Selling a small business: what it's worth and how deals actually work

Every owner eventually exits — by sale, by succession, or by simply turning off the lights. The difference between those outcomes is usually decided two or three years before the end, not at the negotiating table. Understanding how small businesses are actually valued and sold, long before you intend to sell, changes how you build: it turns 'my business' into 'an asset someone else could own,' which happens to also make it a better business in the meantime.

What buyers are buying: SDE

Small businesses aren't valued on revenue — they're valued on Seller's Discretionary Earnings (SDE): profit plus the owner's salary and perks added back, i.e., the total economic benefit a new owner-operator would receive. Buyers apply a multiple to SDE, typically 2–3.5x for owner-operated businesses under about $1M of earnings. What moves the multiple: revenue that recurs (contracts, subscriptions, repeat customers) versus one-off projects, customer concentration (one client over 20–25% of revenue is a discount), documented systems, growth trend, and — the big one — how badly the business needs YOU specifically.

How deals are actually structured

• Asset sale vs. stock sale: small deals are overwhelmingly asset sales — the buyer purchases the assets, name, and goodwill (favoring the buyer for taxes and liability) rather than the entity itself. Expect this; price accordingly.
• All-cash is rare: typical small deals combine a down payment (often 50–80%, frequently backed by an SBA 7(a) loan on the buyer's side), a seller note (you finance 10–30%, paid over years — standard, and it signals your confidence), and sometimes an earnout tied to future performance.
• Earnouts deserve suspicion: money contingent on results you no longer control is money you may not get. Treat heavy earnouts as a price cut when comparing offers.
• Transition terms: buyers expect 30–90 days of training, and most deals include a non-compete (typically 3–5 years within your market). Both are negotiable in scope.
• Taxes shape your net: asset-sale proceeds get allocated across categories taxed differently — equipment (often ordinary income via depreciation recapture) versus goodwill (long-term capital gains). The allocation schedule is negotiable and can swing your after-tax result by five figures; involve a CPA before signing, not after.

The process, start to finish

1. Get a realistic valuation: a broker's opinion of value or an independent valuation ($1,500–5,000) — anchored to comparable sold businesses, not to what you need for retirement.
2. Decide on representation: business brokers charge roughly 8–12% of the sale price on small deals and earn it through buyer screening and deal management; direct sales to a competitor, employee, or family member can skip the fee but need a deal attorney all the more.
3. Prepare the package: three years of clean financials and tax returns, a list of what conveys (equipment, contracts, IP), and an anonymous one-page teaser. Confidentiality matters — staff and customers hearing 'for sale' prematurely damages the asset itself; NDAs before details, always.
4. Survive due diligence: 30–90 days of the buyer verifying everything you claimed. Deals die here when the books don't match the story — which is why the books get cleaned up years earlier.
5. Close with professionals: a purchase agreement drafted or reviewed by YOUR attorney, the price allocation reviewed by YOUR CPA, and escrow for the funds.

The bottom line

Small businesses sell for a multiple of their provable, transferable earnings — usually 2–3.5x SDE, paid partly in cash and partly over time, in an asset sale with taxes that reward planning ahead. The price is mostly set years in advance by clean books, recurring revenue, and your own replaceability. Build those whether or not you ever sell; the market pays for exactly the same things that make the business worth keeping.

What small businesses actually sell for

Anchor on the first number: buyers of small owner-operated businesses pay a multiple of seller's discretionary earnings — profit plus your salary plus personal perks run through the business — and that multiple clusters between 2 and 3.5 for most service businesses. A business generating $150,000 of SDE is a $300,000-500,000 asset, with the position inside that range determined by exactly the factors this article covers: how transferable the revenue is, how documented the operations are, and how little of the business is actually just you in a trench coat. Every hour spent making yourself replaceable moves the multiple more than any negotiation tactic will.