Acquira

When you're buying a business, the number on the bottom of the P&L isn't the one that matters.

Net profit is influenced by owner decisions — how much they pay themselves, whether family is on payroll, how the business is structured for tax efficiency.

SDE cuts through all of that. It shows you the cash the business actually generates, normalized for the current owner's choices.

**Net profit vs SDE — a real example:**

A business shows $120K net profit.
Owner salary: $180K (above-market)
Personal vehicle: $18K
Travel: $12K
One-time legal fees: $25K

Adjusted SDE: $355,000.

At a 3.5x multiple, you'd value this at:
- Based on net profit: $420K
- Based on true SDE: $1.24M

That gap is where buyers overpay or sellers undervalue.

Always ask for SDE.

Business acquisitions can be an exciting thing.

There are often large sums of money at play; negotiations can get heated, and a lot is at stake.

But if you're not careful, you can get swept up in the excitement and end up with a bad deal.

The best protection against this is a well-defined investment thesis. An investment thesis allows you to lay out your risk tolerance to quickly and efficiently disqualify bad deals or identify good deals.

An investment thesis can be built around several criteria, including geographic scope, industry, brand moat, company culture, etc. Whatever criteria you use, the thesis will help to remove subjective opinions and emotions from the analysis of a deal, as well as quickly screen opportunities and separate the signal from the noise.

Even though it is essential, many Acquisition Entrepreneurs will skip this step due to their eagerness to get started – or ignore it entirely.

This eagerness can lead people to make bad decisions and buy bad companies. In this article, we'll go into how you can define your risk tolerance and what factors you can use to analyze deals; plus, we'll share a cautionary tale from our own acquisition experiences.

Learn more:

Acquisition Deal Risk: How to Identify, Analyze, and Mitigate - Acquira Accurately measuring business acquisition risk is crucial for making informed decisions. Learn about the key factors and techniques here.

Most business buyers spend their time scrolling listing sites.

The best buyers are building relationships with people who hear about deals before they're listed.

Here's a stat worth sitting with: roughly 70% of business transactions happen off-market — through direct outreach, broker relationships, and word-of-mouth referrals.

If you're only looking at what's publicly listed, you're competing for the bottom 30% of deal flow.

The five sources that drive off-market deal access:

1. Direct outreach to owners (cold email, direct mail, LinkedIn)
2. Broker relationships — being the first call before a listing goes public
3. Industry networks — owners who refer each other
4. LinkedIn cold DM to operators in your target vertical
5. CPA and attorney referrals — they know who's thinking about selling first

The best businesses are sold before they're ever listed.