Preparing an Investment Thesis to Buy a Small Business

Buying a small business can feel a lot like dating. Without knowing what you’re looking for, you might waste months on bad matches, ignore red flags, or worse—end up with something that looks great on paper but is completely wrong for you in real life.

That’s where an investment thesis comes in. Think of it as your “business dating profile.” It spells out exactly what kind of company you want to acquire and why. Done right, it saves you time, heartbreak, and potentially a lot of money.

Why You Need an Investment Thesis

Picture walking onto a used car lot and saying, “I’ll buy anything that runs.” That’s essentially what business buyers do when they start shopping without a thesis. You’ll end up wasting time looking at businesses that don’t fit your goals—or worse, making an offer on something that does not suit your skills, lifestyle, or financing capacity.

A thesis gives you:

• Focus – You know where to spend your energy.
• Efficiency – You can say “no” faster (which is just as important as saying “yes”).
• Credibility – Brokers and lenders take you more seriously when you know what you’re after.

Core Components of a Small Business Investment Thesis

Personal Fit and Role Preference

Be honest with yourself here. Do you want to be in the trenches running day-to-day operations, or do you picture yourself more as a conductor with managers handling the instruments? Owning a business is a lifestyle choice. If you hate early mornings, maybe skip the bakery listings.

Industry Focus

Choosing an industry is like picking a neighborhood—you’ll be living there for a while. Your background and interests matter, but so do the fundamentals: Is the industry growing? Is it stable? If it’s so trendy that your friends are all talking about it at brunch, chances are the prices are inflated.

Business Size and Financial Metrics

You wouldn’t buy a house without knowing your budget. Same goes for a business.

Define:

• Revenue range (ex: $1M–$5M)
• Cash flow (SDE or EBITDA) you need to live comfortably
• Growth potential you’re excited to chase - Too small and it won’t feed your goals; too big and you’ll choke on the financing.

Geographic Focus

If you’re going to be hands-on, don’t buy a business three states away unless you also enjoy frequent flyer status. Local economies and demographics matter, but so does your daily commute.

Deal Structure & Financing Preferences

Know how you want to pay for it before you shop. Will you use an SBA loan, seller financing, investor capital, or your own cash? Your lender will want clear answers, not wishful thinking. (Hint: “I’ll figure it out later” is not a financing strategy.)

Strategic Rationale

This is the “why.” Why this type of business? Maybe it has recurring revenue, maybe it’s in a fragmented industry that’s ripe for consolidation, or maybe you see opportunities to add value with your skillset. Also, look at the bigger picture.  What is your desired endgame?  How does this fit into your overall life plan?  If your answer is just “because it makes money,” go back to step one.

Common Mistakes Buyers Make

Being too broad: “I’ll buy any business that makes money” is like saying “I’ll date anyone with a pulse.” Not a great filter.

Ignoring lifestyle fit: Don’t buy a bar if you want to be in bed by 9 PM.

Overestimating yourself: Just because you watched Shark Tank doesn’t mean you’re ready to run a biotech lab.

Forgetting financing realities: Champagne taste with a beer budget doesn’t work in acquisitions.

Putting It All Together

Once you’ve nailed the basics, write it out. Keep it short and clear, like an elevator pitch:

“I’m seeking to acquire a service-based business in the Southeast with $500K–$1.5M in SDE, recurring revenue, and a strong management team in place. My background in logistics positions me to grow through operational efficiency.”

Boom. Simple, focused, and far better than “I’ll know it when I see it.”

This thesis becomes your filter. It helps you (and your advisors) quickly say “yes” or “no” to opportunities without second-guessing. When you share it with brokers, lenders, or investors, you’ll stand out as a serious buyer who knows exactly what they’re looking for.

Think of it as your business buyer resume—a one-page profile that communicates what you want, why you want it, and how you’ll make it successful. Not only does this give you confidence, but it also builds credibility in the marketplace. Sellers and intermediaries are more likely to bring you deals that fit because they understand your criteria.

Your thesis is not static. As you review more deals and gain experience, refine it. Maybe you realize you’re comfortable with a slightly larger size, or you discover an adjacent industry that fits your skill set. The thesis should evolve with your learning while still keeping you disciplined and focused.

Next Steps

• Share your thesis with your advisors and lender (they’ll thank you).
• Use it to filter listings quickly.
• Refine it as you learn more (yes, your first draft probably won’t be your last).

An investment thesis won’t guarantee you the perfect business, but it will keep you from wasting time on bad fits and dead ends. It’s your compass, your North Star, and your reality check all in one.

Buying a business is a big move—so go in with a plan.

Otherwise, you might just end up with the entrepreneurial version of a timeshare.