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How to Know If a Deal Is a Good Deal: Acquisition Evaluation for Small Business Owners

How to Know if a Deal is a Good Deal

As a business owner with revenues in the $1–10 million range, you face the question all the time: should I buy this business or not? The boardroom call we analyzed delivers the clearest answer: you must base that decision on disciplined numeric evaluation. It is backed by case study insights, investor mindset coaching, and real tools that make acquisition decisions logical and repeatable.

Four Financial Drivers That Matter First

If you want to know if a deal is a good deal, start with these four indicators:

  1. Three-year EBITDA trend
  2. Debt coverage ratio using projected debt service
  3. Recurring revenue stability and ownership transition plan
  4. Alignment with strategic capability or geographic fit

The speakers emphasized that going into a deal and obsessing over every line item on the income statement is not useful early on. Instead, if those four things check out, you have enough confidence to move forward.

The Case Study Walkthrough: CleanFlow Linen Acquisition

Rob Williams led the discussion through the real deal that Sophie evaluated. She was transitioning from corporate to owning a business. The acquisition hinged on clear numeric evaluation:

  • Revenue: 95% recurring
  • Owner: aging founder with a solid exit plan
  • Leadership: a capable second-in-command already in place
  • Asking Price: $6 million

Using his spreadsheet model, they projected an SBA loan—10-year amortization at 9 percent interest. They calculated how much debt service would cost annually based on the business’ EBITDA.

They discovered the business could support the debt with room to spare. Even if revenue declined 20 percent, the debt coverage ratio stayed above thresholds, and the cushion left was about $850,000 annually after servicing the debt.

That cushion is what validated Sophie’s ability to pay and still operate and grow the business.

How to Model the Deal Yourself

Gather the Top-Line Numbers

Begin with 3-year revenue and EBITDA. Confirm any seasonality. Do not get hung up on balance sheet detail yet.

Create a Simple Debt Model

Using standard SBA terms, calculate annual debt repayments. Then divide adjusted EBITDA by annual debt service to get your debt coverage ratio (DSCR). A heated benchmark is 1.8 or ideally 2.0.

Adjust EBITDA for Real Ownership

Subtract costs that the owner currently pays that you would not continue under your ownership. These include:

  • Owner’s salary and bonuses
  • Personal perks or travel
  • One-time marketing or sale prep expenses

Then add necessary costs you will incur:

  • Salary for a new general manager
  • Systems and platforms
  • Planned capital expenditures (CapEx)

This gives your true operating cash flow.

Build the Synergy Story

Identify what kills duplication once you own the business. Example: integrating truck routes or linen contracts with your existing footprint. This is how you justify paying more than EBITDA alone might demand, if synergy exists.

Common Pitfalls to Avoid

  • Emotional attachment—One person on the call fell in love with a deal before modeling it. That let terms slide and red flags grow.
  • Relying on future upside—Lenders and SBA care about current performance, not projections or growth stories.
  • Failing to renegotiate as terms change—Terms can shift after initial LOI or during due diligence. Be ready to adjust pricing or walk away.
  • Neglecting seller dependency—If the owner holds a key relationship, it’s a risk. Look for structure that doesn’t collapse when they leave.
  • Trusting brokers too much—Verify every variance directly with the seller or through the seller’s data.

Five Questions That Reveal Real Business Value

Ask these internally or of the seller:

  1. What financial variances occurred month to month, and why?
  2. Where did owner-infused cash enter to support revenue figures?
  3. Which large contracts or drugs account for outsized revenue?
  4. Which marketing was inflated to make the business appear better than it truly was?
  5. How much of the earnings hinges on the owner’s personal involvement?

Your goal is not perfection. Your goal is clarity. Understand where the performance is recurring, where risk lies, and what you must protect.

How Sophie Wrote an Offer the Seller Could Respect

Rob and Sophie submitted an offer of $4.5 million for the CleanFlow business. They did not lowball. They systematically built a defensible argument:

  • Adjusted EBITDA under her ownership
  • Any headcount and systems costs she would incur
  • Projected synergies from integrating into her existing model
  • Debt model showing healthy coverage and bottom-line protection

The seller saw professionalism and thought continuity. That secured the deal even though it was below asking price.

Getting Into the Owner-Investor Mindset

This is not about passion. It is about precision. You must transition from owner-operator thinking (“I love this business”) to owner-investor thinking (“Does the business support this deal?”). That shift allows you to:

  • Run more deals in parallel
  • Leave emotion out of early-stage decision
  • Walk away when a deal looks shaky
  • Deliver deals that meet your criteria every time

Final Call to Action: Use This Framework on Your Next Deal

If you want to know if a deal is a good deal, run through this playbook:

  1. Gather EBITDA and revenue data
  2. Model debt service and test a 15–20% drop scenario
  3. Build adjusted EBITDA with real adjustments
  4. Add synergy analysis and risk questions
  5. Draft an offer backed by facts—not feelings

This plays repeatably. And it allows you to scale: once you buy one business following this method, you can do it again.