Finding a Business Worth Acquiring and Building On

A business for sale often first appears as a set of numbers: several years of revenue, profit margins and the seller’s asking price. Those numbers are only a starting point. Behind them are the reasons customers buy, how employees work together, how cash moves through the company and who makes the day-to-day decisions.

An acquisition entrepreneur may spend years running the company they buy. Choosing the right one starts with the first contact and rests on three questions: does the business have solid foundations, can it make a successful transition to a new owner, and are you the right person to lead it? For an overview of how a traditional search fund moves from identifying a company to acquiring and operating it, begin with Search Fund 101: How a Traditional Search Fund Works.

At first contact, establish four facts: what the company provides, why customers buy, why the owner wants to sell and how the price has been formed. Taken together, those facts show whether revenue has a durable source, whether the owner’s reason for selling is credible and whether the asking price reflects actual operating performance.

First test: is the business itself sound?

Industry: where demand comes from and where risk lies

Start with the industry. What drives demand? Which suppliers and skills does the company depend on? How might regulation or competition reshape the market? Together, these forces determine where revenue comes from, what drives costs and whether margins can hold up over time.

Demand takes different forms. Elevators, fire-safety equipment and industrial machinery require regular inspections, maintenance and replacement parts, supporting recurring monthly or annual service demand. Engineering and renovation firms tend to move from project to project. Healthcare, testing and similar fields rely more heavily on licences, certification and professional accountability. Understanding what drives demand and how often it recurs is the first step towards assessing whether revenue is likely to persist.

Relationships up and down the value chain matter as well. If essential inputs come from only a few suppliers, the business becomes vulnerable to price increases and disruption. If a small number of customers account for too much revenue, losing one can leave a material gap. Barriers to entry and access to skilled people also affect a company’s ability to defend its pricing and expand.

Technology can change both how a company works and why customers continue to pay. AI and automation can speed up quoting, scheduling, compliance checks and customer service. On-site work, accumulated sector knowledge, professional credentials and accountability for outcomes are harder to replace. The key is to distinguish between activities technology can streamline and capabilities that remain fundamental to the company’s value.

Percentages alone do not settle the question. A 2026 IESE technical note gives a useful contrast: one customer accounts for 30% of revenue, but purchasing decisions are spread across 15 independent managers; five other customers together account for 25%, but all belong to the same cyclical industry. The first looks more concentrated on paper, yet the underlying risk may be lower. Customer concentration also depends on contract duration, how purchasing decisions are made and whether customers are exposed to the same economic shock. The note also identifies technological disruption and government action as external risks to understand before an acquisition.

Company: why customers keep choosing it

Within the same industry, operating details often explain why customers choose one company over another. An advantage may come from more dependable products and service, consistent delivery, long-standing customer relationships, or knowledge and working habits built up across the team. Those strengths ultimately show up in repeat purchases, pricing power and the team’s ability to solve problems reliably.

Recurring contracts and repeat orders are clues, not conclusions. Customers may stay because a product is embedded in their work and costly to replace, because certification raises switching barriers, or because service routines and trust have developed over many years. The real question is not whether revenue repeats in a spreadsheet, but why the customer comes back.

A business worth acquiring should also offer a credible path forward. Better service, stronger retention, a broader product range, more disciplined pricing or expansion into an adjacent region should build on existing demand and capabilities. If growth depends on replacing the team, product and customer base altogether, the buyer is no longer building on an established business but attempting a much riskier transformation. Stanford Graduate School of Business’s 2026 primer likewise distinguishes between industry-level and company-level considerations in target assessment.

Financials: whether profit becomes cash

Financial records show how the business works in practice. Revenue, gross profit and earnings before interest, taxes, depreciation and amortisation (EBITDA) indicate its earning power. Collections, receivables, inventory and prepayments show how readily those earnings convert into cash. Debt, tax obligations and capital expenditure reveal what an incoming operator will still need to fund and manage.

Working capital funds day-to-day operations. Recognising revenue does not mean the customer has paid, and inventory ties up cash until it is sold. How quickly customers pay, how fast inventory turns and the terms offered by suppliers determine whether the company has enough cash to cover payroll, purchasing and other routine expenses during a busy season, a period of expansion or a handover.

At a different price or on different terms, the same company can become an entirely different deal. Whether the seller stays through a transition, whether part of the purchase price is deferred or held back until the handover is complete, and how much working capital remains in the company at closing all affect the buyer’s cash position and operating pace. A sound structure leaves enough cash to pay employees and suppliers through the transition, and enough time to stabilise key customer and team relationships.

Second test: can the business make a successful transition?

The first test asks whether this is a sound business. The second asks whether its value can outlast the current owner, whether the seller is genuinely ready to sell, and whether the seller can support the transition and step back when the time comes. If any of these questions remains unanswered, the buyer may not end up with the business they thought they were acquiring.

Will the value outlast the owner?

Transaction documents can transfer shares, equipment and contracts. They cannot, by themselves, transfer customers’ trust, key employees’ experience or the practices a team uses to quote, deliver and solve problems. Those capabilities may have taken years to develop, and they do not necessarily remain with the company when ownership changes.

Can the company continue operating to the same standard after the owner leaves? The answer depends on whether customer relationships are shared across the team, why key employees would stay, whether operating data is reliable and whether the team can make routine decisions independently. If sales, pricing, customer relationships and major decisions all remain concentrated in one person, the buyer may be purchasing the owner’s personal influence rather than an organisational capability that can endure.

Is the seller genuinely ready to sell?

Stating an intention to sell is not the same as being ready to complete a transaction. Retirement, succession, family considerations or a change in business direction may explain why a seller starts the conversation. What matters more is whether the seller can secure agreement among key shareholders and family members, provide the information required for diligence, and engage seriously on price, timing and transition. An owner who has not fully decided to leave may repeatedly change terms as negotiations progress or try to retain control as closing approaches.

Cooperation and integrity should be judged separately. Disorganised records may simply reflect the limited back-office systems of a small business. Repeated inconsistencies in material facts, deliberate avoidance of important questions or misrepresentation of information already established are different. At that point, the problem is not just a difficult handover; the buyer no longer has a reliable factual basis for a decision. Price and deal terms can allocate known risks. They cannot repair broken trust.

Can the seller support the transition and step back?

More post-closing involvement is not always better. Timing and boundaries matter. If the seller leaves too quickly, there may be too little time for customer introductions, employee communication and the transfer of tacit knowledge. If the seller stays too long and continues to direct employees or make commitments to customers, the company ends up with two centres of authority. The first creates a break in continuity; the second prevents the new management structure from taking hold.

A sound transition keeps the seller engaged for an agreed period and then transfers relationships, knowledge and decision-making authority in stages. The length and scope of the seller’s role, and which customers and employees require joint communication, should reflect the extent of the company’s dependence on the seller. Before closing, the buyer should also understand who is responsible for operations, sales, finance and technical work, and where quotations, customer information and supplier arrangements are recorded.

Third test: are you the right person to run this business for the long term?

Sound fundamentals and a workable transition do not make a company right for every buyer. Acquisition entrepreneurs buy more than an asset; they take on years of operating responsibility. Whether a business is worth acquiring therefore depends partly on who will lead it.

Different businesses call for different operators. One may need a CEO who stays close to day-to-day operations, leads the team and sells personally. Another may place more weight on sector judgment, technical understanding, governance or capital planning. Location, pace of work, the capabilities an operator would need to develop and the business’s realistic growth opportunities all shape whether this is the right long-term role. A buyer need not have every answer before closing. But they should be clear about whether they want to commit for years and whether they and the team can provide the capabilities the business needs most.

Conclusion: the business and the operator both have to fit

Industry and financial analysis show whether the business can continue earning cash. Management depth and seller transition show whether it can change hands without losing customers or operating knowledge. The operator’s own skills, location and commitments determine whether they should be the person to take it over.

Before proceeding, the searcher should be able to say both that the business can function after the owner leaves and that they are prepared to be responsible for its customers, team and cash flow for years.

Sources

• Stanford Graduate School of Business, A Primer on Search Funds: A Practical Guide for Entrepreneurs Embarking on a Search Fund, 2026 edition.
• IESE Business School, Why Some Search Fund Acquisitions Fail and How to Prevent It, 2026.
• Jan Simon, Search Funds: What Does Not Seem to Work and What Can Be Done About It? Part II: Customer Concentration, Market Disruption and Government Involvement, IESE Business School, 2026.
• Jan Simon, Search Funds & Entrepreneurial Acquisitions: The Roadmap for Buying a Business and Leading it to the Next Level, Tellwell Talent, 2021, ISBN 978-0-2288-6176-8.