Selling a small or midsize business comes down to four things: what the business earns, how much of that depends on you, how the deal is structured, and how well you are prepared for a buyer's scrutiny. Most companies sell for a multiple of adjusted earnings, through a confidential process run by a broker or advisor, and close six months to a year after the owner decides to sell. The headline price matters less than what you keep after taxes, fees, debt and any seller financing.
Key points
- Small businesses are usually priced on seller's discretionary earnings (SDE); larger ones on EBITDA. The multiple reflects risk, growth and how much the business depends on the owner.
- Clean financial statements and tax returns that match are the single biggest factor in getting a deal through due diligence.
- Confidentiality protects employees, customers and value. Buyers should sign an NDA before they learn the company's name.
- Deal structure (asset or stock sale, seller note, earn-out, transition period) can change your net proceeds as much as the price does.
- Many buyers use SBA 7(a) loans, and lender rules shape the down payment, seller financing and how long you stay on.
- Talk to a CPA before signing a letter of intent; the purchase price allocation drives your tax bill.
How businesses are valued
Seller's discretionary earnings
For owner-operated companies, buyers and brokers start with seller's discretionary earnings: pretax profit with the owner's salary, owner benefits, interest, depreciation, amortization and one-time or personal expenses added back. SDE shows how much cash one full-time owner could take out of the business.
The price is then expressed as a multiple of SDE. BizBuySell, which tracks sales reported by brokers, reported a median sale price of $350,000 for 2025, with businesses selling for about 94 percent of their asking price (BizBuySell 2025 year in review). Average multiples in its reports have run a little under 3 times cash flow. Those are averages across many industries and sizes. Very small, owner-dependent businesses often sell for less; established companies with staff, recurring revenue and growth often sell for more.
EBITDA
Once a company has a management team and the owner is no longer the main operator, buyers switch to EBITDA (earnings before interest, taxes, depreciation and amortization), with a market-rate salary for the owner's role deducted. EBITDA multiples are higher than SDE multiples because the earnings are less tied to one person and the buyers, often private equity firms and strategic acquirers, compete for scale. Multiples in the lower middle market vary widely by industry and size and move with interest rates.
What moves the multiple
Buyers pay more for:
- Recurring or contracted revenue
- A diverse customer base, with no single customer above roughly 10 to 15 percent of sales
- Managers and staff who can run the business without the owner
- Steady or growing earnings over three or more years
- Transferable licenses, leases and contracts
- Clean, accrual-based financial statements
They pay less for owner dependency, customer concentration, declining sales, deferred maintenance on equipment, short or unassignable leases and messy books. For a closer look at how multiples are set in practice, this guide to business valuation multiples breaks down the main drivers.
Each industry has its own norms. Our guides cover trades and home services companies, auto dealerships and repair shops, medical practices, manufacturers, restaurants and hospitality businesses, accounting firms and insurance agencies.
Working with a broker or advisor
Business brokers usually handle Main Street businesses, and M&A advisors handle larger companies. A good intermediary will:
- Recast your financials and recommend an asking price backed by comparable sales
- Prepare a confidential information memorandum
- Market the business without revealing its name, and screen buyers for funds and fit
- Run the process so several buyers are at the table at once
- Manage the deal from letter of intent through closing
Fees are usually a success fee paid at closing. For smaller deals, commissions commonly run around 10 percent of the price, often with a minimum; larger deals typically use a sliding scale. Some advisors charge an upfront engagement fee. Ask for the fee in writing, including how it applies to seller notes, earn-outs and real estate, and how long the agreement lasts. Ask too how many deals the broker closed last year in your industry and size range.
Confidentiality
A leak can cost you employees, customers and suppliers before a deal is done. Standard protections include:
- Blind marketing that describes the business without naming it
- A signed nondisclosure agreement and proof of funds before a buyer learns the company's identity
- Releasing sensitive details, such as customer lists and employee pay, only late in due diligence
- Telling senior employees at a planned time, sometimes with stay bonuses
Deal structure
Asset sale or stock sale
In an asset sale, the buyer purchases the company's equipment, inventory, customer relationships and goodwill, and the seller keeps the legal entity, its cash and usually its debts. In a stock (or membership interest) sale, the buyer acquires the entity itself, with its history and liabilities. Most small business sales are asset sales. Stock sales are more common where licenses, contracts or permits cannot easily be transferred.
Seller financing
Sellers often carry a note for part of the price, commonly paid over several years with interest. A seller note shows the buyer and lender that you believe in the business. It also means part of your money stays at risk after closing, so ask for security, a personal guarantee and default terms.
SBA loans
Many buyers of small businesses use SBA 7(a) loans, which can finance up to $5 million. Under SBA rules, buyers generally must inject equity of at least 10 percent of the project cost. A seller note can count toward part of that injection only on strict terms that keep it from being paid for a long period. SBA rules on seller notes and seller transition periods have changed several times since 2023, so confirm the current rules with the buyer's lender before agreeing to terms.
Earn-outs and transition
An earn-out pays part of the price later if the business hits revenue or profit targets. Earn-outs bridge valuation gaps but can lead to disputes, since the buyer controls the business after closing. Define the targets, accounting rules and reporting rights precisely. Most deals also include a paid or unpaid transition period in which the seller trains the buyer and introduces customers, plus a noncompete.
Due diligence
After a letter of intent is signed, the buyer examines the business in detail, usually over 30 to 90 days. Expect requests for:
- Three or more years of tax returns, financial statements and bank statements
- Customer and supplier contracts, and revenue by customer
- Leases, licenses, permits and insurance policies
- Employee lists, pay, benefits and any contractor arrangements
- Pending or threatened litigation and regulatory issues
- Equipment lists and maintenance records
Problems found in diligence lead to price cuts or failed deals. Fix what you can before going to market, and disclose the rest early. Industry-specific legal exposure counts here too: companies that rely on outbound calling or texting, for instance, face buyer questions about the federal robocall rules covered in our consumer protection guide.
Timeline
A typical sale follows this path:
- Preparation and valuation: one to three months
- Marketing and buyer meetings: two to six months
- Letter of intent and due diligence: one to three months
- Financing approval, final agreements and closing: one to two months
The process from engagement to closing is described step by step in this overview of the business sale process.
Taxes
Tax treatment can change your net proceeds significantly, and the rules depend on your entity and deal structure. In general:
- In an asset sale, the buyer and seller allocate the price among asset classes, and both report it to the IRS on Form 8594. Goodwill is generally taxed to the seller at capital gains rates, while gain on equipment that was depreciated can be taxed as ordinary income through depreciation recapture.
- Owners of C corporations who sell assets can face tax at the corporate level and again when proceeds are distributed, which is why they often push for a stock sale.
- Seller financing may allow installment sale reporting, spreading the gain over the years payments are received.
- Noncompete payments and consulting fees are usually taxed as ordinary income.
- State taxes vary.
Involve a CPA early, ideally before you sign a letter of intent, because the allocation and structure are much harder to change later.
Preparing to sell
Owners who prepare a year or more ahead usually get better results. Practical steps:
- Get financial statements reviewed or compiled by a CPA, and keep personal expenses out of the books.
- Document processes and delegate customer relationships to staff.
- Renew or extend your lease, and confirm it can be assigned.
- Resolve disputes, clean up old receivables and catch up on equipment maintenance.
- Get a professional valuation so your expectations match the market.