How to Sell a Sole Proprietorship

by Terry Walcott
Selling your business will require more than a handshake

Selling your business will require more than a handshake

George Doyle/Stockbyte/Getty Images

A sole proprietorship automatically comes into existence the moment someone starts a business. The sole proprietorship’s assets and liabilities are typically held in the name of the individual proprietor, not in the name of the business entity. As the name suggests, there can never be more than one owner of a sole proprietorship—more than one owner, without any state registration, creates a general partnership. The business entity dissolves as soon as you sell the assets of the sole proprietorship, and the buyer must establish a separate business structure to receive these assets.

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Step 1

Retain the services of a qualified appraiser to estimate the fair market value of the sole proprietorship, and to determine the value of the equipment and inventory you intend to sell. A popular valuation method is to multiply the average profits for the last three years by ten. This earnings multiple can be higher or lower depending on the past and projected future growth rates of the company.

Step 2

Hire a business broker who specializes in buying and selling businesses to assist with finding potential buyers. Advertise the business for sale in listings in the local newspaper, industry related trade publications and online. Prepare a sales proposal that highlights the strengths and untapped potential of your business, and include financial statements from the past three to five years.

Step 3

Meet with potential buyers who respond to the sales ads and negotiate the terms of your sale. The details of how you arrived at the asking price should be explained in detail to each potential buyer. One of the negotiated terms of the sale should be that business accounts in your name will be paid off or closed and the new owner will open new accounts in his own name.

Step 4

Draft and sign a Purchase and Sale Agreement with the buyer. Among the terms that should be covered by this agreement are the assets being transferred in the sale and the sales price being paid for the sole proprietorship’s assets.

Step 5

Re-title all transferred assets into the buyer's name. Business licenses and permits should be changed over to the new owner if possible, or the new owner will have to reapply for them.