# Evaluate a small business I'm thinking of buying

A structured first-pass assessment of a business for sale: earnings quality, risks, valuation sense-check, and the questions to ask the owner.

- Topic: Finance & Accounting
- Framework: RTF
- Level: Advanced
- Tags: Finance, Legal, Analyze, Fill-in Template
- Source: https://www.thinkwithprompt.com/prompts/evaluate-a-small-business-i-m-thinking-of-buying

## Prompt

```text
Help me evaluate a small business I am thinking of buying.

**Business:** [WHAT IT DOES, location, years operating, number of employees]
**Asking price and deal terms:** [price, what is included, seller financing, earn-out]
**Financials I have:** [3 years of P&L, balance sheet, tax returns, seller's discretionary earnings (SDE) or EBITDA, add-backs claimed; paste figures or summaries]
**Why the owner is selling:** [STATED REASON]
**My background and plans:** [my experience, whether I will run it, how I will finance it]

Analyze:
1. **Financial trends:** revenue, gross margin, operating costs, and earnings over time, and anything unusual.
2. **Quality of earnings:** test each add-back; flag owner perks, one-off items, and anything that looks inflated. Reconcile reported earnings with tax returns where possible.
3. **Key risks:** customer or supplier concentration, owner dependence, key staff, lease terms, licenses, deferred maintenance, industry trends, and legal or regulatory exposure.
4. **SWOT** focused on what changes after the sale.
5. **Valuation sense-check:** how the asking price compares to earnings using a multiple range I should verify with a broker or valuation professional, plus whether the business can cover the debt payments with room to spare.
6. **Questions for the owner:** 20-30 specific questions grouped by financials, customers, operations, staff, and legal.
7. **Due diligence checklist** and the documents to request before signing a letter of intent.

Work only from the figures I provide; mark missing data as [REQUEST FROM SELLER]. This is general information, not financial or legal advice; I will review the deal with an accountant and attorney before committing.
```

## What to fill in

- WHAT IT DOES, location, years operating, number of employees
- price, what is included, seller financing, earn-out
- STATED REASON
- my experience, whether I will run it, how I will finance it
- REQUEST FROM SELLER

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