How to Sell a Business By Owner: Valuation, Buyers, Deal Structure, and Closing

This guide is for owners of small, owner-operated businesses who want to sell directly to a buyer they find themselves, with or without a broker. After reading it, you’ll be able to estimate a realistic price, prepare the records buyers and lenders demand, choose a deal structure, and know exactly when to bring in an attorney or CPA.

Get your numbers buyer-ready first

Buyers don’t pay for what you say the business earns. They pay for what your records prove. Before you talk to anyone, assemble:

• Three years of tax returns and profit-and-loss statements, plus year-to-date figures
• Balance sheets and a current list of equipment and inventory
• Bank statements that tie to reported revenue
• Your lease, major customer and supplier contracts, licenses, and permits
• A list of employees with roles, pay, and tenure (names withheld until late in the process)

Then build a recast of your earnings. Recasting adds back expenses a new owner won’t have: your own salary and benefits, one-time legal bills, a family member on payroll who doesn’t work there, a personal vehicle run through the business. Every add-back needs a receipt or a clear explanation, because a buyer’s lender will test each one.

Valuation: SDE, EBITDA, and asset-based methods

The SBA groups valuation into three approaches: income (what the business earns, adjusted for risk), market (what similar businesses sold for), and asset (what the assets are worth after subtracting liabilities). In practice, small business pricing uses a few specific tools.

A worked SDE example

These figures are illustrative. A service business reports $140,000 in pre-tax profit. Add back the owner’s $70,000 salary, $15,000 of depreciation, $5,000 of interest, and a one-time $10,000 legal bill. SDE is $240,000.

If businesses like this one trade at, say, 2.0 to 3.0 times SDE, the range is $480,000 to $720,000. Where you land inside that range depends on how transferable the earnings are: recurring revenue, a diverse customer base, documented processes, and staff who can run things without you all push the multiple up.

Make sure the price is financeable

A price only matters if a buyer can pay it. If the buyer uses an SBA loan, the portion of loan proceeds used for the purchase can’t exceed the business value shown in the lender’s required valuation. Run a quick test: subtract a reasonable salary for the new owner from SDE, then compare what’s left to the annual loan payment. If the business can’t comfortably cover the debt, the price is too high, no matter what the multiple says.

Protect confidentiality with an NDA and screening

Word that you’re selling can spook employees, customers, and lenders. Start with a short, anonymous summary that describes the industry, region, revenue range, and reason for sale without naming the business.

Only after a prospect signs a nondisclosure agreement should you share your name and financial details. A good NDA also bars the buyer from soliciting your employees and customers. Ask serious prospects for proof of funds or a lender prequalification before you open your full books, and release the most sensitive items, like customer lists and employee names, only after a letter of intent is signed.

Where to find buyers

The best buyer is often someone who already knows the business:

• Key employees or managers, who may pair a small down payment with SBA financing and a seller note
• Competitors looking to add customers, territory, or staff
• Suppliers or customers that want to integrate up or down the chain
• Individual operators looking to buy rather than start a business
• Industry contacts through trade associations and your accountant, banker, and attorney

You can also list the business on owner-to-owner marketplaces, including listing your business free on ByOwners.com.

From letter of intent to due diligence

A letter of intent (LOI) sets the main terms before anyone spends serious money on lawyers. It’s usually nonbinding except for confidentiality and exclusivity. A solid LOI covers price, asset or stock structure, what’s included (inventory, receivables, working capital), financing contingencies, an exclusivity period, your transition role, and any noncompete.

Once it’s signed, the buyer starts due diligence. Have this data room ready before you sign the LOI:

1. Tax returns, financial statements, and bank statements for at least three years
2. The recast SDE schedule with backup for every add-back
3. Your lease and confirmation of whether the landlord must consent to assignment
4. Customer and supplier contracts, including change-of-control clauses
5. Equipment list with ages, condition, and any liens
6. Licenses, permits, and any transferability limits
7. Employee census, handbook, and benefit plans
8. Insurance policies and claims history
9. Pending or threatened litigation and regulatory issues
10. Intellectual property: trademarks, domain names, software, and social accounts

Deal structure: asset vs stock, seller notes, and earn-outs

Asset sale vs stock sale

In an asset sale, the buyer purchases specific assets and usually leaves behind your entity and its liabilities. For tax purposes, each asset is treated as sold separately: inventory produces ordinary income, depreciation recapture on equipment is ordinary income, and goodwill is generally capital gain. Buyer and seller must allocate the price across seven IRS asset classes using the residual method and each file Form 8594 with consistent numbers, so negotiate the allocation in the purchase agreement rather than after closing.

In a stock sale, the buyer purchases your shares or membership interests and inherits the entity, including its history. Sellers of C corporations often favor stock sales to avoid tax at both the corporate and shareholder level. Buyers resist them because of hidden liabilities and the lack of a stepped-up basis.

Seller notes

Carrying a seller note for part of the price widens your buyer pool and signals confidence in the business. Under the installment method, you generally report gain as payments arrive and pay ordinary income tax on the interest. One catch: depreciation recapture is taxed in the year of sale even if you haven’t been paid yet. Secure the note with a personal guarantee and a lien on business assets, and expect it to be subordinate to any bank loan.

Earn-outs

An earn-out makes part of the price depend on future performance. It can bridge a valuation gap, but it invites disputes over accounting and control. If you agree to one, define the metric, the measurement method, and your audit rights precisely. Earn-outs are generally not allowed when the purchase is financed with an SBA 7(a) loan.

SBA 7(a) financing basics

Many small business purchases are financed with SBA 7(a) loans, which are made by banks and partially guaranteed by the government. Key points for sellers:

• Loan size: most 7(a) loans max out at $5 million.
• Eligible use: complete or partial changes of ownership are allowed.
• Buyer equity: for a complete change of ownership, lenders require a minimum equity injection of 10% of total project costs.
• Seller notes: under the rules in effect through September 2026, a seller note could count toward the buyer’s equity only if it was on full standby, with no payments, for the life of the SBA loan, and it could cover no more than half of the required injection.
• Rule changes: the SBA reorganized its change-of-ownership rules in SOP 50 10 8.1, effective for applications numbered on or after October 1, 2026. Ask the buyer’s lender how current rules treat your seller note and transition period.

Illustrative example: a $600,000 purchase plus $40,000 of working capital and closing costs is a $640,000 project. The 10% equity requirement is $64,000. If the buyer borrows about $576,000 over 10 years at 10% interest, the annual payment is roughly $91,000. With $240,000 of SDE and $70,000 set aside for the owner’s salary, the business covers that payment about 1.9 times, which a lender is likely to view favorably.

When to bring in a broker, attorney, and CPA

• Broker: worth considering when you have no obvious buyer, need confidential marketing to a wide audience, or lack time to manage the process. Fees are typically a percentage of the price, often with a minimum.
• Attorney: the SBA advises having an attorney review your sales agreement. They’ll handle representations and warranties, indemnification, noncompete terms (enforceability varies by state), and lease assignment.
• CPA: essential for the price allocation, installment sale reporting, entity-level tax, and any state tax clearance. Some states hold buyers liable for a seller’s unpaid sales or payroll taxes unless a clearance certificate is obtained, so buyers will ask for one.

Rules vary by state, so confirm transfer, licensing, and tax clearance requirements with a local business attorney.

Next steps

• List your business for free to reach owner-buyers directly.
• Learn how carrying a note works in owner financing explained.
• Find a vetted attorney or CPA to review your deal.
• Get a free sale plan on the get started page.

Frequently asked questions

Sources

1. U.S. Small Business Administration, 7(a) Loans
2. U.S. Small Business Administration, Close or Sell Your Business
3. IRS, Sale of a Business
4. IRS, Instructions for Form 8594, Asset Acquisition Statement
5. IRS Publication 537, Installment Sales