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The balance magazine/

Evaluating a Small Business for Sale

Evaluating a Small Business for Sale
February 8, 2023

If you’re in the market for a small business, there are many factors to evaluate before taking the plunge. The process of evaluating a small business for sale requires research, due diligence and a solid understanding of what makes a business successful. While it can be tempting to jump into an opportunity quickly, it pays off to take your time and evaluate the pros and cons carefully. Doing so will help ensure that you make an informed decision that is right for your needs. 

For entrepreneurs and business owners, buying a small business is an attractive option for expanding their portfolio. But how do you evaluate a small business for sale? Buying a business is an exciting venture, but it’s important to take the time to evaluate the business thoroughly before making any decisions. Let’s explore some of the key factors to consider when evaluating a small business for sale.  By following these tips, you can avoid costly mistakes and find the right business at the right price. 

Financial Analysis and Due Diligence 

The financial health of the company is one of the most important factors to consider when assessing whether or not to buy a small business. A thorough financial analysis needs to be conducted in order to determine if the company can sustain itself after acquisition, as well as provide insight into potential growth opportunities. 

It’s also important to take due diligence seriously and review all legal documents associated with the purchase. This includes contracts, leases, employment agreements, customer or vendor agreements, insurance policies and other documents that could have implications on how you operate your new business. A thorough review will help identify any potential risks that could affect your bottom line down the road.  

Business Growth Potential 

When looking at a small business for sale, it’s important to assess its growth potential. What strategies can be implemented in order to increase profits and expand market share? How does this fit in with your current goals? Evaluate things such as location, competition, customer base and pricing structure—all of which have an impact on future success. Also consider what resources are available and if they match up with what you need in order to achieve your objectives. 

Industry Factors 

It's important to consider industry factors when evaluating a potential small business purchase. You need to take into account any current or potential changes in legislation or regulations that might affect the industry in which the company operates. Additionally, understanding the current market conditions can help you gauge whether now is the right time to invest in this particular industry sector. Lastly, researching competitor activity can provide valuable insight into what strategies have been successful in driving sales and profits in this space and what areas may be lacking relative to competitors.  


Competitive Advantage 

Another factor that should be considered when evaluating a small business for sale is its competitive advantage—or lack thereof. As competition increases in any given industry or market segment, it becomes more difficult for businesses without unique offerings or advantages over competitors to stand out from the crowd and capture larger shares of their respective markets. Ask yourself: Does this company have something special that sets them apart from other businesses? If so, what can be done to capitalize on this advantage?  

Advisor Consultation

Hiring a professional advisor, such as a business broker or accountant, can provide valuable insights and expertise when evaluating a small business for sale. These professionals can help entrepreneurs understand the financial and operational aspects of a business and make informed investment decisions.

Evaluating a small business for sale can be overwhelming at first glance; there are many elements that need consideration in order to make sure you’re getting into something with lasting potential. Taking the time upfront makes all the difference between ending up with something successful or taking on unnecessary risk down the road. By considering factors such as financial health, growth potential and competitive advantage beforehand, entrepreneurs can make informed decisions about their investments while protecting themselves from potential pitfalls associated with buying a small business.

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