Selling Your Small Business: First Steps

Selling a small business is one of the largest financial transactions an owner ever does — and one of the easiest to get wrong without help. This article walks through the broad steps so you understand the shape of the process. Before you take any of these steps for real, retain a CPA, a business attorney, and (often) a business broker. The structure of the sale, the tax treatment, and the legal documents have long-term consequences that go well past the day the check clears.

This is plain-English starter content, not advice for your specific transaction.

For broader context, see our Learn hub, the business basics overview, and our bookkeeping basics guide.

Why this is different from any other decision

A sale is irreversible. Once the deal closes, the buyer owns the customer relationships, the lease, the brand, the staff dynamics — and you sign a non-compete that often keeps you out of the same field for years. Mistakes here cannot be undone. Take the time, hire the team, and treat the sale itself as a 6-to-18-month project.

The SBA's section on selling your business is a useful starting point.

Step 1: Cleanup and "sale-ready" hygiene

Buyers pay more for businesses that are easy to evaluate. Before going to market:

• Clean up the books. Three years of accurate, professionally prepared financials are the standard ask. Inconsistent books shrink your sale price more than almost anything else.
• Separate personal expenses from the business. "Add-backs" (personal expenses run through the business that a buyer would not have) need to be clearly identifiable, not buried.
• Document processes. A business that runs without you is worth more than one that depends on you.
• Clean up the legal house. Make sure entity filings are current, contracts are signed, leases are assignable, and there are no open lawsuits.
• Stabilize key relationships. A long-term customer concentration risk (one customer is 40% of revenue) drops your value. So does losing your top employee right before a sale.

Step 2: Get a real valuation

A business is worth what a willing buyer will pay. Three common ways professionals estimate that number:

• Multiple of seller's discretionary earnings (SDE). SDE is roughly your owner's salary plus net income plus owner perks plus interest, taxes, depreciation, and amortization. Small businesses often sell for some multiple of SDE — for example, 2x to 4x SDE — though the multiple varies by industry, size, and risk.
• Multiple of EBITDA. EBITDA is earnings before interest, taxes, depreciation, and amortization. Used for slightly larger businesses. Often 3x to 6x EBITDA, again varying widely by industry.
• Asset-based valuation. Used when the business is mostly worth its equipment, inventory, and real estate.

These ranges are illustrative — your actual multiple depends on revenue trend, industry, customer mix, location, and dozens of other factors. A good business broker, valuation specialist, or transactional CPA will run a real number for you.

Step 3: Choose how to sell

Three common paths:

• Sell direct (no broker). Possible if you already know the buyer (a competitor, a manager, a family member). Cheaper but more work and less negotiating leverage.
• Use a business broker. A broker markets the business confidentially to qualified buyers, manages the process, and helps you negotiate. Brokers typically charge a percentage commission at closing (often 8% to 12% for small businesses).
• Hire an investment banker. Used for larger transactions. Higher fees, more sophisticated process.

Most small businesses (under a few million in revenue) use a broker or sell direct. Larger businesses use an investment banker.

Step 4: Marketing and finding buyers

A broker will typically prepare a "confidential information memorandum" (CIM) that describes the business without revealing the name. Buyers sign an NDA before getting more details. Common buyer types:

• Individual buyers. People looking to own and operate a business themselves.
• Strategic buyers. Competitors or related businesses that benefit from owning yours.
• Financial buyers. Private equity or family offices that buy businesses as investments.

Each type values your business differently. A strategic buyer often pays more because they capture revenue or cost synergies you cannot.

Step 5: Letter of intent (LOI) and due diligence

Once a buyer is interested, they typically issue a letter of intent (LOI) — a non-binding (or partially binding) document that outlines price, structure, and key terms. The LOI is where you and the buyer agree on the shape of the deal before spending heavy legal fees.

After the LOI, the buyer enters due diligence — a deep dive into the business. Expect requests for:

• Financial statements and tax returns (3+ years)
• Customer and supplier contracts
• Employee records and benefit plans
• Lease and real estate documents
• Insurance policies
• Litigation history
• Intellectual property records
• Any government filings (the USPTO trademark records are public)

Diligence often takes 30 to 90 days. Buyers find issues. Many deals get re-priced or restructured during this phase. Stay patient and respond promptly.

Step 6: Asset sale vs stock sale

This is the single most important structural choice in most small business sales. At a high level:

• Asset sale. The buyer purchases specific assets (equipment, inventory, customer lists, intellectual property, sometimes real estate). The seller's legal entity stays with the seller. Buyers often prefer asset sales because they limit the legal liabilities they inherit and they get a step-up in tax basis on assets.
• Stock sale. The buyer purchases the seller's ownership interest (stock or LLC membership units). The legal entity continues with the buyer as the new owner, including all assets and all liabilities. Sellers often prefer stock sales because they typically result in better tax treatment.

The structure has major tax consequences for both sides. Talk to a CPA — this decision often shifts hundreds of thousands of dollars in taxes for either party.

Step 7: Closing and transition

A typical closing involves a stack of documents — purchase agreement, bills of sale, assignment agreements, escrow documents, non-compete and non-solicit agreements, and any earn-out or seller-financing notes.

Most small business sales include some seller financing — meaning you carry a note for part of the purchase price, paid by the buyer over time. This is common because it bridges valuation gaps and shows the seller has confidence in the business.

A transition period (commonly 30 to 180 days) often follows closing, where the seller helps train the new owner and introduces them to key customers, employees, and vendors.

Common selling mistakes

• Going to market with messy books. Single biggest preventable price killer.
• Skipping a CPA on tax planning. Asset vs stock structure can shift the seller's tax bill by enormous amounts.
• No transition plan. Buyers want confidence the business survives the handoff.
• Telling staff too early — or too late. This needs a careful plan with the buyer.
• Negotiating without help. A small business sale has dozens of clauses with serious consequences. Negotiating yourself almost always costs more than the broker and attorney fees would.
• Underestimating taxes on the sale. A 7-figure sale often produces a 6-figure tax bill. Plan for it before you sign.

A high-level timeline

A realistic timeline for a small business sale:

• Months 1 to 3: Cleanup, valuation, and broker selection
• Months 3 to 6: Marketing and finding qualified buyers
• Months 6 to 9: LOI, due diligence, and negotiation
• Months 9 to 12: Documents, closing, and transition

Plenty of deals take longer. Some fall apart and restart. Plan accordingly and run the business well during the entire process — buyers walk if performance dips during diligence.

Resources and a serious recommendation

The SBA's close or sell your business hub, USA.gov small business resources, and the IRS guidance on selling a business are useful starting points. The Economic Development Administration also lists resources for owners going through ownership transitions.

This is general info, not legal, tax, or financial advice. A business sale is a major financial transaction. Before you do any of this for real, retain a CPA, a business attorney, and (in most cases) a business broker. Their fees are small compared to what they save you in price, taxes, and protection.

Tax laws and SBA programs change every year — always check the latest at IRS.gov, SBA.gov, and your state's Secretary of State website.