How to sell your business: Plan, prepare, and get the best price
Selling your business involves complex valuations, legal requirements, and tax implications. Learn the key steps to maximize your sale price.
Written by Jotika Teli—Certified Public Accountant with 24 years of experience. Read Jotika's full bio
Published Wednesday 5 November 2025
Table of contents
Key takeaways
• Begin planning your business sale 12-24 months before your intended exit date to maximize sale price and avoid rushed decisions that could cost you thousands.
• Organize three years of comprehensive financial records, supplier agreements, customer contracts, and documented internal processes 6-12 months before listing your business for sale.
• Obtain a professional business valuation costing $3,000-$15,000 to ensure accurate pricing, using asset-based, earnings-based, or market-based methods depending on your business type.
• Maintain confidentiality throughout the selling process to prevent worrying employees, customers, and suppliers, which could harm business operations and reduce your final sale price.
How to sell a business
Business selling is the process of transferring ownership of your company—which the IRS defines as a group of assets that constitutes a trade or business—to a buyer in exchange for payment. This seven-step process typically takes six to 18 months and requires careful preparation to maximize your sale price.
Whether you're retiring, returning to the workforce, or starting something new, planning ahead helps you achieve a smooth and profitable transition.
Making a plan to sell your business
Business sale planning should start 12-24 months before you want to sell, as financial materials prepared for the sale, like forecasts, may need to cover a period of at least 12 months. Early preparation gives you three key advantages:
Keep your financial advisors close. Bookkeepers, accountants and tax professionals know how to sell a business. They'll help get your documentation in order, while also helping to make the sale tax-efficient. Don't have an accountant or bookkeeper? Find one in our advisor directory.
Common mistakes when selling a business
Selling your business is a big step. Knowing common pitfalls helps you achieve the best outcome and a smooth sale.
- prepare early to avoid starting with messy books or unclear processes, which can lower your business's value and deter buyers
- Setting an unrealistic price: Overvaluing your business can deter serious offers, while undervaluing it leaves money on the table.
- Neglecting confidentiality: Letting word get out too early can worry employees, customers, and suppliers, which could harm business operations.
- Going it alone: Trying to handle the legal, financial, and tax complexities without expert advice can lead to costly errors.
- Losing focus on the business: Letting sales or operations slip during the selling process can reduce the final price you receive.
Preparing your documentation
Business documentation requires organizing three years of financial records and legal agreements. Start this process 6-12 months before listing your business for sale.
You'll need comprehensive documentation in three critical areas:
Financial statements
Buyers will want to see three years' worth of financial records, as this historical data is crucial for calculations like the average net income over the last three years, a metric used by the SEC.
That means you'll need income statements to show the business makes money; balance sheets to show the value of business equipment, property and inventory against the debts it owes; and maybe cash flow statements to confirm your business makes money from operations (and not just selling assets or taking loans).
Supplier agreements and customer contracts
Where you can, renew agreements with customers and suppliers – especially if they're critical to business performance. If a major client accounts for a large share of your revenue, buyers will want to see a signed contract in place. Similarly, if you have a great deal on supplies, get it in writing.
Internal processes
Formalize your ways of working. Write down how the business operates, who's responsible for what, what order things get done in, and what systems you use. Think of this as a manual for running the business that will help a new owner hit the ground running. Document a different aspect of operations each week to make the process manageable. If you have employees, have them write the parts that are relevant to their jobs.
Getting your business valued
Business valuation determines your company's market value using financial data, assets, and industry benchmarks. Professional valuation typically costs $3,000-$15,000 but ensures accurate pricing.
Some accountants can do a valuation, so if you're selling your business to a known buyer, such as an employee or family member, you might want to use their services. If you need to find a buyer, however, then you might want to hire a broker to help with the valuation as you'll need them to market the business anyway.
3 methods of business valuation
Most small businesses are valued using one of three methods:
- Asset-based methods: where valuers use the balance sheet to calculate all the assets belonging to the business then subtract any liabilities. This is often used when a business is liquidated.
- Earnings-based methods: where the business is valued in line with its track record for generating profit and cash. You'll need solid financial records to pull this one off.
- Market-based methods: where valuers take a figure such as sales revenue and multiply it by a certain number. This method may be used in certain industries, with each industry having its own accepted multiplier.
A valuation is only a guideline for negotiations. The final transaction price is often influenced by a range of factors, such as your eagerness to sell, the buyer's strategic interests, and how easily buyers can secure financing; in fact, financing is so critical that SEC guidance suggests disclosing the income effects of even a 1/8 percent variance in interest rates.
Finding a buyer
Qualified buyers fall into four main categories and should meet specific financial and strategic criteria. The right buyer offers competitive pricing and supports smooth business transition.
Buyer types to consider:
- Family members or employees: Existing relationships simplify transition
- Industry competitors: Understand your business model and market
- Strategic acquirers: Suppliers or customers seeking vertical integration
- Financial buyers: Investors seeking profitable business opportunities
Your accountant may also help you find buyers, as they often know other entrepreneurs. Bankers, lawyers, and business consultants may have suggestions too.
If you don't have leads in your network, a broker can help you connect with buyers by listing your business in relevant publications or databases.
Should you use a business broker?
Deciding whether to hire a business broker is a key choice. A broker can act as your guide through the sale, but their services come at a cost. They can help you with everything from valuing your business and marketing it confidentially to vetting potential buyers and navigating negotiations.
Choose a broker who understands your industry and has a strong track record.
Managing the offer
Offer management involves evaluating and comparing purchase proposals from qualified buyers. Set a 2-4 week deadline for initial offers to maintain momentum and ensure fair competition.
Every legitimate offer should:
- lay out the price
- identify conditions to be met before closing the deal and set a date for closing
- note any conditions to be met after closing
- specify how and when the money will be paid
- explain any training or support they need from you, and for how long
The offer may also suggest a time frame for due diligence, during which the buyer will run their own checks on the business to make sure they're getting what they expect.
This protects buyers if business performance drops after the owner leaves. Business brokers can be a big help in deciding which offers to entertain and what conditions to accept.
Due diligence
Due diligence is the buyer's 30-90 day investigation period to verify your business information. This timeline aligns with some regulatory frameworks, such as the SEC's 71-day extension for filing certain financial information for acquisitions. This process typically begins after accepting a conditional offer.
Tax implications of selling your business
The money you receive from selling your business is generally taxable, as the IRS states that the sale of business property results in gain or loss from the transaction. Understanding the basics can help you plan, but you should always consult a tax professional for advice specific to your situation.
The profit you make from the sale is often treated as a capital gain, and the tax rate can depend on how long you've owned the business. According to the IRS, whether a capital gain is considered long-term or short-term depends on if you've held the assets for more or less than one year.
How you allocate the sale price across different assets, like equipment and goodwill, can also have significant tax consequences, as the IRS mandates that the residual method must be used for these asset transfers. An advisor can help you structure the sale in the most tax-efficient way, ensuring you don't face any surprises after the deal is done.
Changing ownership
Ownership transfer involves completing legal, tax, and regulatory requirements within 30-60 days of closing. These post-sale obligations ensure proper business transition and legal compliance.
Required post-closing actions:
- issue your final business tax returns
- declare proceeds from the sale to the tax office
- amend articles of organization to reflect new ownership (for companies and corporations)
A business broker, accountant, or bookkeeper can help you meet all the requirements. An accountant can also provide tax planning around the sale to help keep control of the taxes you have to pay.
Selling a business is a process, not an event
Business sale preparation should begin 12-24 months before your planned exit date. This extended timeline prevents rushed decisions and maximizes your sale price.
Preparation timeline breakdown:
- 12-24 months: Organize financial records and document processes
- 6-12 months: Complete business valuation and prepare marketing materials
- 3-6 months: Begin marketing to qualified buyers
- 1-3 months: Negotiate offers and complete due diligence
Trying to complete all preparation tasks simultaneously creates unnecessary stress and often reduces your final sale price.
Start early and break the process into manageable steps. Ask employees and consultants for help. Talk to others who have sold a business and ask for their tips. Careful preparation can help you get the best price for your business. Learn more about a small business exit strategy.
FAQs on selling a business
Here are answers to a few common questions business owners have when they decide to sell.
How much is a business worth to sell?
A business's value depends on its profitability, assets, and market conditions. Common valuation methods include asset-based, earnings-based, and market-based approaches. Ultimately, your business is worth what a buyer will pay.
What's the best way to sell my small business?
The best way to sell your business depends on your goals. You can sell to a family member or employee, find a buyer through your network, or hire a business broker. Preparing your business well makes it more attractive to buyers.
Do I have to pay taxes when I sell my business?
Yes, you will likely have to pay taxes on the profit from the sale. This is typically treated as a capital gain. The structure of the sale and your business type affect your final tax bill, so get advice from a tax professional.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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