Dr. Paul Borosky, DBA, MBA
Business Plan Writer & Financial Projections
What Is Due Diligence When Buying a Small Business?
You Can Buy the Desk. You Cannot Buy the Handshake.
A business comes up for sale, it fits right next to yours, and the price feels fair. You buy it. Two weeks later, the customers who made it work start leaving. Business consultant Dr. Paul Borosky, DBA, MBA, has worked through this with 1,000+ owners. This page covers what to check before you buy, especially the things that walk out the door with the seller.
Last Updated: 11/08/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Does Due Diligence Mean When Buying a Business?
Short Answer
Due diligence is the investigation a buyer does before purchasing a business, to confirm what is really being bought. For a small business it covers four questions: how well the business fits your own, whether its earnings support the price, what depends on the seller personally and may leave with them, and how you will bring it into your business after the sale.
Due diligence = fit + earnings against price + what leaves with the seller + your plan to bring it in
Doctor Owl, in Plain English
“You paid for the counter and the ledger. The loyalty belonged to the old keeper, and he just went fishing. Check what is yours before you sign.”
How This Guide Works
Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Colt, a horse who runs forest tours from Dr. Paul’s Fabled Forest Business School Series, as he buys a ferry tour desk and watches its customers walk away. His story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Meet Colt Again: A Horse Who Bought a Desk
Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.
Today he meets Commander Colt, the tour operator and mayor, on the ferry dock, beaming beside the old booking desk he just bought. Colt has just bought the desk, which booked boat trips for five captains for thirty years. The old desk-keeper is retiring. Two weeks later, Greta arrives with the ledger and a worried look.
Why It Matters
Why Do Small Business Acquisitions Go Wrong After the Sale?
Buyers check the equipment, the lease, and the books. Those are easy to see. What is harder to see is how much of the business lives in the seller: their relationships, their reputation, their way of handling the regulars.
When the seller leaves, some of that leaves too. Customers who were loyal to a person, not a business, start drifting. That is key-person risk, and it is the most common surprise after an acquisition.
In the Fabled Forest
Five captains used to send their boat trips through the desk, roughly thirty a week. Within two weeks of the sale, three of them quit using it and started booking their own, from the other side of the dock.
What to Check
What Should You Check Before Buying a Small Business?
- Fit. Does it serve your customers, use your skills, or extend your core? Or is it a separate business you would have to learn?
- Earnings against price. What does it actually keep each month after paying a fair wage to whoever runs it? See what a fair price is.
- What walks out with the seller. Relationships, know-how, licenses, and reputation that belong to the person, not the business.
- Contracts and commitments. What is in writing with customers, suppliers, and staff, and what is only a handshake.
- How you will bring it in. Who runs it, what changes, and what stays the same for customers.
In the Fabled Forest
The desk’s old book held thirty years of names: families, captains, and dates. It held no prices at all. Every deal had been a handshake with the old desk-keeper, a cormorant, and the handshakes had retired with him.
Bringing It In
How Do You Keep Customers After Buying a Business?
Keep the seller involved for a transition period, introducing you personally to the key customers and partners. Put the important handshake deals into writing. And give the business something new that only you can offer, so customers have a reason to stay that did not exist before.
Plan this before you sign, not after the customers start leaving. A transition agreement with the seller is far easier to negotiate when they still want the sale to close.
In the Fabled Forest
The retiring desk-keeper, an old cormorant, signed on part time for a short handoff, introducing Colt to each captain in person. The desk also launched a combined ridge ride and boat trip that only Colt’s company could sell, and each captain’s cut was put on paper.
The Numbers
What Did the Desk Earn Before and After?
Here is the desk’s performance through the sale, as tracked on Greta’s board.
| Before the sale | First two weeks | After the transition plan | |
|---|---|---|---|
| Captains booking through the desk | 5 of 5 | 2 of 5 | 5 of 5 |
| Monthly earnings | About 30 | Falling | On pace for about 26 |
Step 1: The loss. Three of five captains gone = 60 percent of the desk’s partners walked out in two weeks.
Step 2: The cost to keep them. A small weekly fee for the former owner’s two mornings a week, for two months.
Step 3: Your version. List the seller’s top customers and partners. For each, ask: would they stay if the seller vanished tomorrow? Every no is value you may be paying for and not getting.
Illustrative numbers in forest coins, from the book. Use the seller’s actual records.
Step by Step
How Do You Do Due Diligence on a Small Business?
Four steps before you sign a purchase agreement.
Confirm the fit.
Write one sentence on how this business strengthens yours. If you cannot, think twice.
Test earnings against price.
Adjust the seller’s numbers for a fair owner wage and any customers likely to leave.
Map what depends on the seller.
Interview key customers and partners. Ask what keeps them there.
Write the transition plan into the deal.
Seller introductions, written agreements, and what you will add that is new.
In the Fabled Forest
Doctor Owl’s scroll for Colt asked him to name what he was really paying for, what might leave when the seller left, and how he would fold the desk into Forest Trails.
Colt’s Full Story
Did the Captains Come Back?
This page gives you the short version. The book gives you the whole summer: the brass bell and the old stool, the ledger Greta carried up the path, the book of names without a single price, the cormorant in his straw hat, and who else across the dock had been planning to buy that desk.
Every chapter of Growth for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.
Dr. Paul has written plans like this for real owners, including a front desk manager buying the Virginia Beach inn she ran (Virginia Beach business plan writer), a Raleigh buyer making an offer on a hauling company (Raleigh business plan writer), a couple buying a Cincinnati countertop company (Cincinnati business plan writer) and a daughter taking over her family laundromat in Cleveland (Cleveland business plan writer).
A Business Consultant’s View
What Does a Consultant Look For That Sellers Don’t Mention?
Dr. Paul Borosky, DBA, MBA · Business Consultant
When Dr. Paul reviews a business for sale, he looks hardest at what the seller does not mention: how many customers deal only with the owner, which deals are handshakes rather than contracts, and how much of the revenue depends on one person’s relationships. Sellers describe the equipment, the location, and the sales figures. They rarely describe the phone calls only they make. He has buyers interview a handful of key customers before closing and builds a written transition period into the deal. The goal is not to find a reason to walk away. It is to pay for what actually transfers, and to keep it after the keys change hands.
FAQ
Which Questions Come Up Before Buying a Business?
What is due diligence when buying a small business?
What is the biggest risk when buying a small business?
How do I keep customers after buying a business?
Keep Going
What Should You Read Next on Growing by Acquisition?
This is foundation 18 of 20. These pages build on it. New to a term on this page? Every one is in the growth glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with 14+ years of experience and 1,000+ clients served. Weighing a growth move and want a second set of eyes? See business consulting and prices.
This page is for general educational purposes only. It is not legal, financial, employment, or other professional advice. Figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.