Guides
Business plan for business acquisition: due diligence you can put on paper
A business plan for business acquisition has to reconcile the seller's records before it projects anything. The order of work, with a duration on every stage.
What to take away
- A business plan for business acquisition is a due diligence record with a funding narrative attached.
- SBA 7(a) lenders compare the plan's figures with the seller's returns and bank statements, not with the prose.
- Asset and stock purchases change the liabilities a buyer inherits and the allocation schedule the plan must carry.
- Missing seller records cause most closing delays.
- A straightforward deal runs about 8 to 16 weeks from first offer to funding. A typical split: 1 to 2 weeks to sign the LOI, 3 to 6 weeks for diligence, 3 to 6 weeks for underwriting, and 1 to 2 weeks to close.
The short version
Buyers of existing businesses inherit a trading history. That history is the asset. The plan shows what the history contains, how it should perform under new ownership, and what could break it.
A lender reads the plan to answer one question. Does the cash flow that exists today cover the debt being added? Market size, management background, and risk sections all serve that answer.
This differs from a startup plan. A startup projects forward from nothing. A buyer starts from an existing trading history and projects a modest step forward.
Lenders under the 7(a) program will read the same three years of returns and interim statements. Quote those numbers rather than paraphrasing them. The SBA 7(a) program page lists the documentation and use-of-proceeds rules lenders check.
The first page a credit officer sees is often the executive summary alone, so an executive summaries checklist helps you decide what earns a place on it.
Stage by stage
Each stage carries a duration. The estimates assume a seller who cooperates and a business free of litigation or environmental exposure.
| Stage | Typical duration | What it covers |
|---|---|---|
| Letter of intent | 1 to 2 weeks | Price, structure, and exclusivity put in writing. |
| Records intake | 1 to 2 weeks | Seller returns, bank statements, and the lease handed over. |
| Due diligence | 2 to 4 weeks | Figures verified, add-backs tested, contracts reviewed. |
| Underwriting | 3 to 6 weeks | Lender credit review, appraisal, and collateral check. |
| Closing | 1 to 2 weeks | Assets or entity transferred, then funds released. |
Acquisition plan stages and durations
- Records intake1 to 2 weeks
- Verification2 to 3 weeks
- Structure and allocation draft1 to 2 weeks
- Plan drafting2 to 3 weeks
- Review and revision3 to 6 weeks
The due diligence work sits in stages two and three, and every figure in the plan should trace back to a statement or a return.
What has to exist before what
The blocking prerequisite: the allocation schedule cannot be drafted until the buyer chooses between an asset purchase and a stock purchase. That choice decides which liabilities transfer and whether the seller's contracts, permits, and tax attributes survive closing.
Asset or stock purchase decision
Which purchase structure will the buyer choose?
Asset purchase -> allocation schedule drafted
Stock purchase -> liabilities and contracts transfer
Drafting the risk section also requires documents the buyer may not hold yet: lease assignment terms, any franchise agreement, and open code issues. A lender working from SBA guidance on the standard sections expects those items inside the plan, not in an appendix.
The market section depends on a defined trade area, not a national figure, and market analysis trends covers how to keep that section traceable to a source.
Where it stalls
One failure mode recurs. Call it the phantom add-back.
Phantom add-backs: the seller adjusted earnings for a personal vehicle, family payroll, or one-time expenses, and none of it appears in the tax returns. The lender cannot verify the adjustments, so it removes them. Debt service coverage drops below the lender's floor, and the file stops moving. Cause: the adjustments lived in conversation, never in a document.
Worked example, with illustrative figures. The seller reports net income of $180,000 and claims $45,000 of add-backs for a personal vehicle and family payroll. The returns show none of it.
Debt service on the proposed loan is $165,000 a year. On the seller's adjusted figure, debt service coverage (DSCR) is 1.36. Remove the unverified $45,000 and DSCR falls to 1.09, under the coverage floor most lenders apply.
A second stall comes from entity mismatches. When a seller operated as an LLC and the buyer plans a corporation, the asset or stock decision carries different tax results for both sides. The IRS treatment of LLCs explains the federal side while noting that states set formation rules.
Describing the entity being bought is its own trap. Sellers write marketing copy; company descriptions format separates the operational facts a lender needs from that copy.
What to do while waiting
Underwriting takes weeks. Use them on tasks that do not depend on an approval.
- Get the lease assignment in writing, signed by the landlord.
- Open the business bank account and deposit the equity injection.
- Collect written consents from customers with change-of-control clauses.
- Photograph and inventory every fixed asset in the allocation.
Two documents answer more lender questions than any other pair: the seller's last three federal returns and the current lease. Get both before drafting.
Use the organization plans checklist to build a document register: it names who holds each record and when it expires.
