, typically two to three months. A large deposit that appeared last week gets flagged as undisclosed borrowed money. A HELOC or personal loan generally does not count toward the injection, though gifts from family can, with the right documentation.
What You Need Beyond the Down Payment
This is where buyers get caught short, and it’s the part nobody budgets for.
Closing costs run a few percent of the deal — attorney fees, the SBA guaranty fee, lender fees, the third-party business valuation the bank will order, lien searches, and title work if real estate is involved.
Then there’s working capital. You need payroll covered before the first receivables come in, inventory to replace what you sell in month one, and a cushion for the transition period when a customer or two takes a wait-and-see approach to the new owner. Good news: SBA 7(a) can often finance working capital as part of the same loan, so ask your lender to build it in rather than draining your personal reserves.
The buyers who struggle in year one are almost never the ones who paid too much. They’re the ones who closed with nothing left in the bank.
Why Collateral Isn’t the Gatekeeper You Think
Most buyers assume they need a paid-off house to get approved. That’s not how business acquisition lending works.
For a 7(a) acquisition, the SBA does not require a lender to decline a loan solely because collateral is insufficient. If you’re otherwise a strong borrower, a collateral shortfall alone won’t sink you. The lender will take a lien on the business assets and, if you have meaningful equity in real estate, they’ll likely take that too — but the absence of it isn’t disqualifying.
What lenders actually underwrite:
Cash flow coverage. Can the business service the new debt with margin to spare? Lenders want to see the adjusted cash flow cover the annual loan payment comfortably. This is the number that decides your deal.
Your experience. Relevant management or industry background carries real weight. You don’t need to have run this exact business, but you need a credible story about why you can operate it.
Credit and character. Personal credit, a clean background, and no defaulted federal debt.
The quality of the business itself. Stable earnings history, reasonable customer diversity, and financials that reconcile to the tax returns. A weak business won’t get financed no matter how much collateral you pledge — which is why the red flags to watch for when buying a business matter as much to your lender as they do to you.
Be prepared for one non-negotiable: you’ll personally guarantee the loan. Every owner with 20% or more of the new entity signs.
Seller Financing Does More Than Fill a Gap
Seller notes are common in Main Street deals for a reason that has nothing to do with the buyer being short on cash.
A seller willing to carry paper is telling the bank something. They believe the business will still be generating cash in three years, because that’s when they’re getting paid. Lenders read that as a confidence signal, and so should you. A seller who refuses to carry any portion of the price, on a business they’ve described as stable and growing, is worth a follow-up question.
Terms vary widely. Notes commonly run three to seven years at rates negotiated between the parties. If the note counts toward your SBA equity injection, it must be on full standby for the life of the SBA loan — no payments at all — so make sure the seller understands that going in. A seller expecting monthly checks will be unhappy to learn otherwise at closing.
What This Looks Like on a Real Deal
Take a business selling for $1,000,000 with $250,000 of adjusted cash flow.
The SBA loan covers $900,000. The equity injection is $100,000 — but $50,000 of that can be a standby seller note, leaving $50,000 in buyer cash. Add roughly $30,000 to $40,000 for closing costs and fees, and ask the lender to finance working capital inside the loan.
So a buyer walks in with something in the range of $80,000 to $90,000 rather than a quarter million. On a ten-year term, the debt service on $900,000 lands well under the $250,000 of cash flow, leaving the new owner a salary and room for the unexpected.
Every deal is different and your lender’s terms will vary. But that’s the shape of it, and it’s a very different picture than most buyers carry around. For more on the loan side specifically, see our complete guide to SBA loans for business acquisition.
Frequently Asked Questions
How much money do you need to buy a business?
With SBA 7(a) financing, the minimum equity injection is 10% of total project cost, and up to half of that can be a seller note on full standby. A buyer can often close with about 5% of the purchase price in cash, plus closing costs and a working capital reserve. On a $1,000,000 business, that’s commonly $80,000 to $90,000 rather than $250,000.
Can I buy a business with no collateral?
Often, yes. The SBA does not require a lender to decline a 7(a) acquisition loan solely because collateral is insufficient. Lenders weigh the business’s cash flow coverage, your management experience, and your credit far more heavily than your personal assets. You will still need to make the required equity injection and personally guarantee the loan.
Does a seller note count toward my SBA down payment?
Yes, up to half of the required 10% equity injection, provided the note is on full standby for the life of the SBA loan. Full standby means the seller receives no principal or interest payments until the SBA loan is repaid. Make sure the seller understands this before terms are agreed.
Can I use a personal loan or HELOC for the equity injection?
Generally no. The SBA requires the equity injection to be the buyer’s own funds, and lenders verify the source against bank statements. Funds are expected to be seasoned, usually two to three months. Documented gifts from family members can qualify, but borrowed money typically does not.
How much cash flow does a business need to get an SBA loan?
Lenders want the business’s adjusted cash flow to cover the new annual debt service with a comfortable margin, and they will re-verify the seller’s numbers independently. Add-backs you can document survive underwriting; add-backs you can’t get removed, which reduces both the approved loan amount and the price the business can support.
How long does SBA financing take when buying a business?
Plan on 60 to 120 days from letter of intent to funding for an SBA 7(a) acquisition. The lender orders an independent business valuation and re-underwrites the seller’s financials, which adds time compared with a standard working capital loan.
The Number That Actually Matters Is the Cash Flow
If you’ve been waiting to save a down payment based on a figure you got from buying a house, you’ve probably been waiting longer than you needed to. Business acquisition lending is built around whether the business can pay for itself, not around what you own.
The useful next step isn’t more saving. It’s finding out what you’d actually qualify for and what’s available in your range. Indiana Equity Brokers has closed more than $808M in transactions across 880-plus businesses, and we work with buyers at every level of the market.
Take a look at the businesses we currently have for sale or register as a buyer through our buyer program.
Reach me directly at troy@indianaequitybrokers.com or visit indianaequitybrokers.com.
