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Exit Stage: The Complete Guide to Selling Your Business
When? Why? How much? Here are all the basics for cashing out.
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Editor’s note: “Exit Stage” was a seven-part series that first appeared in the b. Newsletter. All of the segments are presented here together.
Whether you plan to retire or start another company, selling your business is a natural part of the entrepreneurial life cycle. This can feel bittersweet; you built something from nothing, which provided you with an income, security and a host of other benefits, but when you know, you know.
Still, you can’t just put a “For Sale” sign up and walk away. Selling your business is a complex process, with many decisions to make and plenty of paperwork to sign. Let’s cover all the basics: when, why, how, and — perhaps most importantly — at what price.
When is the best (and worst) time to sell your business?
Timing is everything in business. And the same goes for selling off a business.
“Ideally, if you’re going to sell, you’ll want to do it when your business is at peak market value — or when the market, in general, is bullish with investment capital flowing,” says Brian Prince, a serial entrepreneur who has sold two web-based businesses, Hotel Hotline and Best of the Web.
Yes, the valuation of your business is related to the broader market beyond your own revenues. This is largely because a buyer will probably not purchase your business in an all-cash deal. Instead, they’ll most likely seek financing, so the interest rate and lending environment at the moment you want to sell can be critical.
The worst time to exit is when you absolutely must sell (due to a personal financial crisis, for example) or when the company is in a downward spiral. Buyers will spot issues and attempt to lowball you, and you’ll be forced to take whatever offer comes your way.
“You’ll not be in a good position to negotiate, and it will be harder and take longer to sell,” says Thomas Phillips, co-founder and CEO of PetPortraits.com, who has launched and sold 16 digital operations. “Nobody wants to buy a dying company.”
So, let’s say market conditions are favorable and your books are solidly in the black. There’s another timing factor to consider: Is your business ready to function without you? If it practically runs itself (or even thrives) without your daily involvement, that’s a solid indicator it might be time to consider selling.
“This not only maximizes your leverage in negotiations,” says Bryan Clayton, CEO and co-founder of lawncare marketplace GreenPal, “but also ensures you can exit with confidence, knowing you’ve built something sustainable that can continue to grow under new ownership.”
Should your kids take it over?
Perhaps, if they are prepared and willing to do so … but are they?
In the coming decades, some $53 trillion in assets are expected to be passed down from baby boomers to their heirs. That includes family businesses — think restaurants, retail and local services — that younger generations may not necessarily be interested in taking over.
“Young people want to be YouTube influencers and crypto traders, not run their dad’s pool cleaning biz,” says Brian Prince, a serial entrepreneur who’s sold off two internet-based businesses, Hotel Hotline and Best of the Web.
That might sound harsh, but Prince isn’t wrong: 1 in 4 Gen Zers plan to become social media influencers.
Families have until the end of 2025 to maximize the amount of wealth that can be passed to heirs in a tax-efficient way, notes accounting firm BDO. So, business-owning parents have a big incentive to sell now.
As such, these “boring” mom-and-pop businesses have become hot opportunities for entrepreneurs who want to avoid the stress and trial and error of starting a business from the ground up. Small business acquisitions grew 10 percent between Q1 2023 and Q1 2024, according to BizBuySell’s insight data.
Existing businesses most likely to sell have paying customers, existing cash flow, contracts or leases in place, and relationships with vendors or suppliers. “The right people can update and digitize these legacy business models for continued growth,” says Prince.
And the proceeds from a sale could even float an aspiring influencer until they reach stardom.
How to find the right buyer
You didn’t build your business in one day, so selling it won’t happen in one day either. Finding the right buyer will take some time.
Most business owners, once they’ve decided to sell, perform some informal research, including contacting competitors, partners, and adjacent businesses within their industry or area to gauge interest. If the response is tepid or nonexistent, then you might need to consider casting a wider net.
Consider a business broker
Business brokers earn anywhere from 8 percent to 15 percent of the sale price, so they don’t come cheap. However, they can add significant value by providing access to buyers and negotiating a better deal on your behalf. “Business brokers … bring valuable experience to the table and understand the intricacies of the process,” says Prince, who sold Best of the Web using a broker. “They can help [with] due diligence and documentation [and] tidy up and present those all-important financial statements.”
As with a real estate agent for selling your house, business brokers aren’t strictly necessary, but they make a successful exit easier.
Listing your business online
You can sell your clothes on Poshmark, your car on Carvana, and everything else on eBay or Facebook — so why not sell your business on a digital marketplace?
BizBuySell, BizQuest and Dealstream can do their magic to find buyers for you. These marketplaces aren’t brokers, but they do charge advertising fees for a more prominent listing or a mention in an email blast to their subscribers.
Selling to family, friends or employees
A business owner might simply decide to sell the business to people they already know. While you wouldn’t need to deal with brokers or strangers, you might not get the best price and you might have to offer seller financing.
Still, this might be a good option for someone who still wants to keep working there after the sale … just not as the boss.
4 questions to ask before selling
You’ve decided it’s the right time to cash out and have found a potential buyer for your business. But you want to make sure it’s in good hands, especially if you’re sticking around after the sale as a paid consultant, minority owner or even an employee.
Here are questions beyond “what’s your offer?” to ask before signing the company over.
“Why are you interested in my business?”
Understanding the buyer’s motivation is critical. Are they passionate about the products, services, local market or industry? Their reasons can give you a clearer picture of how they might steer the ship once it’s theirs.
“How will you finance the purchase?”
Knowing whether a potential buyer has the cash on-hand or a solid financing plan in place can accelerate the transaction and ensure it has a good chance of closing. It’s also a good indicator of how serious they are.
“What’s your vision for after the acquisition?”
You’ve put your blood, sweat and tears into this venture. It’s natural to want to know if the new owner will continue on the path you’ve set or take a detour. Their vision can also signal how well they understand the business, a timeline for achieving milestones, and the potential for growth.
“Can you provide references?”
This sounds like a job interview question, but it’s still applicable if your buyer is a complete stranger (or even if they came via a broker). Ask to speak with their partners or current vendors, key customers, and even their employees to get the best picture of who’ll be taking over from here.
The costs of selling your business
Starting a business will cost you money, but selling one isn’t free either. The sale price should easily cover your expenses (and then some), but here’s a breakdown of what you may expect to pay.
Hiring a consultant or business valuation company
How much are your business and its assets worth? You may be wise to hire an expert to determine the figure.
“Look at examples of [their] past jobs and review the approaches used, how weighting is applied, and the extent of data for review,” says broker Ray Smith of Stafford Smith Realty in New Jersey and Florida.
You’ll also want to consider their accreditations and references before making a decision. Some states require that business brokers be licensed, but others do not. Industry specialization, valuation accuracy, and good communication are also key factors. Costs will depend on the size of your business and the potential for litigation.
Legal fees
This is no time for a gentleman’s agreement. You’ll want every important document reviewed thoroughly.
Legal expenses vary by whether your attorney charges a fixed fee or is paid by the hour. Overall, legal fees generally account for between 1 percent and 2 percent of the sale price.
Accounting fees
Financial statements can make or break a business sale. You’ll need at least three years’ worth of income and cash-flow statements, as well as your balance sheet. Expect to pay thousands of dollars to have them prepared.
Broker fees
If you hire a broker to sell your business, expect to pay 10 percent to 15 percent of the sale price. If it sells for more than $1 million, any amount above that figure is generally charged a lesser percentage. Such fees are always contingent upon a successful sale.
Taxes
How the sale of your business is taxed depends on your business structure and your state. If the structure is an LLC, partnership or S corporation, it’s a pass-through entity in which you pay taxes on company profits and business sale profits. If your business is a C corporation, expect to be taxed at the corporate and shareholder level.
Whether you sell your business via an asset sale or a stock sale makes a big difference. Sellers generally prefer a stock sale. That’s because the current long-term federal capital gains top tax rate is 20 percent (plus a 3.8 percent net investment tax), while a business sale’s top rate is 37 percent. Sellers can also expect to pay long-term capital gains taxes at the state level if your state levies an income tax.
The IRS considers the sale of a business for a lump sum as a sale of each individual asset rather than a single asset. The various assets of a business, such as real property, capital assets, inventory and depreciable property, have their gains or losses figured separately.
The paperwork of selling a business
One cost we didn’t mention above is your time. Save as much of it as you can by getting your paperwork together.
When it comes to selling your business, the bottom line is what really matters to prospective buyers — and substantiating that bottom line requires a great deal of documentation. Accurate financial records and transparency are key. Below is a list of what you must consider or provide.
Financial statements
Your accountant can make certain the necessary paperwork is in order. Possible owners also want to know that a CPA has scrutinized your records, including:
Tax returns: Expect to provide potential buyers with not only your business’s income tax returns but also relevant employment and excise taxes. Provide interested parties with two or three years of income tax information.
Profit and loss statements: Show buyers your current P&L and go back two or three years. Their decision on whether to purchase your business relies heavily on these records and the profitability of your enterprise.
Current balance sheet: This crucial document shows long- and short-term assets and liabilities, as well as owner equity. The latter is what’s left after assets are subtracted from the liabilities.
Cash flow statement: Growing revenue isn’t the only consideration for business buyers. Your cash flow statement reflects the net flow of cash in and out of your business during a specific period.
Contracts
Ensure all contracts are accurate, with no out-of-date information. Determine the transferability of all contracts beforehand, including:
- Customer agreements
- Supplier and vendor contracts
- Collective bargaining agreements, if applicable
- Licenses and permits
- Invoices
Provide a complete list of accounts payable and accounts receivable.
However, those stakeholders, including your customers, employees, and suppliers, generally do not need to know about the business sale until it is final. That may seem unfair to those with whom you have built a strong relationship, but confidentiality retains the value of your business while it is on the market.
Your lease
Inform your landlord promptly if you’re selling your business. When it comes to lease options and renewing or transferring the existing lease to a new tenant, the landlord holds the cards. Have your attorney review your lease carefully so you are well aware of all lease provisions beforehand.
You’ve sold your business — now what?
For years, your life revolved around the company that you built and grew. Now the contract is signed, the check has cleared, and the new boss is sitting in your old chair (or upgraded the furniture). Congrats, but this leaves one last question: What’s next?
First, expect the transition to come with a lot of emotions. Many small businesses are inextricably tied to the owner’s network, skill set and lifestyle. The sale can trigger a loss of purpose and even a sense of mourning.
Keep in mind such feelings are normal, even if you are more than ready to walk away. In fact, it’s best to decide on a plan six months prior to the actual sale. (When you’ve spent 50 or more hours per week attending to business, that’s a huge amount of time to fill if you aren’t prepared.)
Here are a few potential paths forward …
Full- or part-time retirement
If you already have a passion outside of business — travel, golf, sailing or any other intense interest — the odds of a happy retirement increase. You now have the time and money to pursue all sorts of great adventures.
Some entrepreneurs who’ve led extremely busy, productive lives are able to retire happily. Others, though, may find that retirement leads to isolation and boredom. If you fall into the latter category, think of it as a self-reinvention and personal growth period to find a new purpose.
Consider volunteering at a nonprofit involved with issues you find compelling. Find young entrepreneurs who can benefit from your experience to mentor. Consulting is another avenue providing both relevance and additional income.
Angel investing
If you’re an accredited investor, consider funding a startup you believe has promise. “Angel investor” originally referred to backers of Broadway plays, but the term now refers to anyone offering seed money for new enterprises.
On average, an individual angel investor in the U.S. contributes $250,000 to a new enterprise for equity or convertible debt, but smaller investments are common. Angel syndicates allow you to pool resources with other investors.
While angel investors take significant risks, the goal is always an exceptionally high return.
Start another company
Workaholism is often an inherent trait for those who build successful businesses. If entrepreneurship is in your DNA and there’s just no “off” switch, building a new one could prove the best “retirement” solution of all … but you might want to check with your spouse, kids, and/or pets first.
Jake Wengroff contributed to this article. This article first appeared in the b. Newsletter. Subscribe now!