Did you know that small business acquisitions often fail to close, even after an initial Letter of Intent (LOI) is signed? Having been on both sides of this statistic, while there are numerous reasons deals fail, I can tell you the reasons often have less to do with deal economics and more to do with process management.
Acquiring a small business is not only about finding the right opportunity — it is about successfully navigating a complex process where time kills deals and every stakeholder has different motivations. After working on numerous deals both for myself and on behalf of other buyers, I have learned that success hinges on understanding who is really on your team, masterful project management, and maintaining momentum through inevitable obstacles.
Before we get to the main part of the article, please keep in mind that while successful add-on acquisitions can improve the value of your business, there are risks involved. And it is far worse to acquire the wrong business or with poor deal terms than to lose out on a potential good acquisition.
The Reality Check: You Are Often Flying Solo
Unlike large corporate acquisitions with dedicated M&A teams, small business buyers frequently shepherd the deal with minimal advisory support. While this keeps costs down, it places enormous responsibility on the buyer to coordinate multiple workstreams simultaneously, maintain deal momentum when parties inevitably slow down, and make critical decisions without the support of a full advisory team.
The key is recognizing early whether you need external expertise and budgeting accordingly—both financially and timeline-wise. I can personally attest how stressful and time-consuming an acquisition can be, and that is before considering that the buyer often also needs to manage his or her business at the same time.
Remember: The Broker Works for the Seller
One crucial realization in any small business acquisition is understanding broker dynamics. Yes, experienced brokers can be excellent team players who genuinely want deals to close. They will share market insights, facilitate communications, and often provide valuable guidance on structuring.
But never forget: The broker’s commission comes from the seller, and their allegiance lies with the seller too. This means information flows may favor the seller’s narrative, pressure tactics often target the buyer to “move faster” or “increase the offer,” and deal-killing issues might be downplayed or reframed.
The solution is not to distrust the broker — it is to maintain healthy skepticism and conduct independent verification of critical assumptions.
The Due Diligence Imperative
Business acquisition demands a comprehensive due diligence process that extends far beyond reviewing financial statements. Your investigation must cover financial health (historical performance, cash flow patterns, accounting practices, working capital dynamics, etc.), legal standing (corporate structure, compliance history, pending litigation, etc.), market position (competitive landscape, customer concentration, growth prospects, etc.), operational factors (key personnel dependencies, supplier relationships, system capabilities, etc.), and other unique aspects of the business you are evaluating.
However, here is the uncomfortable truth: The seller will always know more about the business than you do. No matter how thorough your due diligence is. The buyer needs to realize this is an inherent risk in M&A. However, there are some strategies that can mitigate the risks of this information asymmetry:
- Understanding Seller Motivation: Why is the owner selling? Retirement, health issues, new opportunities, or business challenges? The “why” behind the sale often reveals more about the business’s true condition than any financial statement. Press for honest answers and validate the seller’s stated motivations through your due diligence process.
- Deal Structure Alignment: One of the most helpful acquisition advice I ever received was twofold: “Every deal at an affordable price will have some hair on it…. Use the term sheet to structure the deal in a way that mitigates those risks and red flags”.
The Art of Deal Orchestration
Managing a small business acquisition requires wearing multiple hats: project manager, negotiator, analyst, and team leader. While many owners or executive teams do the work themselves, there are typically many other parties involved as well:
- Seller(s)
- Broker
- Legal counsel (both on the seller’s and the buyer’s side)
- Accountant/Quality of Earnings experts
- Valuation experts
- Lender(s)
- Other Specialists (e.g. if an environmental study is needed, unique legal expertise, IT auditors, etc.)
Each relationship requires different management approaches, but all need proactive communication and clear expectations. Think of yourself as the conductor of an orchestra where every musician needs to play their part at exactly the right time. Moreover, few of these folks are as motivated as you to close the acquisition, and the deal will often fall through unless you work hard on shepherding everyone to the finish line.
Beyond the Due Diligence
In addition to managing the deal itself, you also must start planning for the integration, which starts on Day 1 of the acquisition. This includes key employee retention, customer communication strategies, and operational continuity plans – among many things. The businesses that hit the ground running are those that planned extensively beforehand.
The Real Challenge: Managing Complexity While Maintaining Your Day Job
I know what you are thinking—”This sounds overwhelming, and I still have my current business or job to manage.” And you are absolutely correct! Between due diligence requirements, coordination needs, and decision-making pressures, acquisition processes can feel like running a second full-time job. There is a great risk your existing business may suffer as you shift your attention to the acquisition. While there is no panacea to fully avoid this, the better and more helpful your deal team is, the more you can reap the benefits of continuing to successfully run your business while also increasing the odds of closing a promising add-on acquisition.
The Bottom Line
Small business acquisitions succeed when buyers embrace their role as deal quarterback while building the right support team around them. Understanding stakeholder motivations, maintaining relentless focus on timeline management, and shepherding the deal from LOI signing to deal closure are critical aspects that improves the odds of closing the deal.
The process demands more than financial resources—it requires project management skills, emotional intelligence, and the persistence to push through when deals get complicated.
Important Note: This article only scratches the surface of small business acquisition strategy. There are numerous excellent books and other resources dedicated to this topic that provide deeper insights into valuation methodologies, negotiation tactics, financing structures, and post-acquisition integration. And to stress a crucial point: It is better to miss out on a great acquisition than to close on a bad one.