How to Sell a Small Business: The Steps From Decision to Closing

The short version

Most owners sell a business once. The buyers, brokers and lenders on the other side do it all the time. That gap is why the process can feel like it is happening *to* you instead of being run *by* you.

Selling a small business usually moves through the same stages: decide why and when, get the business and its records ready, decide what kind of buyer you want, share information under confidentiality, agree on the main terms in a letter of intent, get through due diligence, sign a purchase agreement, close, and hand over. Each stage has its own decisions, and the ones made early shape everything after.

This article is general information for owners thinking about a sale. It is not legal, tax or investment advice. Rules and tax treatment depend on your entity, your state and the deal, so work through the specifics with your own attorney and CPA.

Step 1: Be clear about why you are selling, and what you want after

Before anyone values anything, write down what you actually want. Retirement, health, burnout, a partner who wants out, a better opportunity, or a sense that the business needs more than you can give it are all common reasons, and each points to a different kind of deal.

A few questions do most of the work:

• Do you want all of your money at closing, or would you accept part of it over time?
• Do you want to stay involved for a while, step back gradually, or leave at closing?
• How much does it matter who owns the business next and how they treat your employees and customers?
• Is selling the whole business the goal, or would a partial sale or a new leader solve the real problem?

If you are not sure a sale is the answer, that is worth settling first. We cover the alternatives in succession planning and exit strategy.

Step 2: Get the business ready to be looked at

Buyers pay for what they can verify. The U.S. Small Business Administration's guide to closing or selling a business recommends setting a value on the business before marketing it to buyers, and having an attorney review the sales agreement. A CPA who knows your books matters just as much.

Preparation usually means:

• Clean financial statements. Several years of profit and loss statements, balance sheets and tax returns that agree with each other. Personal expenses run through the business should be identified and explained.
• Documents in one place. Leases, customer and supplier contracts, licenses, permits, insurance policies, employee records and any pending legal matters.
• Less dependence on you. If customers, key relationships or daily decisions all run through the owner, buyers see risk. A second-in-command and written processes make the business easier to transfer.
• Known problems disclosed early. A customer that makes up a large share of revenue, an expiring lease or an old dispute will come out in diligence. Raising it yourself keeps you in control of how it is explained. Heavy customer concentration is one of the most common issues buyers raise.

Step 3: Understand how value gets set

The SBA guide describes three common ways to value a business: an income approach based on projected earnings adjusted for risk, a market approach that compares recent sales of similar businesses, and an asset approach based on assets minus liabilities. Professional appraisers often look at more than one.

Two practical points matter more than the method. First, the price a buyer will pay depends on how much of the earnings they believe will continue after you leave. Second, the headline number is only part of the deal. How much is paid at closing, how much is paid later, and what conditions are attached can matter as much as the total.

Step 4: Decide what kind of buyer you want

Different buyers want different things, and they structure deals differently:

• An individual buyer often relies on bank or SBA-backed financing and may ask the seller to carry part of the price.
• A competitor or strategic buyer may pay for synergies, but may also fold your business into theirs.
• A private equity fund often plans to sell again within a set period and may ask you to keep a stake.
• A holding company that buys and keeps businesses may let the company keep operating as itself.
• Your own management team or family may be the natural successor but may need time or financing to buy you out.

Some owners use a business broker or an investment banker to run a broader process. Others talk to one or two buyers directly. Either way, decide in advance what you would say no to.

Step 5: Share information under a confidentiality agreement

Word that a business is for sale can unsettle employees, customers and suppliers. Serious buyers expect to sign a non-disclosure agreement before they see detailed financials. Share information in stages: a summary first, then more detail as a buyer shows real interest and the ability to close.

Step 6: Agree on the main terms in a letter of intent

A letter of intent (LOI) sets out the price, how it will be paid, what is being bought, any period of exclusivity, and the main conditions to closing. Most of an LOI is usually non-binding, but it frames everything that follows, and terms left vague here tend to be negotiated later when the buyer has more leverage.

Pay attention to how the price is paid. Part of it may come as a seller note, an earnout tied to future results, or rollover equity in the buyer's company. If the buyer plans to use an SBA 7(a) loan, SBA's lending rules (its Standard Operating Procedure 50 10; as of November 2026, see SBA's lender SOP page) affect how a seller note and a seller's continued involvement can be structured, so ask the buyer's lender early.

Step 7: Get through due diligence

After the LOI, the buyer checks what you have told them. Expect requests for financial detail, tax returns, contracts, employee information, and anything else that affects risk. Buyers sometimes commission an outside review of earnings. Diligence goes faster and stays calmer when Step 2 was done well.

Step 8: Asset sale or stock sale

A small business can be sold as an asset sale, where the buyer buys the business's assets, or as a sale of the ownership interest (stock or membership units). The SBA guide notes that a sales agreement can cover either. The choice affects taxes, which liabilities the buyer takes on, and which contracts and permits need consent to transfer.

In an asset sale of a business, IRS rules generally require both the buyer and the seller to file Form 8594, the Asset Acquisition Statement, with their tax returns for the year of the sale. The Form 8594 instructions allocate the price across seven asset classes, from cash in Class I to goodwill and going concern value in Class VII. How the price is allocated can change the seller's tax bill, so agree on it with your CPA before signing, not after. IRS Publication 544 covers how the sale of a business and its assets is reported.

Step 9: Sign, close and hand over

The purchase agreement turns the LOI into binding terms: representations and warranties, indemnification, any escrow or holdback, non-compete terms, and conditions to closing. The SBA guide stresses listing all assets and liabilities in the agreement, since omissions cause problems after the sale.

Closing is not the end of the owner's role. Most deals include a transition period where the seller introduces the buyer to customers, suppliers and employees. Agree on how long, how many hours and what you will be paid for it.

Where owners most often get stuck

• Starting too late. Preparation that takes a year cannot be done in a month.
• Focusing on price and not terms. Cash at closing, deferred payments and conditions decide what you actually receive.
• Telling people too early or too late. Plan when key employees learn about the sale.
• Going it alone. An experienced deal attorney and CPA cost far less than a poorly drafted agreement.

Thinking about selling?

Tage is an operator-led holding company in Carmel, Indiana. We buy businesses we can help make better and stay involved after closing. If you are starting to think about how to sell your business, or whether to sell at all, start a confidential conversation.