TL;DR: According to the IBBA Market Pulse Survey (Q4 2023), the median time to close a small business sale runs 6 to 9 months. Most sellers leave money on the table because they start thinking about an exit when they are burned out, not before. This guide covers the seven steps between today and a wire transfer.
You built something worth selling. The question is whether you will sell it on your terms or theirs.
Private equity is now the dominant buyer class in lower middle market M&A. If your business generates $2M to $20M in revenue, PE firms and their portfolio companies will be among the most serious buyers you encounter. They know what they want. They have seen hundreds of deals. They have a process. Most sellers have not.
That information asymmetry costs sellers millions.
Here is the process, without the investment banker jargon.
What PE buyers actually want
Private equity firms do not buy businesses because they admire your work. They buy because they believe they can generate 3x to 5x their invested capital over 3 to 7 years. Every acquisition decision runs through that lens.
What makes a business attractive to PE:
- Recurring or predictable revenue from contracts, subscriptions, or maintenance agreements
- EBITDA above $500K to $1M at minimum (traditional LMM PE starts around $1M to $2M)
- Defensible market position with niche leadership, specialized expertise, or high switching costs
- Scalability without the owner: the business runs without you at the center
- Two to three clear growth levers such as geographic expansion, adjacent services, or pricing optimization
- Clean, auditable financials with three years of CPA-reviewed statements and documented add-backs
If your business checks four of those six boxes, you have a sellable asset. If it checks all six, you will run a competitive process and negotiate from strength on price.
Step 1: Prepare the business (12 to 24 months before)
This is the step most sellers skip. They wait until they are exhausted and then rush a sale process. That is how you get a low offer and regret it.
Start with your management team. Hire or promote a second-in-command. Transition client relationships. PE buyers need to see that the business does not depend on you personally. If your name is on every key customer relationship, that is a value discount.
Clean up your financials. Three years of CPA-reviewed statements minimum. Document your add-backs clearly. The EBITDA adjustments that justify your asking price need to be defensible under scrutiny, not optimistic guesses scratched on a whiteboard.
Reduce customer concentration. No single client should represent more than 15% of revenue. A buyer sees a 40% customer as a single-threaded dependency that could walk.
Document your operations. SOPs, employee handbooks, sales processes, technology stack. If your business exists only in your head, you are not selling a business. You are selling a job.
The seller who prepares 18 months out closes at a higher multiple and walks away with more cash. The seller who calls an advisor when the lease renewal hits commands whatever the market will bear that week.
Step 2: Commission a sell-side Quality of Earnings report
A Quality of Earnings report is a third-party financial analysis that validates your EBITDA and add-back claims before buyers scrutinize them. It is the single most powerful document you can bring to a sale process.
Here is why: PE buyers will commission their own QoE during due diligence regardless. If your numbers do not hold up under that scrutiny, the deal retrads. The purchase price drops. The earnout provisions multiply. Sometimes the deal dies.
A sell-side QoE puts you ahead of that conversation. You know what your real EBITDA is before buyers do. You control the narrative. You prevent surprises that crater deals at the 90-day mark.
Cost runs $15,000 to $50,000 depending on business complexity. For a business with $5M in enterprise value, that is a 1% investment that de-risks your close and preserves your headline number.
Step 3: Engage an M&A advisor
You can sell a business without an advisor. You should not.
A good M&A advisor positions your business in the language PE buyers speak. They build a targeted buyer list of PE firms with sector expertise, fund size alignment, and active mandates in your space. They run a competitive process that creates bidding tension. And they negotiate deal structure, which matters as much as the headline number.
The difference between a 60% cash at close deal and an 80% cash at close deal on a $5M transaction is $1M in your pocket on day one. An advisor earns their fee on that negotiation alone.
Fees run 3% to 5% of enterprise value for lower middle market transactions, with retainers of $5,000 to $10,000 per month during the process. Compare that to what they recover on deal structure.
Step 4: Run a competitive process (4 to 8 weeks)
Your advisor prepares a Confidential Information Memorandum, a detailed document covering your business model, financials, market position, and growth thesis. It goes to a curated buyer list under NDA.
Interested buyers submit Indications of Interest with price range, deal structure, and key assumptions. Your advisor narrows the field to the top 5 to 8 buyers for management presentations.
Management presentations are critical. PE firms are evaluating the numbers and the people. They need to believe your team can execute after close. Prepare. Rehearse. Know your numbers cold.
After management presentations, qualified buyers submit Final Bids with specific pricing and deal terms.
Step 5: Negotiate the Letter of Intent
The highest price is not always the best deal.
When evaluating offers, look at:
- Total consideration: Cash at close, plus rollover equity, plus earnout
- Certainty of close: The PE firm's track record on closing what they sign
- Rollover terms: If you retain 20%, what multiple does that equity need to hit for you to get paid? On what timeline?
- Working capital peg: How is the baseline defined? This is a common area where sellers get surprised late in the process
- Earnout conditions: Are they tied to metrics you control or metrics you do not?
You sign an LOI and grant exclusivity (typically 60 to 90 days) for the buyer to complete due diligence and close.
Do not fall in love with the LOI. It is not the deal. It is the beginning of the deal.
Step 6: Survive due diligence
PE due diligence is thorough. According to the SBA's guidance on selling a business, financial, legal, operational, commercial, and tax review are all standard components of the close process. The data room you built during preparation either pays dividends here or costs you weeks of fire drills.
Financial due diligence focuses on QoE analysis, EBITDA validation, and working capital trends. Legal covers contracts, IP ownership, pending litigation, and employment agreements. Operational digs into technology infrastructure, process maturity, and key person dependencies.
The buyers are not looking for reasons to walk. They are looking for risks to price. Every issue they find becomes an indemnification carve-out, a purchase price adjustment, or an escrow holdback. Preparation reduces the surface area for repricing.
Typical time from LOI to close: 75 to 120 days for a well-prepared transaction.
Step 7: Close and what happens next
The Purchase Agreement covers purchase price and payment structure, representations and warranties, indemnification provisions, working capital adjustments, and non-compete obligations. Your attorney earns their fee here. Do not use a general-practice lawyer for a PE transaction.
Typical deal structure at close in lower middle market PE:
- 60% to 80% cash at closing
- 20% to 40% rollover equity in the acquiring entity
- Potential earnout tied to post-close performance, usually 12 to 24 months
Post-close, you will likely transition for 6 to 24 months depending on your deal terms and your role in the business. Some founders exit cleanly. Others stay on as operators under the new structure. Both paths work if negotiated clearly upfront.
The PGC approach to working with sellers
At Patriot Growth Capital, we buy businesses from founders who built something real and want a partner who respects that. Our model is acquire, mentor, invest. Not acquire and strip. We are veteran-led operators, not financial engineers.
We donate 5% of revenue to the veteran community. That is a values statement about how we operate, not a marketing line.
If you are a business owner thinking about an exit in the next two to five years, the time to start the conversation is before you are ready to sell, not after. Understanding who the right buyer is for your business changes the preparation work you do today.
Common mistakes sellers make
Several patterns show up repeatedly in failed or underperforming sale processes:
- Starting too late. Sellers who begin preparation 30 days before going to market will not optimize their financials, their team, or their story. The business needs 12 to 24 months of preparation to command the right multiple.
- Accepting the first offer. The competitive process exists for a reason. One offer with no competing bids gives you no negotiating power on price or terms.
- Ignoring rollover structure. A 20% rollover in a well-run PE-backed platform can be worth more than the initial cash payment on a five-year hold. Sellers who focus only on cash at close miss the second bite of the apple.
- Underestimating working capital mechanics. The working capital peg is negotiated in the LOI and settled at close. Sellers who do not understand how their peg is calculated regularly write checks back to buyers at closing.
What it comes down to
Selling a business is a process, not a transaction. The sellers who do well prepare early, understand what buyers value, run a competitive process, and negotiate on deal structure not just headline price.
The sellers who regret it waited too long, picked the first interested party, and signed an LOI they did not fully read.
If your business is between $2M and $20M in revenue and you are thinking about an exit in the next two to five years, start the preparation now. The market does not wait for you to be ready.
Frequently Asked Questions
How long does it typically take to close a small business sale?
According to the IBBA Market Pulse Survey, the median time to close runs 6 to 9 months. A well-prepared transaction typically runs 75 to 120 days from letter of intent to close. Sellers who prepare 12 to 24 months in advance are better positioned to move through that window without surprises.
What does a sell-side quality-of-earnings report cost and why commission one?
A sell-side quality-of-earnings report costs $15,000 to $50,000 depending on business complexity. PE buyers commission their own QoE during due diligence regardless, and if your numbers do not hold up, the deal retrads, the price drops, and earnout provisions multiply. Commissioning one first lets you control the narrative and prevent surprises that crater deals at the 90-day mark.
How is cash at close typically structured in a lower middle market PE transaction?
A typical deal structure at close includes 60 to 80 percent cash at closing, 20 to 40 percent rollover equity in the acquiring entity, and a potential earnout tied to post-close performance over 12 to 24 months. The difference between a 60 percent and an 80 percent cash-at-close deal on a $5 million transaction is $1 million in the seller's pocket on day one.
What are the most common mistakes sellers make during a PE sale process?
The most common mistake is starting too late. Sellers who begin preparation 30 days before going to market cannot optimize their financials, their team, or their story. Other patterns include over-reliance on owner-dependent customer relationships and failing to reduce customer concentration, where a single client representing more than 15 percent of revenue is seen as a single-threaded dependency by buyers.
