Most small business sellers find buyers through one of three channels: a business broker (typical for deals under $5M), an M&A advisor or investment bank (for deals $5M+), or a direct relationship (existing customer, competitor, or employee group). The choice of channel substantially affects the price you receive, running a competitive process with multiple qualified buyers typically produces 15-30% higher proceeds than negotiating with a single buyer.
There are three categories of buyers for small and lower-middle market businesses. Strategic buyers (operating companies in the same industry or adjacent industries) typically pay the highest prices because they can realize synergies, eliminating duplicate overhead, cross-selling to combined customers, leveraging existing distribution. Financial buyers (private equity firms, family offices, search funds) pay based on financial returns and typically use leverage; they often pay competitive but not premium prices. Individual buyers (often funded by SBA loans) buy smaller businesses ($1-10M typical) and pay based on what they can afford to finance.
Business brokers typically work on smaller transactions (under $5M enterprise value) and handle the marketing, NDAs, and initial buyer screening. Their fees are typically 10-12% of the purchase price for the smallest deals, scaling down to 6-10% as deal size increases. Quality varies enormously, top business brokers maintain qualified buyer lists, run organized processes, and add real value; weaker brokers list deals on platforms and hope for inbound interest.
M&A advisors and investment banks work on larger transactions ($5M+ EBITDA) and run more sophisticated processes. They prepare detailed Confidential Information Memoranda (CIMs), conduct outreach to dozens or hundreds of qualified buyers, manage management presentations, negotiate Letters of Intent, and shepherd due diligence to close. Fees are typically 1-4% of enterprise value for larger deals, often with a minimum fee of $100K-$500K. Best fit when there are likely multiple competitive buyers willing to pay differentiated prices.
Direct deals (without an intermediary) work in specific situations: when a known buyer has already approached the seller, when the seller has a clear successor (employee, family member), or when the business is small enough that broker fees would be a high percentage of value. Even in direct deals, sellers benefit from having a transaction attorney and CPA involved early, to negotiate purchase agreements, structure tax-efficiently, and identify pricing comparable.
Key facts
- Strategic buyers (same/adjacent industry): typically pay highest prices via synergies
- Financial buyers (PE firms, family offices, search funds): pay based on financial returns, often use leverage
- Individual buyers (often SBA-financed): typical for under-$10M deals, pay based on financing capacity
- Business brokers: typical for under-$5M deals; fees 6-12% of purchase price
- M&A advisors/investment banks: typical for $5M+ EBITDA deals; fees 1-4% of enterprise value
- Competitive process (multiple bidders): typically produces 15-30% higher proceeds than single-bidder negotiation
How do I keep a business sale confidential?
Confidentiality requires structured controls: every potential buyer signs an NDA before receiving company name or financials; the CIM uses general industry/geography descriptions before NDA, with company name revealed only after NDA; employees, customers, and competitors aren't informed until close; advisors (broker, attorney, CPA) work under engagement letters with confidentiality obligations. Even with controls, leaks happen, particularly when employees or competitors notice unusual activity (frequent meetings, executive travel, due diligence requests). Professional intermediaries reduce but don't eliminate this risk.
What is a search fund and should I sell to one?
A search fund is an investment vehicle in which an entrepreneur (the 'searcher,' typically an MBA graduate) raises capital from investors to find and acquire a single business they then run as CEO. Search funds typically target $5-30M enterprise value businesses with stable cash flow, recurring revenue, and a retiring owner. They're often a good fit for owners who want their business to continue with focused, single-CEO leadership rather than be merged into a larger entity. Search fund buyers typically use heavy leverage and pay competitive (not premium) prices, but offer continuity and culture preservation strategic buyers may not.
