Question 1

How long does it take to sell a business?

Accepted Answer

A well-run lower-middle-market process typically takes 8–9 months from kickoff to close: about 10 weeks of preparation and materials, 8 weeks in market, 4 weeks to negotiate an LOI, and 12 weeks of diligence to close.

Question 2

What's the difference between SDE and EBITDA?

Accepted Answer

SDE starts from EBITDA and adds back one owner's full compensation and benefits, plus one-time or discretionary expenses that aren't needed to run the company day-to-day. That's why it's the standard metric for owner-operated businesses, usually below about $1M of earnings. EBITDA (adjusted, with a market salary for your replacement) is what larger buyers price from.
Common add-backs that build SDE include:
• Owner salary, payroll taxes, benefits, auto, insurance and retirement contributions
• Family members on payroll who aren't essential to operations
• One-time expenses: legal settlements, storm repairs, a failed software implementation
• Personal expenses run through the business: travel, meals, memberships, hobbies
• Above-market rent if you own the building, normalized to a market rate
• Interest, depreciation, amortization and taxes (already excluded from EBITDA)

Question 3

Should I sell stock or assets?

Accepted Answer

Sellers generally prefer a stock sale for tax and liability reasons; buyers prefer an asset sale for a stepped-up basis and liability protection. The economics can be equalized with a gross-up or a 338(h)(10) election.

Question 4

How much of the price is paid in cash at close?

Accepted Answer

In a competitive process, 75–90% cash at close is common, with the remainder in escrow, a seller note, an earnout or rollover equity.

Question 5

What fees should I expect when selling?

Accepted Answer

Advisory fees typically run around 3% of transaction value in the lower middle market, plus $50,000–$150,000 in legal and accounting costs depending on deal size and complexity.

Question 6

Do I need a quality of earnings report?

Accepted Answer

A sell-side QoE isn't required, but for businesses above roughly $1.5M of EBITDA it usually pays for itself by preventing price retrades during diligence.