How to Sell a Business

What the process actually looks like

A small business sale runs in five stages: preparation, pricing, marketing, negotiation and diligence, then closing. Preparation is the one owners skip and the one that moves the price most. Marketing is the one they expect to be hardest and is usually not, because a fairly priced business with clean books does not struggle to find interest.

Six to twelve months from listing to closing is normal for a small business, and that is after however long you spend getting ready. Of that, three to six months is typically finding a buyer and agreeing terms, and sixty to ninety days is diligence and closing once you have signed a letter of intent. If the price is ahead of the earnings, the first stage stretches indefinitely and nothing else ever starts.

The uncomfortable statistic worth knowing at the outset is that most small businesses put up for sale never sell. The reasons are consistent and almost all of them are fixable in advance: the price is not supported by the earnings, the records will not survive scrutiny, or the business cannot function without the person selling it.

Start before you list

The gap between a business that is ready to sell and one that merely wants to be sold is usually a year or two of unglamorous work. If you have that time, this is where it earns the most:

• Reduce how much of the business runs through you personally. Write down the things only you know, train someone to do the things only you do, and move customer relationships onto the company rather than onto you
• Clean up the books. Stop running personal expenses through the business in the last full year before you sell if you can, because every add-back you claim is a number you then have to prove
• Fix customer concentration if one client is a large share of revenue, since that single fact can cost you a full turn on the multiple
• Sort out the lease. A buyer needs to know they can stay, and a landlord who will not assign or renew can end a deal outright
• Get contracts in writing, including with staff, key suppliers and any customer on an informal ongoing arrangement
• Deal with deferred maintenance and dead inventory now, rather than having a buyer discount for it later at a worse rate than it would cost you to fix
• Check that licenses, permits and any certifications transfer, and find out what the new owner has to do to hold them

The test to apply is simple: if you were hit by a bus tomorrow, how long would the business run normally? A buyer is pricing exactly that risk, whether or not either of you says so out loud. An owner who can take a month away without the revenue moving is selling a business. An owner who cannot is selling a job, and those trade at very different multiples.

Get your numbers in order

Before you can price anything you need three years of tax returns, profit and loss statements that reconcile to them, a current balance sheet, and documentation for every add-back you intend to claim. Buyers and their accountants work from the tax returns, because those are the numbers you swore to a government. Management accounts that tell a happier story than the returns do not help you, they hurt you.

You also need to be able to break revenue down by customer, and ideally by product or service line, for at least the last two years. Buyers ask for this early and an owner who cannot produce it signals that the business is run on instinct, which is itself a risk factor.

Assume that anything you cannot document will be removed from the earnings figure during diligence. That is not a negotiating tactic, it is what a buyer's accountant is paid to do. Unreported cash that does not appear in the records falls into this category permanently: however real they are, no buyer can borrow against them and no lender will count them.

How to value a business

Setting the asking price

Price is earnings multiplied by a multiple that reflects how risky those earnings look to someone who is not you. The full method, including how to calculate seller's discretionary earnings and which multiple applies, is covered in the valuation guide. What matters at this stage is what the price does to the process.

An asking price set correctly generates inquiries in the first few weeks and gives you something to negotiate from. Set too high, it does not simply produce lower offers, it produces no offers at all, because experienced buyers screen on price and never make contact. You then sit unsold for months, cut the price, and now carry the additional problem of a listing that has visibly been on the market a long time.

Leave yourself room, but not much. Ten percent above what you expect to accept is normal and readable as a negotiating position. Forty percent above is not a negotiating position, it is a signal that the seller has not done the arithmetic, and it costs you the buyers most likely to actually close.

Decide at the same time what the price includes. Equipment, vehicles, fixtures and a normal level of inventory are usually in. Cash in the bank and money owed by customers are usually out, and the business is normally expected to transfer free of debt. Write this down before you advertise, because ambiguity here is one of the most common causes of a deal collapsing in the final two weeks.

Selling it yourself, or with a broker

Both work, and the honest answer is that it depends on the deal and on how much of the process you want to run personally.

Selling it yourself

You keep the whole of whatever you negotiate, you control the timing, and you know the business better than anyone you could hire. In exchange you take on the marketing, the qualifying, the fielding of time-wasters, the negotiation, and the coordination of lawyers and accountants through diligence, all while continuing to run the business. It suits owners who already have a likely buyer, who have sold before, or whose business is straightforward and modestly sized.

Using a broker

A broker prices the business against closed transactions you cannot see, markets it without exposing your identity, screens buyers before they reach you, and keeps the deal moving through diligence and financing when it stalls, which it will. They charge a commission on closing, commonly around eight to twelve percent on smaller deals and scaling down as the price rises. On a larger or more complex sale, or where confidentiality is critical, that is frequently the difference between a deal closing and a deal dying.

The question worth asking is not which is cheaper but which produces a higher net figure for you after everything. A broker who gets a better price, or simply gets a deal over the line that would otherwise have failed, has paid for themselves. One who lists your business and waits has not. Interview more than one, ask specifically what they have closed in your industry and region, and ask what their listings actually sold for against asking.

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Writing a listing that attracts the right buyer

A listing has one job: get a serious, capable buyer to make contact. It does not have to tell the whole story, and it should not. What it has to do is give enough substance that a real buyer can tell whether this is worth a conversation, and enough discipline that people who cannot afford it screen themselves out.

Include the industry and general location, how long it has been operating, revenue and earnings, what the price includes, why you are selling, and what the staffing looks like. Be specific about the things that are genuinely good: contracted revenue, a long lease, a trained team, a diversified customer base. These are the facts that move a multiple, and stating them plainly is the cheapest thing you can do to raise your price.

Give the reason for selling honestly. Retirement, health, relocation and a change of direction are all completely normal and buyers accept them without difficulty. A vague answer, or an obviously invented one, makes an experienced buyer assume the real reason is something they have not been told, and they price for that assumption.

Avoid the language that appears in every unsold listing: turnkey, huge potential, motivated seller, priced to sell. Potential in particular is worth nothing to a buyer, because realizing it takes their money and their work. Describe what the business does today, with numbers.

Keeping the sale confidential

Most owners do not want staff, customers or competitors knowing the business is for sale, and with reason. Staff start looking, customers get nervous, and competitors use it. Confidentiality is manageable but it takes deliberate effort from the first day you advertise.

In practice that means leaving the business name, the exact address and any recognizable photographs out of the listing, describing the location by region rather than street, and giving the industry in general terms if the business is distinctive enough to be identified from it. Take inquiries through the platform rather than the business phone line, and do not use company email for the sale.

Have buyers sign a non-disclosure agreement before you release the name, the financial detail or anything else identifying. It will not stop a determined bad actor, but it filters out the casual ones and it establishes clearly that the information is confidential. Save site visits until a buyer is qualified, and hold them outside business hours where you can.

Plan how and when you will tell staff. The usual approach is to say nothing until the deal is certain, then tell key people shortly before closing and everyone at closing, with the buyer present and a clear message about what is not changing. Telling people early, before a deal is signed, is how you end up having lost your lead technician and still not sold the business.

Screening buyers

Most people who inquire about a business for sale will never buy one. Some are competitors, some are brokers prospecting, some are dreamers who have not thought about funding, and a few are serious. Your time is the scarce resource, so qualify early and without embarrassment.

The questions that sort this out quickly are straightforward: what is your background and why this business, how are you funding the purchase and is any of it dependent on a lender, how much do you have available in cash, have you bought a business before, and what is your timeline. A serious buyer answers all of these without difficulty and generally expects to be asked.

Ask for evidence of funds before you release detailed financials, not after. A buyer who will not show that they can afford the business has not yet earned access to your customer list, and a buyer who is offended by the request was never going to close.

Release information in stages. General facts in the listing, the fuller picture after an NDA and evidence of funds, and the genuinely sensitive material — customer names, supplier terms, staff details — only under a signed letter of intent when you know the deal is real.

Offers and the letter of intent

When a buyer is ready to proceed they usually put forward a letter of intent, sometimes called a heads of terms. It sets out the price, what is included, how and when the money is paid, what has to happen before closing, and how long the buyer has to complete their investigation.

The letter of intent is mostly non-binding on the substance, which surprises sellers. Price can and often does move once diligence turns something up. What is normally binding are the confidentiality provisions and the exclusivity period, during which you agree not to negotiate with anyone else. That exclusivity is the real thing you are giving up, so keep it as short as you reasonably can, usually thirty to sixty days, and make sure it expires rather than rolling on indefinitely.

Read the structure as carefully as the headline number. An offer of a million dollars with seven hundred thousand at closing and the rest contingent on the business performing after you have left is not the same offer as eight hundred and fifty thousand paid in full on the day. Cash at closing is the only part you can be certain of.

This is the point to have a lawyer involved if you have not already. A letter of intent shapes everything that follows, and terms conceded here are extremely difficult to claw back later.

Due diligence

Once the letter of intent is signed the buyer verifies everything you have told them. Expect it to take thirty to ninety days, to be more intrusive than you anticipated, and to be the stage at which most deals that fail actually fail.

You will be asked for tax returns and financial statements, bank statements, the general ledger, accounts receivable and payable aging, revenue by customer, the lease and any equipment leases, supplier and customer contracts, staff lists with pay and length of service, insurance policies, licenses and permits, equipment lists with condition and age, inventory records, and evidence for every add-back you claimed.

Assemble all of it before you go to market rather than after, in one organized place. Sellers who produce documents within a day build confidence and keep momentum; sellers who take three weeks to find a lease invite the buyer to wonder what else is disorganized, and slow deals are the ones that die.

Disclose problems yourself, early. A lapsed permit, a customer who has just given notice, a piece of equipment near the end of its life: none of these usually kill a deal when they come from you at the start. All of them can when the buyer finds them at week six, because the issue then is not the problem, it is what else you did not mention.

How the deal is structured

Two things get decided here, what is legally being sold and how the money is paid, and both affect what you actually keep.

Asset sale or stock sale

In an asset sale the buyer takes named assets and generally leaves the liabilities and the legal entity behind. In a stock sale (a share sale in Canada) they buy the company itself, and everything in it, including its history. Buyers usually prefer asset sales for exactly that reason, sellers often prefer stock sales, and the choice has significant tax consequences on both sides. Most small business sales are asset sales.

Seller financing

You take part of the price as payments over time. It is extremely common in small business sales, it widens the pool of buyers considerably, and it often raises the total price. It also means you carry risk after you have handed over the keys, so it needs proper security and legal documentation rather than a handshake.

Earnouts

Part of the price depends on the business hitting agreed targets after the sale. Buyers propose these when they are not fully convinced the earnings will continue. Treat any earnout as money you may not receive, define the measurement in precise terms, and be aware that you are relying on someone else's management to hit it.

Holdback and escrow

A portion of the price held by a third party for a period after closing, available to the buyer if your representations turn out to be wrong. Normal, and usually reasonable, but the amount and the release date are negotiable.

Non-compete and transition

Buyers will require a non-compete covering a defined area and period, and usually a training or handover period. Both are standard and both are part of what you are being paid for, so agree the scope and the hours in writing rather than leaving it as an understanding.

Working capital deserves its own conversation. Agree in advance how much inventory and how many receivables come with the business and at what value. It is dull, it is left until last, and it is the single most common cause of an argument in the final week before closing.

How buyers pay for it

Very few buyers of small businesses pay entirely in cash. Most deals combine the buyer's own money, a loan from a lender, and often some seller financing. In the United States, government-backed small business lending is a common route and lenders offering it will want an independent view of value, clean financial records and an owner willing to stay for a transition. Canada has broadly comparable programs through its own lenders.

What this means for you as a seller is practical rather than theoretical. If your buyer is borrowing, the lender becomes a party to the deal in effect, and the lender's requirements set the timetable. Records that do not reconcile, earnings that depend on undocumented cash, or a price a lender will not support against their own valuation will stop the deal regardless of what you and the buyer have agreed between yourselves.

This is another reason preparation pays. A business with three clean years, documented add-backs and a transferable lease is financeable, which means it is sellable to a far larger pool of buyers than one that can only be bought with cash.

Closing and handover

Closing itself is largely administrative if diligence has gone well: final documents are signed, the money moves, leases and contracts are assigned, licenses are transferred, and inventory and equipment are counted and confirmed. Your lawyer and the buyer's will run most of it.

The handover matters more to how the story ends. Agree in advance how long you will stay, how many hours a week, and what you are actually doing during that time. Four to twelve weeks is common for a small business, longer where the relationships are complex. Introduce customers and suppliers personally where you can, because a warm introduction from the departing owner protects the revenue the buyer just paid for.

Tell staff properly, on the day, with the buyer there. What they want to know is whether they still have a job, whether their pay and conditions change, and who they report to on Monday. Have those answers agreed with the buyer beforehand.

Tax

How a sale is taxed depends on the structure, on how the price is allocated across assets, on how long you have owned the business, on where you and the business are, and on your own circumstances. The difference between two structures that look similar can be very large after tax.

Talk to an accountant who does business sales before you agree the structure, not after you have signed. Allocation of the purchase price in particular is negotiated between buyer and seller and has opposite tax effects for each of you, which means it is a term to be handled deliberately rather than left to the lawyers to tidy up at the end.

Mistakes that cost sellers money

Deciding to sell and listing the same month

The work that raises the price is done in the year or two before, not during the sale.

Pricing on what you need rather than what it earns

Buyers price your earnings and their risk. What you require for retirement is not an input.

Being the business

If it cannot run without you, you are selling a job, and it will be priced as one.

Letting the business drift during the sale

Buyers watch the most recent months closely. A revenue dip during diligence reprices the deal, or ends it.

Hiding a problem

Almost everything is survivable if disclosed early. Very little is once the buyer finds it themselves.

Negotiating only on the headline price

Terms, timing and how much is actually cash at closing routinely matter more than the number.

Giving long exclusivity

A long exclusivity period with a buyer who then goes quiet costs you months and all your other interest.

Common questions

How long will it take to sell my business?

Six to twelve months from listing to closing is typical for a small business, plus whatever preparation time you allow beforehand. Price realism is the biggest single factor. Businesses priced ahead of their earnings can sit for years.

Should I tell my staff?

Not until the deal is close to certain. The normal approach is to tell key people shortly before closing and everyone at closing, with the buyer present. Telling people while the outcome is still uncertain risks losing the staff who make the business worth buying.

Do I have to finance part of the sale myself?

You do not have to, but it is common, it widens your pool of buyers, and it often raises the total price. If you do, take proper security and have it documented by a lawyer.

What if the buyer wants to lower the price during due diligence?

Expect it to be attempted. A reduction justified by something genuinely new is worth considering; one based on facts that were disclosed at the start is a negotiating tactic. This is much easier to resist when your documentation supports every number you presented.

Can I sell if the business is losing money?

Yes, but it will usually be valued on its assets rather than its earnings, and the buyer pool is different: competitors, people wanting the equipment or the location, or someone who believes they can fix what you could not. Be realistic about which of those you are selling to.

Do I need a lawyer?

Yes. Use one who does business sales specifically. The letter of intent and the purchase agreement decide what happens if anything goes wrong afterwards, and that is not a place to save a few thousand dollars.

Next steps

How to value a businessHow to buy a businessList your businessMore guides