How to Sell a Business in California: A Complete Guide

If you're thinking about selling your business in California, you're probably wondering where to start. The process can feel overwhelming — valuations, buyers, negotiations, legal requirements, and a hundred other details.

This guide walks you through the entire process, with specific attention to California's unique requirements.

Step 1: Understand What Your Business Is Worth

Before you can sell, you need to know what you're selling for. A business valuation establishes your asking price and sets expectations.

Most small to mid-sized businesses are valued using a multiple of Seller's Discretionary Earnings (SDE) or EBITDA. The multiple varies by industry, size, and risk factors.

For example:

• A small restaurant might sell for 1.5-2.5x SDE
• An HVAC company with recurring revenue might get 2.5-3.5x SDE
• A med spa with multiple providers could command 3-4x SDE or higher

The valuation process also identifies issues that could hurt your price — owner dependence, customer concentration, messy financials. Knowing these upfront lets you address them.

Check valuation multiples for your industry →

Step 2: Prepare Your Business for Sale

The 6-12 months before you go to market are critical. This is when you fix the issues that would otherwise cost you at the negotiating table.

Financial preparation:

• Clean up your books — remove personal expenses, consistent categorization
• Prepare 3 years of tax returns and financial statements
• Document add-backs and adjustments that calculate SDE
• Get your QuickBooks or accounting system in order

Operational preparation:

• Document key processes and procedures
• Reduce owner dependence — delegate, train, empower your team
• Lock in key employees with retention plans
• Secure a longer lease term if possible

Legal preparation:

• Resolve any pending litigation
• Ensure licenses and permits are current
• Review contracts for assignment clauses
• Consult with your attorney and CPA about deal structure

Step 3: Assemble Your Team

Selling a business is a team effort. You'll need:

Business broker: Handles valuation, marketing, buyer screening, negotiations, and deal management. A good broker earns their commission by getting you a better price and smoother transaction.

Attorney: Reviews the purchase agreement, handles legal aspects of the transaction. Use someone experienced in business sales, not your general counsel.

CPA/Tax advisor: Advises on deal structure, tax implications, and financial presentation. The difference between an asset sale and stock sale can mean hundreds of thousands in taxes.

Step 4: Go to Market

Once you're prepared, it's time to find buyers. This is where confidentiality matters — you don't want employees, customers, or competitors knowing you're selling until the right time.

A broker will:

• Create a confidential business summary
• Market to qualified buyers while protecting your identity
• Screen buyers for financial qualification and fit
• Manage the flow of information

Buyers typically come from:

• Individual buyers looking to own a business
• Strategic acquirers in your industry
• Private equity firms and search funds
• Competitors (though this requires careful handling)

Step 5: Negotiate and Accept an Offer

When offers come in, the negotiation begins. Price is just one factor. You'll also negotiate:

• Deal structure: Asset sale vs. stock sale, how much is paid at closing vs. over time
• Earnouts: Additional payments tied to future performance
• Seller financing: Whether you'll carry a note for part of the price
• Transition period: How long you'll stay to help with the handover
• Non-compete terms: Geographic and time restrictions after the sale
• Working capital: How inventory and receivables are handled

A Letter of Intent (LOI) outlines the key terms. Once signed, you move to due diligence.

Step 6: Survive Due Diligence

Due diligence is when the buyer verifies everything you've represented. They'll examine:

• Financial records (tax returns, P&Ls, bank statements)
• Customer and vendor contracts
• Employee information
• Lease and real estate documents
• Legal and regulatory compliance
• Operations and systems

This is where deals fall apart if you haven't prepared properly. Surprises in due diligence lead to price reductions or killed deals.

Expect this phase to take 30-90 days depending on deal complexity.

Step 7: California-Specific Requirements

California has several requirements that differ from other states:

Bulk Sale Compliance

California's Bulk Sale Law (Commercial Code Section 6101-6111) requires notice to creditors when selling business assets. You must:

• File a Notice to Creditors with the County Recorder
• Publish the notice in a newspaper of general circulation
• Wait at least 12 business days before closing

Your attorney and escrow company will handle this, but it affects your timeline.

Escrow Requirement

Unlike some states, California business sales typically go through escrow. An escrow company holds funds, manages document flow, and ensures all conditions are met before closing.

Employment Considerations

California has strict employment laws that affect business sales:

• WARN Act requirements for larger employers
• Final paycheck timing requirements
• Proper handling of accrued vacation and PTO
• Worker classification issues (AB5)

Sales Tax Clearance

You'll need clearance from the California Department of Tax and Fee Administration (CDTFA) for sales tax obligations. Without this, the buyer could inherit your tax liability.

Step 8: Close the Deal

At closing, you'll sign the final purchase agreement, transfer assets or stock, and receive payment. Typical closing involves:

• Final document signing
• Funds transfer through escrow
• Bill of sale and asset transfers
• Lease assignment
• License and permit transfers
• Employee transition

After closing, you'll typically have a transition period where you help the new owner learn the business. This can range from a few weeks to several months depending on complexity and your agreement.

Timeline: How Long Does It Take?

A typical business sale in California takes 6-12 months from decision to close:

• Preparation: 2-4 months
• Marketing and finding a buyer: 2-4 months
• Due diligence and closing: 2-3 months

Larger or more complex deals take longer. Businesses with issues take longer to sell or may need to be fixed before going to market.

Common Mistakes to Avoid

Going to market too early: If your business isn't ready, you'll get lower offers or scare off buyers.

Overpricing: Unrealistic expectations waste time and can damage your reputation with buyers.

Keeping it secret from your team: Key employees often find out anyway. Better to have a plan for how and when to tell them.

Neglecting the business during the sale: Buyers pay for current performance. If revenue drops during the sale process, so does your price.

Not getting professional help: Trying to sell yourself rarely gets the best outcome. Broker fees are typically earned back through better terms.

Ready to Start?

Selling a business is a major decision. The best outcomes come from starting early, preparing properly, and working with experienced professionals.

If you're thinking about selling your California business, let's have a conversation. I'm happy to answer questions and give you an honest assessment of your situation — no pressure, no obligation.