10 Mistakes First-Time Buyers Make When Acquiring a Business
Buying a business is one of the fastest ways to grow.
Done well, it can add years of revenue, a trained team, and a proven model overnight.
Done poorly, it can bankrupt you.
That might sound scary, but it's a time-tested strategy the most successful entrepreneurs have used for the past century—you just need to do it right.
If you're a business owner or founder in the $2M–$20M revenue range, this guide walks through the most common mistakes first-time buyers make when buying a business—and how to avoid them.
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Mistake 1: Chasing a “deal” without a strategy
Many first-time buyers start with an eye-catching listing instead of a plan.
They see an attractive multiple, a motivated seller, or a broker email—and rush to make an offer. Six months later, mid-due diligence and thousands of dollars in, they realize the business doesn't fit their goals.
What to do instead
Start with a clear thesis:
What business model are you buying?
In which geography?
In which revenue/EBITDA range?
With what margin profile?
Define the “job” of this acquisition:
Add capacity?
Enter a new region?
Bolt-on to an existing platform?
Write down non-negotiables before looking at deals (for example: minimum EBITDA, recurring revenue %, customer concentration limits).
When you know exactly why you are buying a business, it becomes much easier to walk away from deals that do not fit.
Mistake 2: Underestimating working capital needs
First-time buyers often underestimate how much cash the business needs after closing. It is easy to focus on the purchase price and forget the money required to actually run the company.
Working capital is a complex topic and too big to unpack fully in this article, but a simple way to think about it is the “gas in the tank” that keeps the business moving once you own it. The purchase price covers the car. Working capital is the fuel that lets it actually leave the driveway.
What to do instead
Remember that you are not only buying assets and goodwill. You are also taking on payables, receivables, payroll, and day-to-day cash demands.
Build a simple 13-week cash flow forecast for the target so you can see the real cash swings.
Ask: “How much cash has the seller historically kept in the business to operate comfortably?”
Clarify which working capital is included in the purchase price and how the “normalized” level will be calculated at closing.
Stress test downside scenarios: slower collections, a few lost customers, or surprise expenses.
A great business bought with too little working capital can turn into a crisis within 90 days of closing. If you are unsure how much “gas in the tank” you need for a specific deal, or how working capital is being handled in your LOI or purchase agreement, you can contact us here with questions about working capital and we will point you in the right direction.
Mistake 3: Ignoring customer concentration risk
On paper, a business with $1M in EBITDA and a low multiple can look attractive.
But if one customer represents 85% of revenue, there is a lot of risk.
If that customer leaves, your “deal” might disappear.
What to do instead
Map the top 10–20 customers with revenue, margin, and contract terms.
Identify any customer over 10–15% of annual revenue as a concentration risk.
Understand renewal dates, contract length, and termination clauses.
Ask for a view on how relationships are held: by the owner, by the sales team, or by a broader group.
Customer concentration is not always a deal-killer, but it should affect price, structure, and your post-close plan.
Mistake 4: Relying on “add-backs” without verification
M&A Advisors will present “adjusted” EBITDA with a list of add-backs—owner salary, one-time expenses, “growth investments,” and more.
Great M&A Advisors will only add legitimate add-backs. Not-so-great advisors will add sketchy add-backs to make EBITDA higher and boost the valuation.
What to do instead
Separate add-backs into three buckets:
Clear and verifiable (for example, one-time legal fees, clearly documented).
Plausible but judgment-based (for example, partial owner salary).
Aggressive or speculative (for example, “future marketing spend”).
Rebuild EBITDA from the general ledger, not just the summary financials.
Create two valuation cases:
A conservative case using only clear add-backs.
A base case that includes some judgment-based items.
Never pay a premium multiple on aggressively adjusted earnings.
Mistake 5: Skipping deep operational due diligence
Financial due diligence is important, but it is not enough.
First-time buyers often verify the numbers and stop there, assuming operations will “run themselves” post-close. That is rarely the case.
What to do instead
Go beyond the P&L and balance sheet and ask:
How are jobs, projects, or customers actually delivered?
Who are the true key people in the business?
Which processes are documented vs. “in someone’s head”?
What systems and tools does the team rely on daily?
Where does the owner still step in to fix problems?
Spend time with the owner and shadow their day-to-day operations to understand the business in detail. Make sure you can see yourself taking over their role and that it's something you're genuinely passionate about—without that motivation, growing the business will be an uphill battle.
You are buying a living system, not just a set of numbers.
Mistake 6: Underestimating owner dependence
In many privately held companies, the owner is the:
Top salesperson
Final decision-maker on pricing
The entire HR department
Keeper of key customer relationships
If that owner disappears on day one, the business might look very different in month three.
What to do instead
Map decisions: What decisions must currently go through the owner?
Map relationships: Which customers, suppliers, and team members are primarily attached to the owner?
Review calendars and email patterns to understand how involved the owner really is.
Negotiate a real transition plan:
Clear handover period.
Defined role post-close (for example, part-time advisor for 6–12 months).
Incentives aligned with a smooth transition.
A strong business should be able to run without the previous owner doing everything. If it cannot, the purchase price and structure should reflect that.
Mistake 7: Over-leveraging the deal
Debt can be a powerful tool when buying a business.
It can also turn a solid acquisition into a fragile one.
First-time buyers are often encouraged to maximize leverage to “juice returns” or “reduce the cash they need to invest.” That looks great in a spreadsheet, but it leaves little room for the unexpected.
What to do instead
Size debt to resilient cash flows, not best-case projections.
Aim for conservative coverage ratios (for example, having enough free cash flow to comfortably cover debt service even if EBITDA drops by a meaningful amount).
Match the debt structure to the business model. Asset-heavy, stable businesses can typically support more debt than cyclical, project-based companies.
Keep some equity in reserve for post-close investments and surprises.
Buying a business is not only about getting the deal done—it is about keeping the business healthy after you own it.
Mistake 8: Neglecting culture and leadership fit
A deal can be perfect on paper and still fail because of people.
If your leadership style, values, or expectations clash with the existing team, you may see key departures right when you need stability the most.
What to do instead
Spend real time with the management team before closing, not just the owner.
Ask how decisions are currently made, how performance is managed, and what “good work” looks like in their eyes.
Listen for cultural red flags:
“We cannot keep good people.”
“Everyone just does their own thing.”
“We are waiting for the owner to decide.”
Be honest about your own style and expectations and test for alignment.
You are not only buying revenue. You are stepping into a leadership role inside an existing culture.
Mistake 9: Failing to plan the first 100 days
Many buyers pour all their energy into closing, then “wing it” post-close.
The result: confusion inside the team, mixed messages to customers, and delays on obvious improvements.
What to do instead
Create a simple, written 100-day plan that covers:
Communication
How and when you will announce the deal internally.
What employees will hear on day one, week four, and month three.
How and when key customers and suppliers will be informed.
Stability
Ensure payroll, benefits, and day-to-day operations are uninterrupted.
Identify key people and put retention plans in place.
Quick wins
Fix obvious pain points for staff or customers that do not require major change.
Clean up small process issues that build trust with the team.
No-go list
Explicitly list what you will not change in the first 100 days (for example, pricing, roles, or key systems).
A clear first 100 days gives everyone confidence and buys you time to design deeper changes.
Mistake 10: Going it alone
Buying a business is a complex transaction with legal, financial, tax, and human implications.
First-time buyers sometimes try to “save money” by minimizing professional help. In practice, that can be the most expensive decision of the entire deal.
What to do instead
Build a small, experienced deal team:
M&A advisor or investment banker for deal sourcing, valuation guidance, and negotiation support.
Accountant familiar with quality-of-earnings (QoE) work in your industry.
Lawyer with M&A experience, not just general corporate work.
Financing partner who understands acquisition lending.
You still make the decisions.
The right team helps you see risks clearly and negotiate from strength. Reach out to the Breakwater team if you need advice or a recommendation for experienced M&A professionals for your deal.
How to approach buying a business the right way
If you are considering buying a business to accelerate growth or diversify your holdings, a few practical steps can improve your odds:
Write a one-page acquisition thesis (what you are buying, why, and at roughly what size).
Set clear financial guardrails: minimum EBITDA, maximum leverage, and customer concentration limits.
Decide upfront what kind of role you want post-close: active operator, executive chair, or portfolio owner.
Commit to running a structured process, not reacting to random inbound deals.
Buying a business can be one of the best capital allocation decisions you ever make—as long as you avoid the mistakes that trip up most first-time buyers.
Recommended reading
If you are serious about buying a business, these guides will help you go deeper:
Frequently Asked Questions (FAQ)
Will I get less money by selling to my employees?
Not necessarily. Headline valuation can be similar to a third-party sale. The difference is often how much you receive at close versus over time, and how much risk you keep through seller notes, earn-outs, or rolled equity.
What if my employees cannot raise enough capital?
You have options:
Adjust the purchase price or structure
Increase the role of seller financing or earnouts
Bring in an outside capital partner alongside your team
Decide that an employee sale is not viable right now and return to a broader sale process
The key is to test fundability early, not after you have emotionally committed to one path.
Do I have to offer ownership to every employee?
No. Many successful transitions focus ownership on a small leadership group, while offering other forms of participation to the wider team (bonuses, phantom equity, profit-sharing, or future option pools).
How long does an employee buy-out usually take?
From first serious conversation to closing, most owner-to-employee deals take 3–9 months, depending on:
How prepared your financials and legal documents are
How quickly lenders and any investors can move
How complex the ownership and governance structure is
What happens if the business struggles after the sale?
This is where deal design matters. Sensible leverage levels, realistic earnout targets, and clear governance can reduce the chances of crisis. But like any buyer, your employees take on risk — and if you carry a seller note or minority stake, you share some of it.
Recommended Reading
If you are considering selling to your employees, these topics pair well with this guide:
Understanding valuation and exit options
Financing and deal structure
Planning the transition
What to do if you already received an offer
Frequently Asked Questions: Buying a Business for the First Time
1. Is it better to buy a business or start one from scratch?
It depends on your goals, timeline, and risk tolerance. Buying a business lets you skip the "zero to one" phase and acquire existing customers, revenue, and a team. Starting from scratch gives you full control over the model but usually takes longer and carries more execution risk. For many owners in the $2M-$20M range, buying can be the faster, more predictable path to growth-if you are disciplined about strategy, valuation, and integration.
2. How much should I pay for a business?
There is no single "right" multiple. Price depends on earnings quality, growth prospects, customer concentration, industry, and how dependent the business is on the owner. Most buyers start with a multiple of EBITDA, then adjust up or down based on risk. The more concentrated, owner-dependent, or messy the operations, the more conservative your valuation and deal structure should be.
3. How do I know if a business is too dependent on the owner?
Look at how decisions and relationships actually work today:
Who makes final calls on pricing, hiring, and key customers?
What happens when the owner is away for two weeks?
How many processes are documented versus "in the owner's head"?
If the owner is the top salesperson, main problem-solver, and the person customers insist on talking to, you are buying both the business and a key-person risk. That should change how you approach transition planning, earnout, and price.
4. What is working capital, and why does it matter when I buy?
Working capital is the cash the business needs to operate day to day-payroll, suppliers, and other bills while you are waiting to collect from customers. Think of it as the "gas in the tank." The purchase price covers the car. Working capital is the fuel that lets it leave the driveway. If you do not negotiate working capital carefully, you can close a "good" deal on paper and be short on cash within a few months.
5. How much debt is too much when buying a business?
Debt should be sized to resilient cash flows, not best-case projections. A useful test is to ask: "If EBITDA dropped meaningfully for a year, would this business still comfortably cover debt service and basic reinvestment?" If the answer is no, leverage is likely too high. Asset-heavy, stable companies can usually support more debt than project-based or cyclical businesses.
6. What red flags should I watch for in add-backs and "adjusted" EBITDA?
Be cautious when:
There is a long list of vague or poorly documented add-backs.
"One-time" expenses seem to recur every year under different labels.
Large adjustments rely on the seller's judgment rather than hard evidence.
Treat clear, well-documented items differently from aggressive, story-driven ones. Build a conservative case that only includes clean add-backs, and avoid paying a premium multiple on numbers that only work in a slide deck.
7. How do I reduce the risk of losing key customers after closing?
Start by understanding who really owns the relationships today. Then:
Identify your top customers and how much revenue they represent.
Ask about their contract terms, renewal dates, and switching risks.
Include a transition plan where the seller helps introduce you and stay involved long enough for relationships to transfer.
In some deals, you can also use earnouts or seller financing to align incentives around retention.
8. When should I bring in an M&A advisor or other professionals?
If you are buying a business in the $2M-$20M revenue range, it is usually worth involving an M&A advisor, experienced accountant, and lawyer as soon as you move beyond casual interest into serious exploration. They can help you:
Screen opportunities against your strategy.
Pressure-test valuation and structure.
Run proper due diligence.
Negotiate terms and protect you in the purchase agreement.
Trying to "save" on professional help often costs more later in surprises, bad terms, or missed risks.
9. How long does it typically take to buy a business?
For a first-time buyer, a full process-from initial conversations to closing-often takes several months. Finding the right target alone can take time if you are being disciplined. Once you have a signed LOI, expect a structured period for diligence, financing, legal work, and final negotiations before you reach closing.
10. How do I know if a specific business is the right fit for me?
Beyond the numbers, ask yourself:
Does this business clearly support my broader strategy?
Am I genuinely interested in the customers, industry, and day-to-day work?
Do I have (or can I hire) the skills to lead this team and model?
Does the risk profile (debt, customer concentration, owner dependence) fit my personal balance sheet and appetite?
If you cannot answer "yes" to those questions, it may be a good business-for someone else.
Key takeaways
Start with a clear acquisition strategy before looking at individual deals.
Do not underestimate working capital needs or over-leverage the business.
Treat customer concentration, owner dependence, and aggressive add-backs as real risk factors.
Go beyond financials: understand operations, culture, and leadership fit.
Plan your first 100 days before closing so the team, customers, and lenders see stability.
Build a small, experienced deal team instead of trying to navigate the process alone.
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