A plain-English guide to the M&A process, from valuation to closing
Every day, more than 11,000 Baby Boomers reach retirement age. That number, which demographers now call “Peak 65,” hit a record 4.18 million Americans in 2025 alone and is expected to remain elevated through at least 2027. By 2035, roughly 6 million small to medium-sized businesses will transfer ownership in some capacity. Whether that’s to a family member, a long-tenured employee, a private equity firm, or through an outright liquidation, change is coming either way.
The question isn’t whether this transition happens. The question is whether it happens on your terms.
Data show the percentage of owners. Numbers do not add to 100% because respondents could select multiple plans. Summary combination measures refer to percentages of unique owners.
Source: Federal Reserve Small Business Credit Survey
A lot of business owners push this conversation off for years. That’s understandable. Maybe your father started the business. Maybe you’ve been doing this your whole life and genuinely don’t know what else you’d do. That’s a fair and honest response, and it’s one of the most common ones.
But here’s what’s worth considering.
For most business owners, the majority of their net worth is locked inside the business. Illiquid, concentrated, and entirely dependent on one asset performing year after year. And that’s true whether you’re there every day or just a few hours a week. Even as an absentee owner, your wealth is still tied to one business, in one industry, with one outcome. A bad year, a key employee walking out the door, or a new competitor moving in down the street can move the needle on what took you decades to build.
Selling is also a rare opportunity to explore paths you’ve put off. Maybe you’ve always wanted to get into real estate, collect mailbox money, or simply step back and let your money work for you for a change. Walking away with a 7-8 figure check isn’t just a transaction. It’s the moment years of sacrifice actually convert into freedom.
There’s also a timing reality worth considering. Private equity is sitting on record levels of dry powder and actively hunting for quality businesses in the exact industries you operate in. That appetite won’t last forever. Selling into a strong market on your terms is a very different experience than selling when you have to, whether that’s driven by health, burnout, or a market that has moved on.
And then there’s the generation after you. Done right, a sale sets your kids up, opens new doors, and lets you stop betting everything on one business in one industry. That’s not walking away from something. That’s building something bigger.
Most owners don’t, and that’s not a criticism. Most people start a business because they were great at the work, not because they planned to sell it one day. When the question comes up, the most common responses are “I’ve never really thought about it” or “I know what my total sales are, but I’m not sure how buyers look at it.”
A common assumption is that revenue equals value. If the business does $3M in sales, the business must be worth at least $3M. Unfortunately, that’s not how buyers think. Most sophisticated buyers use EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — as their primary benchmark. It’s a measure of what the business actually earns, not just what it bills. From there, buyers apply an industry-specific multiple to arrive at a valuation.
A few of the metrics buyers pay close attention to:
Are you at or below industry averages? Is your buying power optimized to get the best prices on parts and materials?
Is the business fully staffed and able to operate without you? If you stepped away tomorrow, what would it cost the buyer to keep the lights on?
The football tickets, the boat fuel, the miscellaneous items. Being transparent about add-backs can actually increase your valuation.
Clean financials matter more than most owners realize. A buyer isn’t just looking at your bank balance. They’re reading the history of how the business has performed and making a bet on where it goes next.
Typically, when working towards assigning a value to your business, a buyer will ask for a preliminary data request package. This may include P&Ls, balance sheets, employee rosters, payroll reports, and other high level financial information. If you’re worried about confidentiality and your employees finding out about a potential sale, make sure you and the buyer have a mutual NDA in place before sharing anything.
Once a buyer has done their analysis and sees a business they want to pursue, they’ll typically present a Letter of Intent, or LOI. This is a document that outlines the proposed purchase price and the basic structure of the deal.
One of the most important things to understand: most LOIs are not legally binding. The price is conditional. It assumes the business is performing at the levels you’ve represented, a certain level of EBITDA, sales, or profit. If that changes between signing and closing, the price can change too.
Once an LOI is signed, you enter a period of exclusivity. This means you’re restricted from continuing conversations with other potential buyers. You’re committed to working through the process with this buyer. The LOI is where the deal feels real, but the real work starts after.
After the LOI is signed, the buyer’s team will begin due diligence. This is a thorough review process designed to verify that everything you’ve represented about the business is accurate. You’ll be asked to share bank statements, credit card statements, sales reports, tax returns, payroll records, and more.
It can feel like a lot. It is a lot. But it’s standard practice in every deal, regardless of size. If you were on the other side of the table spending your own money, you’d want the same assurance. The best thing a seller can do is be organized, be transparent, and be responsive. Deals die in due diligence not because businesses are bad, but because sellers are unprepared or inconsistent.
Selling a business is not the same as writing a will or closing on a house. Having a good M&A attorney is just as important as having a good financial advisor or broker at the table. An experienced M&A lawyer will make sure the terms of the purchase aren’t disproportionately weighted against you and will catch things that a generalist simply wouldn’t know to look for.
A common situation: the buyer’s team will recommend lawyers they’ve worked with before. That’s not necessarily a bad thing, but it’s worth verifying there’s no conflict of interest. Similarly, your estate planning attorney or your longtime friend who does real estate closings may be great at what they do, but M&A law is a different discipline. Using someone who knows the space will make the entire process smoother.
The LOI sets the price. The APA, or Asset Purchase Agreement, sets the terms. And the terms are what determine what you actually walk away with.
In most small business acquisitions, the deal is structured as an asset purchase. Rather than buying your legal entity with all of its history and unknowns, the buyer acquires the specific assets that make the business valuable: equipment, customer contracts, trade names, goodwill, and inventory. This gives the buyer a clean start and the ability to leave behind anything they didn’t agree to take on. As a seller, you keep things that are personal and non-essential to operations, your personal truck, tools, or other assets that were yours to begin with. What’s included and excluded is negotiated, not assumed.
The legal promises you’re making about the condition of the business. The financials are accurate, there are no undisclosed liabilities, no pending lawsuits. If those representations turn out to be wrong after closing, you can be held responsible.
The “what happens if something goes wrong after closing” clause. Buyers want broad protection. Sellers want it narrow and time-limited. This is one of the most negotiated sections in any deal.
Almost always included. The buyer needs assurance you won’t open a competing business down the street. Scope, geography, and duration are all negotiable.
If part of your purchase price is tied to the business hitting future performance targets, that’s an earnout. It’s a way for buyers to bridge valuation gaps, but it’s also a bet on results you may no longer fully control once you’ve sold.
Most deals in the lower middle market are structured on a cash-free, debt-free basis. On the closing date, any outstanding debts or liabilities tied to the business need to be cleared. If you owe your supplier $30,000 for parts, that bill gets paid before or at closing. On the flip side, you keep whatever cash is sitting in the business checking account on closing day.
Important: It’s also common for buyers to hold back a portion of the purchase price — typically 5 to 10 percent — in escrow for 12 to 18 months after closing. This is protection against any representations that turn out to be inaccurate post-close. Your full payout isn’t always day one.
Before or shortly after closing, the buyer’s team will typically be on-site to begin the transition. This covers the operational handoff: migrating software, setting up new vendor accounts, onboarding payroll systems, and all the back-office work that comes with a change in ownership.
One advantage of selling to a well-resourced buyer, particularly a private equity-backed platform, is that they’ve done this before. They have back-office infrastructure and integration playbooks built for exactly this. Your team gets to keep doing what it does best while the buyer handles the behind-the-scenes work at scale. Understanding what the integration period looks like, the timeline, on-site involvement, and communication to employees, is something worth discussing before you sign anything.
Most business owners don’t wake up one day and decide it’s time to sell. It’s a decision that builds slowly, somewhere between the long days you’ve already put in and the life you haven’t had time to live yet. You’ve spent years, maybe decades, building something from nothing. That deserves to be treated with care.
The best thing you can do when the time comes is show up prepared. Know how the process works. Be transparent with the people across the table. Get legal representation that actually understands what you’re signing. Those three things alone will make the difference between a deal that works for you and one that doesn’t.
And here’s the part most people don’t expect: selling can be just as exciting as starting. Reinvesting your time into your family, a passion project, or even your next business venture with real capital behind you is a different kind of beginning. You’ve earned that. Don’t let the uncertainty of what comes next talk you out of it.
Selling a business is one of the most significant financial events of a person’s life. When you’re ready to have the conversation, we’re here — no obligation, no pressure, no pitch.
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