Selling a small business typically takes six months to a year from the decision to sell through closing, and involves valuing the business, preparing financials, finding a buyer, negotiating terms, and transferring ownership. The process has more moving parts than selling a house, but the core logic is similar: make the business attractive, price it right, and structure a deal that works for both sides.
How Small Businesses Are Valued
Before you list anything, you need to know what your business is worth. Small business valuations are almost always based on a multiple of earnings, but the specific metric depends on the size of the business.
For “Main Street” businesses selling for under $2 million, the standard approach uses Seller’s Discretionary Earnings (SDE). This is your net profit plus your own salary, benefits, and any personal expenses you run through the business. Buyers in this range typically pay 2 to 3 times SDE. So if your business generates $200,000 in SDE, you’re likely looking at a sale price between $400,000 and $600,000.
Larger small businesses, roughly in the $2 million to $50 million range, are valued using EBITDA (earnings before interest, taxes, depreciation, and amortization). Multiples here run from about 3 to 6 times EBITDA, depending on the industry, how fast the business is growing, and how dependent operations are on you personally. A business that runs well without the owner commands a higher multiple than one where the owner is the rainmaker.
Where your business falls within these ranges depends on several factors: recurring revenue (subscription or contract-based income is worth more than one-time sales), customer concentration (if one client accounts for 40% of revenue, that’s a risk), industry trends, and the quality of your financial records. Clean, well-organized books make buyers more confident and push the price up.
Preparing the Business for Sale
The best time to start preparing is 12 to 24 months before you plan to sell. Buyers will scrutinize your business during due diligence, and gaps in your records or messy operations will either kill deals or reduce your price.
Start with your financials. You’ll need at least three years of tax returns, profit and loss statements, and balance sheets. Buyers and their accountants will compare these documents against each other, so they need to tell a consistent story. If you’ve been running personal expenses through the business, work with your accountant to create “recast” or “normalized” financial statements that show what the business actually earns.
Beyond financials, gather a complete inventory of everything the buyer would be acquiring: equipment, lease agreements, vendor contracts, customer lists, intellectual property, software licenses, and any permits or licenses required to operate. A due diligence checklist from the buyer’s side will also include employee records (who stays, at what pay and benefits), descriptions of how you protect trade secrets, copies of any pending or threatened litigation, and environmental compliance documents if applicable to your industry.
Operationally, the goal is to make the business look like it doesn’t need you. Document your processes, cross-train employees, and reduce any dependency on your personal relationships with key clients. A business that can transition smoothly to new ownership is worth significantly more than one that falls apart when the founder walks away.
Whether to Hire a Business Broker
A business broker markets your business, screens buyers, and helps negotiate the deal. For most small business owners who haven’t sold a company before, a broker earns their fee by finding qualified buyers you wouldn’t reach on your own and keeping the deal on track through closing.
Brokers work on commission, and the standard success fee is 10% to 15% of the sale price for businesses selling at or under $1 million. For businesses selling above $1 million, you can often negotiate a tiered structure, something like 10% on the first million and 8% on anything above that. For very small deals under $100,000, brokers often charge a flat fee of $10,000 to $15,000 regardless of the final price.
If you decide to sell without a broker, you’ll handle the marketing, buyer qualification, and negotiation yourself. This saves the commission but adds significant time and complexity. You’ll still want a transaction attorney and an accountant involved in structuring the deal.
Finding and Qualifying Buyers
Buyers come from a few common channels. Online marketplaces that list businesses for sale are the most common starting point for Main Street businesses. Your broker (if you have one) will also tap their network of buyers actively looking for acquisitions. Industry contacts, competitors, suppliers, and even employees are all potential buyers.
Before sharing sensitive financial details, have prospective buyers sign a non-disclosure agreement. Then screen them for financial capability. A serious buyer should be able to show proof of funds or a pre-qualification letter from a lender. Many small business purchases are partially financed through SBA loans, which means the buyer needs to meet the lender’s requirements, including typically putting 10% to 20% down.
Confidentiality matters throughout this process. If employees, customers, or competitors learn the business is for sale before a deal closes, it can create instability. Brokers typically market businesses without revealing the name until a buyer has signed an NDA and been pre-qualified.
Asset Sale vs. Stock Sale
The two main ways to structure a deal are an asset sale and a stock sale, and the choice has major tax and liability consequences for both sides.
In an asset sale, the buyer purchases specific assets: equipment, inventory, intellectual property, customer contracts, the brand name. The buyer generally assumes only the liabilities tied to those specific assets, while you as the seller retain responsibility for everything else, including old debts, pending lawsuits, or tax obligations. Asset sales are the most common structure for small businesses, and buyers prefer them because they limit what they’re taking on. The downside for sellers is that some of the proceeds may be taxed as ordinary income or depreciation recapture rather than at the lower capital gains rate, depending on how the purchase price is allocated among the assets.
In a stock sale, the buyer purchases your ownership shares and takes over the entire company, assets and liabilities alike. For sellers, this is often more tax-friendly because the proceeds are typically treated as capital gains. But buyers are wary of stock sales because they inherit everything, including hidden or contingent liabilities like unresolved legal claims or tax issues. Stock sales are more common with larger businesses or when transferring contracts and licenses that can’t easily be reassigned.
How you structure this decision affects your after-tax proceeds significantly. The allocation of the purchase price across different asset categories (goodwill, equipment, inventory, real estate) determines the tax treatment of each portion, so this is one area where getting the structure right can mean tens of thousands of dollars in difference.
Negotiating the Letter of Intent
Once a buyer is interested and you’ve agreed on a rough price, the next step is a letter of intent (LOI). This is a written outline of the deal’s key terms: purchase price, deal structure (asset or stock sale), what’s included, proposed closing date, and any contingencies. Most LOIs are non-binding except for a few provisions like confidentiality and an exclusivity period during which you agree not to negotiate with other buyers.
The exclusivity period, often 60 to 90 days, gives the buyer time to complete due diligence. During this window, the buyer’s team will dig into your financials, legal obligations, customer contracts, employee arrangements, and operational details. Expect detailed questions and document requests. Having your records organized beforehand keeps this phase from dragging out or spooking the buyer.
Price isn’t the only thing to negotiate. Payment terms matter just as much. Many small business sales include seller financing, where you carry a note for a portion of the purchase price (often 10% to 30%) that the buyer pays back over several years. This can help close a deal when the buyer can’t get full bank financing, but it also means your payout is spread over time and depends on the buyer’s ability to run the business successfully. An earnout, where part of the price is contingent on the business hitting certain revenue or profit targets after the sale, is another common structure that bridges gaps in valuation expectations.
Closing the Sale
After due diligence is complete and both sides are satisfied, attorneys draft the definitive purchase agreement. This document spells out every detail: the exact assets or shares being transferred, representations and warranties from both sides, indemnification provisions (who pays if something goes wrong after closing), non-compete terms, and the transition plan.
Non-compete clauses are standard. Buyers don’t want you opening a competing business across the street. These agreements typically restrict you from competing in the same industry within a defined geographic area for two to five years.
Most deals also include a transition period where you stay involved for 30 to 90 days (sometimes longer) to introduce the buyer to key customers, train them on operations, and help with the handoff. This transition period is often written into the purchase agreement, and you may or may not be compensated separately for it.
At closing, funds are typically held in escrow and released once all conditions are met, documents are signed, and the transfer of licenses, leases, and contracts is confirmed. Some portion of the purchase price may be held in escrow for several months after closing to cover any indemnification claims that arise during the transition.
Tax Planning Before You Sell
How much you keep after the sale depends heavily on planning you do before the deal closes. The structure of your business entity (sole proprietorship, LLC, S corp, C corp) affects how proceeds are taxed. C corporations face the steepest hit because the sale can trigger taxation at both the corporate and individual level. S corps and LLCs generally allow proceeds to pass through to your personal return, avoiding that double layer.
If you’ve owned the business for more than a year, gains on the sale of stock or ownership interests qualify for long-term capital gains rates, which are lower than ordinary income rates. Qualified Small Business Stock (QSBS) exclusions under Section 1202 of the tax code can eliminate federal capital gains tax on up to $10 million in gains if your C corporation meets certain requirements, including having gross assets under $50 million at the time the stock was issued.
Installment sales, where you receive payments over multiple years, let you spread the tax liability across those years rather than recognizing all the gain in a single tax year. This can keep you in a lower bracket and reduce your overall tax bill. The timing of your sale, the structure of the deal, and the allocation of the purchase price across asset categories all interact to determine your final tax outcome, so modeling different scenarios before you sign is essential.