# Source & Screen Deals

Stage 4 of 7 in buying a business.

On-market coverage plus off-market outreach every week, then decline quickly, scrutinize add-backs, and anchor value to what debt service supports.

Sourcing and screening are one loop: fill the funnel, then empty it fast. Deals come from two channels, on-market (brokers, marketplaces, aggregators) and off-market (direct outreach to owners who haven't listed), run as a weekly pipeline with real numbers. Screening is a speed game on top of that: hard kill-criteria to clear the noise, then real work on survivors. That means [CIM](https://searchspheresource.com/glossary/cim) review with careful [add-back](https://searchspheresource.com/glossary/add-backs) scrutiny, [customer-concentration](https://searchspheresource.com/glossary/customer-concentration) checks, and [valuation](https://searchspheresource.com/glossary/valuation) anchored to what debt service can support rather than what the seller is asking. When a deal is real, move: good businesses at fair prices don't wait.

Source: https://searchspheresource.com/roadmap/screen-and-value
Not dated: The stages are editorial: what to decide, what it costs to get wrong, how the paths diverge. Nothing here reads a source that can age.

## What to Answer at This Stage

- How many qualified at-bats per week does my funnel actually need?
- Do I see every on-market listing in my thesis, deduplicated and fast?
- What's my off-market system: list building, enrichment, outreach, follow-up?
- Does it pass my thesis and cover debt service at the asking price?
- Can I get to a credible LOI before a faster buyer does?

## Common Mistakes Here

- Browsing one marketplace and calling it sourcing
- Sporadic bursts of outreach instead of a weekly cadence
- Anchoring on asking price instead of financeable value
- Slow-walking good deals; the good ones go fast

## How This Stage Differs by Path

- **Self-Funded**: The [7(a)](https://searchspheresource.com/glossary/sba-7a) cap and your injection put a ceiling on price, so the screen is as much about what is financeable as what is good.
- **Traditional**: A larger equity pool raises that ceiling, and the screen weighs whether a target is big enough to carry a board and a management layer.
- **Employed**: The firm's committee sees the deal too, so a target that cannot be explained to it is not a target.

## Size the funnel from the close backward

Closes come from [LOIs](https://searchspheresource.com/glossary/loi), LOIs from CIMs read, CIMs from inquiries sent. Whatever your ratios turn out to be, the arithmetic starts with volume: a search that reviews three deals a week is a hobby. Decide the weekly at-bat number your timeline requires, then build the machine that produces it; everything else in this stage is in service of that number.

## On-market: coverage plus speed

The on-market game has two variables you control. Coverage (seeing every listing in your thesis, which is what aggregators earn their fee doing) and response speed, because fresh listings from good brokers collect serious inquiries within days. A saved-search-and-alert setup that surfaces matches daily, plus a same-day inquiry habit, beats a bigger tool budget used lazily.

## Off-market: a system, not a spree

Direct outreach works as a rhythm, never as a burst: a list built from your thesis, enriched with owner contacts, contacted in small weekly batches with unembarrassing follow-up. Expect low single-digit response rates and long fuses; owners who reply in month six count. Track every touch; the [searcher](https://searchspheresource.com/glossary/searcher) who follows up twice politely is rarer than you'd hope.

## Weekly numbers or it isn't happening

Sourcing decays the moment attention wanders; a two-week gap empties the pipeline sixty days later. Keep a scoreboard of inquiries sent, CIMs received, calls held, and owners contacted, reviewed the same hour each week. The Pipeline Tracker computes your own funnel from the record: sourced to contacted, CIM to LOI, and which deals are drifting untouched. Its Outreach Log dates every touch so the follow-up has a day to count from, and a CRM or a legal pad also work. What matters is that the numbers exist and embarrass you when they're zero.

## Write kill criteria before you browse

Decide in advance what ends a deal in sixty seconds: customer concentration above your line, licenses you can't hold, [owner-operator](https://searchspheresource.com/glossary/owner-operator) skills you don't have, geography you won't move to. Screening is only fast when the noes are pre-decided; every criterion you leave fuzzy becomes an afternoon of motivated reasoning on a deal that was never viable.

## Rebuild the earnings yourself

Take the seller's adjusted number apart and reassemble it: start from tax returns, add back only what you can defend to a lender, and price the manager you'd need to hire for whatever the owner actually does. The spread between marketed [SDE](https://searchspheresource.com/glossary/sde) and your rebuilt number is usually the negotiation, and occasionally the whole deal.

## Price from financeability, not the ask

Run every serious deal through the debt math before emotional attachment forms: at your structure and today's rates, what price does the business's own cash flow support at the 1.25 coverage the SBA now requires for a purchase? That number, not the asking price, is your anchor. The SBA Acquisition Calculator runs it in thirty seconds, and Deal Comps sets the trade's published multiple band beside its SBA loan sizes.

## Move decisively when it's real

Screening discipline exists to buy you speed when it counts. A fair deal on a good business clears your criteria quickly, so make the offer quickly: a clean LOI with fair terms, submitted while slower buyers are still scheduling calls, wins deals without overpaying. Good businesses at defensible prices do not wait for your third review cycle.

## What the Data Says

- Where the buyable targets are is a count, not a feeling: there are roughly 4,400 plumbing and HVAC companies with 5 to 99 employees in California against 1,600 in Pennsylvania, and the gap decides how many owners will ever pick up the phone. (Where the Businesses Are (Census CBP): /data/where-the-businesses-are)
- What actually changes hands differs by state. SBA acquisition lending puts restaurants or hotels on top in most states, liquor stores or gas stations in some and a trade in almost none, which tells a sourcer where a thesis has depth. (Where the Businesses Are (SBA FOIA): /data/where-the-businesses-are)
- A seller's payroll line can be checked against the industry: an HVAC company claiming $25,000 per employee contradicts an industry average above $70,000, and that gap is part-time work, cash, an error, or a story worth chasing down. (Industry Economics (Census CBP): /data/industry-economics)
- [Charge-off rates](https://searchspheresource.com/glossary/charge-off) on seasoned SBA loans separate the industries that fail from the ones that hold: the ordering is the signal, not the level, and it is a free screen a buyer can apply to a whole shortlist before spending a dollar on diligence. (SBA Default Rates by Industry: /data/sba-default-rates)

## Tools for This Stage

- Pipeline Tracker: Deals, contacts, and outreach in one workspace. (https://searchspheresource.com/tools/pipeline-tracker)
- Sourcing & Screening Resources: Where deals come from and who judges them. (https://searchspheresource.com/tools/sourcing-screening-resources)
- Sourcing & Screening Tools: Price it, then keep digging or walk. (https://searchspheresource.com/tools/sourcing-screening-tools)
- Work a Deal: One deal through every tool, in order. (https://searchspheresource.com/tools/work-a-deal)
- Deal Screener: Screen it: keep digging, or walk. (https://searchspheresource.com/tools/deal-screener)
- Deal Comparer: Two listings, one financing basis. (https://searchspheresource.com/tools/deal-comparer)
- CIM & Document Analysis: Read the memo, then the business under it. (https://searchspheresource.com/tools/cim-analysis)
- Rebuild the Earnings: Test the seller's schedule before you price it. (https://searchspheresource.com/tools/add-back-review)
- Business Valuation Calculator: A cited band prices the earnings you bring it. (https://searchspheresource.com/tools/business-valuation-calculator)
- Sourcing & Screening Templates: Opening a thread with a broker or an owner. (https://searchspheresource.com/templates/screen-and-value)

## Resources for This Stage

### Books

- HBR Guide to Buying a Small Business (Ruback & Yudkoff): The HBS guide to buying and running a company. (https://searchspheresource.com/resources/hbr-guide-buying-small-business)
- Built to Sell (John Warrillow): The classic on making a business sellable. (https://searchspheresource.com/resources/built-to-sell)
- The Messy Marketplace (book): How smaller companies actually get sold. (https://searchspheresource.com/resources/the-messy-marketplace)

### CRM & Pipeline

- Pipedrive (as a search CRM): A kanban CRM searchers adapt to a deal pipeline. (https://searchspheresource.com/resources/pipedrive)
- Affinity: Relationship-intelligence CRM for funded teams. (https://searchspheresource.com/resources/affinity)
- HubSpot CRM: A free CRM tier that covers a solo search. (https://searchspheresource.com/resources/hubspot-crm)

### Listing Marketplaces

- BizBuySell: The largest US business-for-sale marketplace. (https://searchspheresource.com/resources/bizbuysell)
- Axial: A private deal network for lower-middle-market M&A. (https://searchspheresource.com/resources/axial)
- Baton Market: A marketplace of verified deals, free valuations. (https://searchspheresource.com/resources/baton)

### Deal Aggregators

- Kumo: Broker listings from thousands of sites, deduped. (https://searchspheresource.com/resources/kumo)
- BizNexus: Vetted broker listings plus off-market outreach. (https://searchspheresource.com/resources/biznexus)

### Off-Market Data & Outreach

- Apollo.io: Company search and outreach with a free tier. (https://searchspheresource.com/resources/apollo-io)
- Grata: Search 20M private companies for off-market targets. (https://searchspheresource.com/resources/grata)
- Hunter: Turn a target list into owner email addresses. (https://searchspheresource.com/resources/hunter-io)

### AI Deal Analysis

- DealOrb: AI deal aggregation with a Chrome extension. (https://searchspheresource.com/resources/dealorb)
- Devaland: Reads a data room and cites what it found. (https://searchspheresource.com/resources/devaland)

## The Words This Stage Uses

- Add-backs: Expenses added back to profit to show what an owner really earned. (https://searchspheresource.com/glossary/add-backs)
- CIM (Confidential Information Memorandum): The broker's marketing document, shared after an NDA and written to sell. (https://searchspheresource.com/glossary/cim)
- Customer concentration: How much of the revenue rides on the largest customer or few. (https://searchspheresource.com/glossary/customer-concentration)
- EBITDA: Profit before interest, taxes, depreciation, and amortization. (https://searchspheresource.com/glossary/ebitda)
- Goodwill: The part of a price paid above the hard assets, for the earnings. (https://searchspheresource.com/glossary/goodwill)
- LOI (Letter of Intent): A mostly non-binding letter agreeing price and key terms; it starts exclusivity. (https://searchspheresource.com/glossary/loi)
- Multiple: The ratio of price to earnings a business is priced at. (https://searchspheresource.com/glossary/multiple)
- NDA (Non-Disclosure Agreement): A confidentiality contract signed to see a listing's name and financials. (https://searchspheresource.com/glossary/nda)
- Proof of funds: Documentation that your cash for the deal exists and is yours. (https://searchspheresource.com/glossary/proof-of-funds)
- SDE (Seller's Discretionary Earnings): Owner earnings: profit with the owner's pay and perks added back. (https://searchspheresource.com/glossary/sde)
- ARR (Annual Recurring Revenue): The annualized value of a subscription business's recurring revenue. (https://searchspheresource.com/glossary/arr)
- Backlog: Work a contractor has won and not yet built, measured in dollars. (https://searchspheresource.com/glossary/backlog)

Site index for machines: https://searchspheresource.com/llms.txt