The Process of Selling a Business, Step by Step

Step 1: Deciding to sell and setting goals

Before any paperwork or conversations with buyers, take time to get clear on why you are selling and what a good outcome looks like. Are you retiring, burned out, chasing a new opportunity, or responding to health or family circumstances? Your reason shapes your timeline, your flexibility on price, and how much you care about what happens to employees after you leave.

This is also when you set financial goals. What number do you need to retire comfortably or fund your next move, after taxes and any debt payoff? Many owners skip this step and later regret accepting or rejecting an offer without a clear target. It costs nothing to sit down with your numbers before you talk to anyone else.

This planning phase can take anywhere from a few weeks to several months, especially if it prompts you to clean up the business first. There is no rush here, and rushing tends to leave money on the table.

Step 2: Getting a valuation range

Most small businesses sell for somewhere in the range of 2 to 4 times seller's discretionary earnings (SDE), though the multiple that applies to your business depends on industry, size, growth trends, customer concentration, and how dependent the business is on you personally. A valuation gives you a realistic starting range rather than a guess based on what a neighbor's business sold for.

A valuation typically takes a few days to a few weeks depending on how organized your financials already are. Treat the resulting range as a planning tool, not a guaranteed sale price. Buyers will form their own opinion once they see your numbers, and the final price is ultimately whatever a qualified buyer agrees to pay.

It is worth revisiting your valuation range periodically if you plan to sell more than a year out, since your financials, market conditions, and industry multiples can shift.

Step 3: Financial preparation and add-back documentation

This is often the most time-consuming step. Buyers and their lenders will want two to three years of financial statements or tax returns, and ideally a profit and loss statement that clearly identifies add-backs: your salary, personal expenses run through the business, one-time costs, and other adjustments that show true cash flow to a new owner.

Sloppy or unsupported add-backs are one of the most common reasons deals lose momentum or buyers walk away during due diligence. Work with your CPA or a bookkeeper to build a clean, well-documented add-back schedule before you go to market, not after a buyer asks for it.

Plan on four to eight weeks for this preparation if your books need cleanup, less if you already have solid financials. This step directly affects both your asking price and how smoothly due diligence goes later.

Step 4: Assembling your team

Selling a business is not a solo project. At minimum, most owners bring in a CPA experienced with transactions, a transaction attorney (different from a general business attorney), and either a business broker or M&A advisor depending on the size of the company. Smaller main street businesses typically work with a broker; larger or more complex companies often use an advisor or investment banker.

Line up this team early, ideally before you go to market, so they can review your financials and documents in advance rather than scrambling once an offer arrives. A good transaction attorney in particular can save you from costly mistakes in the letter of intent and purchase agreement stages.

Expect broker or advisor fees to be a percentage of the sale price, often on a sliding scale, and budget for attorney and CPA fees as hourly or flat costs throughout the process.

Step 5: Confidential marketing — NDA, teaser and CIM

Once your materials are ready, marketing usually follows a sequence designed to protect confidentiality. First, a blind teaser goes out describing the business in general terms without naming it. Interested parties sign a non-disclosure agreement (NDA) before receiving more detail. Only after the NDA is signed do they get the confidential information memorandum (CIM), a fuller document covering financials, operations, and growth opportunities.

This sequence matters because premature disclosure can spook employees, alarm customers, or alert competitors before you are ready. Marketing can take anywhere from a few weeks to several months depending on your industry, price point, and how the business is positioned.

Keep a log of everyone who signs an NDA and track where each prospect is in the process. This becomes important later if multiple offers arrive close together.

Step 6: Understanding buyer types

Buyers generally fall into a few categories, and each behaves differently. Individual buyers, often using SBA financing, are common for smaller businesses and tend to want an owner who will stay on for a transition period. Competitors or strategic buyers may pay more for synergies but can raise confidentiality concerns. Private equity buyers usually target larger or scalable businesses and often want the owner to retain some equity or stay involved. Employees or family members buying the business can offer continuity but may need seller financing since they rarely have full cash or lending capacity on their own.

Knowing which type of buyer you are likely to attract helps you set realistic expectations for deal structure, financing, and your own post-sale involvement.

It is common to run a process with more than one buyer type in parallel, at least until offers start coming in and you can compare structures, not just price.

Step 7: Letter of intent (LOI)

Once a buyer is serious, they typically submit a letter of intent outlining proposed price, structure, and key terms. Most of an LOI is non-binding, meaning either party can still walk away, but certain sections — exclusivity, confidentiality, and expense responsibility — are usually binding once signed.

Read the exclusivity clause carefully. Signing an LOI often means you agree to stop marketing the business and negotiating with other buyers for a set period, commonly 60 to 90 days. This is a meaningful commitment, so make sure the terms and buyer are ones you actually want before you sign.

Negotiating an LOI usually takes one to three weeks. It sets the framework for everything that follows, so it is worth having your attorney review it even though it is largely non-binding.

Step 8: Due diligence (30 to 90 days)

After the LOI, the buyer investigates the business in detail, a process that typically runs 30 to 90 days depending on complexity and financing needs. Expect requests for tax returns, bank statements, contracts, leases, customer and vendor lists, equipment records, employee information, and legal or licensing documents.

This stage is where deals most often stall, either because documentation does not match earlier claims, add-backs cannot be verified, or new issues surface. Being organized and responsive here builds buyer confidence and keeps momentum. A shared, well-organized data room can shave real time off this stage.

If the buyer is using SBA financing, expect the lender to run its own parallel diligence, which can add time and additional documentation requests beyond what the buyer alone would ask for.

Step 9: Purchase agreement, reps and warranties, and escrow

Assuming due diligence goes well, attorneys draft the definitive purchase agreement, which includes representations and warranties (statements you make about the business being accurate and free of undisclosed problems), indemnification terms, and often an escrow or holdback — commonly 5 to 15 percent of the purchase price — held for a period after closing to cover any issues that surface.

This is a genuinely legal document, and it is not the place to save money by skipping your attorney. Reps and warranties can create real financial exposure after closing if something you disclosed turns out to be inaccurate.

Drafting and negotiating the purchase agreement typically takes two to six weeks, sometimes overlapping with the tail end of due diligence.

Step 10: Asset sale vs stock sale

Most small business sales are structured as asset sales, where the buyer purchases the business's assets and the seller retains the legal entity, rather than stock sales, where the buyer purchases the ownership shares of the company itself. Buyers typically prefer asset sales because they can limit exposure to unknown past liabilities and often get more favorable tax treatment on depreciation. Sellers, particularly of corporations, sometimes prefer stock sales for tax reasons.

The right structure depends on your entity type, tax situation, and the specific liabilities involved, so this is a conversation to have early with your CPA and attorney, not something to leave until the purchase agreement is being drafted.

Expect this structure decision to be negotiated as part of the LOI stage and finalized in the purchase agreement.

Step 11: Financing the deal — SBA, seller note, earnout

Deals are financed through some combination of buyer cash, SBA loans, seller financing, and earnouts. SBA loans are common for individual buyers and typically require the seller to carry a note for a portion of the price, often around 10 to 20 percent, sometimes on standby for a period. Seller notes generally spread part of the payment over several years with interest. Earnouts tie a portion of the price to future performance, which can bridge a valuation gap but adds ongoing entanglement between buyer and seller after closing.

Each financing structure changes your effective payout timeline and risk. A higher headline price with a large earnout or long seller note is not the same as the equivalent amount paid in cash at closing.

Loop your CPA in on financing structure early, since it affects both your after-tax proceeds and how much risk you are carrying past closing day.

Step 12: Closing day and the working capital true-up

Closing day itself is largely administrative: signing the final documents, wiring funds, transferring licenses and accounts, and handing over keys, passwords, and access. Many purchase agreements include a working capital true-up, an adjustment made shortly after closing once actual inventory, receivables, and payables are reconciled against the target agreed to in the purchase agreement.

This true-up can move the final price up or down modestly and is usually settled within 30 to 90 days after closing. It is worth understanding this mechanism before closing day so it does not feel like a surprise adjustment afterward.

Have your attorney and CPA both available on closing day, since last-minute questions about wiring instructions, tax withholding, or document details are common.

Step 13: Transition period, employees and customers

Most deals include a transition period, commonly 30 days to a year depending on business complexity and buyer experience, where the seller stays on to introduce the new owner to key relationships, train staff, and transfer institutional knowledge. This is often built into the purchase agreement as a consulting or employment arrangement.

Timing the announcement to employees and customers is sensitive. Many owners wait until closing is certain, sometimes even until the day of closing, to avoid unnecessary anxiety if the deal were to fall through earlier. Plan the announcement with the buyer in advance so the message is consistent and reassuring rather than chaotic.

A thoughtful transition protects the value you worked to build and often affects how smoothly any earnout or holdback release goes as well.

Why deals fall apart

Deals most commonly fall apart during due diligence, when financials do not support the add-backs presented earlier, or when a buyer discovers customer concentration, pending litigation, or declining trends that were not fully disclosed upfront. Financing falling through, especially SBA loans that do not get approved, is another frequent cause. Personality clashes between buyer and seller, disagreements over the transition arrangement, or an owner getting cold feet late in the process also derail deals.

The best protection against a failed deal is preparation: clean financials, honest disclosure from the start, a realistic valuation range, and a team that has done this before. Deals prepared well in advance fall apart far less often than deals rushed to market.

How to keep the sale confidential

Confidentiality protects your relationships with employees, customers, and vendors, and it protects the value of the business itself, since word of a sale can unsettle key staff or invite competitors to poach customers. Use blind teasers before revealing the business name, require signed NDAs before sharing financials, and limit knowledge internally to only the people who absolutely need to know, such as your CPA and attorney.

Hold buyer meetings off-site or outside business hours when possible, and be careful with paperwork, email, and casual conversation that could tip off employees before you are ready. Most owners choose to tell employees only once a deal is signed or very close to closing, to avoid unnecessary disruption if the sale does not go through.