Buying a Small Business From a Private Seller: The Safety Protocol
Most small businesses that change hands under $500,000 are sold directly, owner to buyer, with no broker involved. That is good news for both sides: the broker fee on a business sale runs 10 to 12 percent. It also means nobody is running the process, and a business purchase has more moving parts than any other private transaction. Here is the process, in order.
1. Verify the human before the business
Before you spend weeks on due diligence, verify the seller is who they say they are: government ID, and confirmation that they actually control the entity being sold. Ask for the legal entity name and check it against your state's business registry. The registered agent and officers should connect to the person you are talking to.
2. Structure: buy assets, not history
Small-business purchases are usually asset purchases, not stock purchases. You buy the equipment, the name, the customer list, the phone number, and the goodwill. You do not buy the entity itself, and with it you do not buy its unknown liabilities, lawsuits, and tax history. Your agreement should say, explicitly, that no liabilities transfer except those listed in writing.
3. Due diligence, the honest minimum
You do not need an MBA. You need to confirm four things:
- Revenue is real. Bank statements, not spreadsheets. Twelve months minimum, matched against tax returns. Sellers show P&Ls; fraudsters format them nicely.
- The customers stay. Are the top five customers contracts or relationships with the departing owner? Concentration above 20 percent in one customer is a price conversation.
- The assets exist and are owned. Equipment list with serial numbers, checked against any UCC liens filed with the state. A lien you missed becomes your lien.
- The seller stays reachable. A 30-day transition assistance clause, in writing, with some payment held back until it is delivered.
4. Use milestone escrow, not a handshake at closing
Business deals should not be one payment. The professional structure is milestone escrow through a licensed service such as Escrow.com:
- A deposit funds escrow and opens due diligence. The seller knows you are real; your money is protected while you verify.
- The balance funds escrow at signing.
- Funds release at closing, with any transition holdback releasing after the transition period.
Neither side is ever exposed for the full amount while anything remains unverified.
5. The closing set
At minimum: an asset purchase agreement with the asset list and excluded-liabilities clause, a bill of sale, assignment of the lease if there is one, non-compete for the seller within a reasonable scope, and the transition assistance terms. Have your own attorney review the final set. The few hundred dollars is part of the purchase price, not an extra.
The short version
Verified seller, asset purchase, bank-statement due diligence, milestone escrow, papered closing with counsel review. Deals that follow the sequence close safely. Deals that skip a step become stories people tell in forums.
Close it properly
PrivateClose is a private transaction desk. Both parties verify government ID, the agreement is drafted for you, funds are held by Escrow.com, the licensed escrow service, and the deal closes into a bound dossier you keep. The fee is one percent, from $1,500, collected only when your deal closes.