How do you sell a small business?

Selling a small business typically takes 6–12 months and involves five phases: preparation (clean financials, increase value), valuation (establish asking price using SDE/EBITDA multiples), marketing (list with a broker or marketplace), negotiation (LOI, due diligence), and closing (purchase agreement, transition). Working with a business broker is recommended — they charge 8–12% commission but manage the entire process.

Selling a business is one of the most important financial events in a business owner's life. Here's how to maximize your outcome:

Phase 1: Preparation (3–12 months before listing) Start preparing well before you list. The best time to improve a business for sale is 1–2 years out. - Get financials CPA-reviewed for 2–3 years - Clean up any owner perks or personal expenses - Document all processes and SOPs - Reduce owner dependency (cross-train employees) - Fix deferred maintenance and operational issues - Resolve any legal, tax, or regulatory issues - Increase recurring revenue if possible

Phase 2: Valuation - Calculate SDE (for businesses under $5M revenue) - Apply industry-specific multiples (2–4x SDE for most service businesses) - Get a professional business appraisal for deals over $1M - Consider market conditions and buyer demand - Use tools like SearchStreet's Business Valuation Calculator for a quick estimate

Phase 3: Marketing & Listing Two options: - Business broker (recommended): 8–12% commission. They handle confidentiality, buyer screening, marketing, and negotiation. Worth it for deals over $500K. - Self-list: BizBuySell ($60/month), BizQuest, and others. You handle everything. Works for simpler, smaller deals.

Confidentiality is critical — don't let employees, customers, or competitors know you're selling until the deal is closed.

Phase 4: Buyer Screening & Negotiation - Require NDAs before sharing any financials - Pre-qualify buyers (proof of funds, relevant experience) - Expect 20–50 inquiries to produce 3–5 serious offers - Negotiate LOI terms (price, structure, transition, non-compete) - Sign LOI and enter due diligence exclusivity

Phase 5: Due Diligence & Closing - Provide financials, contracts, and operational documents - Expect a QoE report to adjust your stated earnings - Negotiate purchase agreement terms with attorneys - Close the deal (wire funds, sign docs, hand over keys) - Complete transition period (30–90 days of training)

How to maximize your sale price: 1. Grow recurring revenue (biggest multiple driver) 2. Reduce owner dependency 3. Show 3 years of clean, growing financials 4. Diversify your customer base 5. Create documented systems and processes 6. Time the sale when the market is strong

Key Takeaways

  • Start preparing 1–2 years before you want to sell — clean financials and reduce owner dependency
  • Business brokers charge 8–12% but are worth it for deals over $500K
  • Most businesses sell for 2–4x SDE; recurring revenue commands premium multiples
  • Confidentiality during the sales process is critical for business stability

Related Questions

How do you value a small business for acquisition?What are typical business valuation multiples by industry?What is SDE (Seller's Discretionary Earnings)?

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