Exit Planning Financial Considerations: Price, Tax and What You Keep

The exit planning financial considerations that decide what an owner walks away with are four, in this order: which earnings figure the price is quoted on, the multiple applied to it, how the deal is structured for tax, and what is left after debt and fees. The first one has a published dividing line. The IBBA and M&A Source Market Pulse report for the second quarter of 2026 states that purchase prices from under $500,000 to $2 million are quoted as a multiple of seller’s discretionary earnings, and prices from $2 million to $50 million as a multiple of EBITDA.

The short version: below roughly $2 million the buyer is pricing the job you do as well as the business, and above it the buyer is pricing what the business earns after paying someone else to do that job.

This page states rules and names the body that publishes each one. It is not tax or legal advice, and none of it is advice about your business. Take your own numbers to your own CPA and attorney.

Which earnings figure your price hangs on

The two metrics are not variations on a theme. They measure different things and they belong to different buyers.

The International Business Brokers Association defines seller’s discretionary earnings as the earnings of a business “prior to the following items: income taxes, non-operating income and expenses, nonrecurring income and expenses, depreciation and amortization, interest expense or income, one owner’s entire compensation, including benefits and any non-business or personal expenses paid by the business.” The same glossary defines EBITDA as earnings “prior to interest (expense or income), income taxes, depreciation and amortization expenses.”

The phrase doing the work is “one owner’s entire compensation.” SDE adds back the pay and perks of a single working owner, because the buyer of a small business is buying a job along with the assets. A business run by two working owners does not get both salaries added back. And a buyer who intends to hire a manager instead of working in the business is buying EBITDA, because that manager’s salary is a real, permanent cost.

Lenders take the same view as the larger buyers. SBA Standard Operating Procedure 50 10 8.1, which takes effect on October 1, 2026, defines operating cash flow as “earnings before interest, taxes, depreciation, and amortization (EBITDA)” and sets debt service coverage as “earnings before interest, taxes, depreciation, and amortization (EBITDA) divided by the combined debt service post transaction.” If your buyer needs a 7(a) loan to pay you, EBITDA is the number underwriting the check.

What the published multiples actually say

Two sources publish current small-business multiples free of charge, and they measure different populations. Neither is a valuation of any particular business.

Market Pulse is a quarterly survey of advisors run by the IBBA and the M&A Source, not a transaction database. The free highlights sheet is public; the full executive summary is available only to survey participants. So these are median multiples advisors reported seeing, not what businesses sell for.

The BizBuySell Insight Report for the same quarter counts closed transactions that brokers chose to report to one marketplace. For Q2 2026 it reports 2,117 businesses sold, a total enterprise value of $1.8 billion, a median sale price of $349,250, median revenue of $692,087, median cash flow of $155,921, a median revenue multiple of 0.7 and a median cash-flow multiple of 2.7. BizBuySell’s “cash flow” field is closest to SDE and is seller-reported.

Hold both of those at arm’s length. The 2.7x is a median across every industry and every size in one marketplace’s voluntarily reported deals, and 2,117 transactions is a small fraction of US small-business sales. The Market Pulse figures are what advisors reported, grouped into bands. DealStats and GF Data, the two subscription databases, publish no free figures, and GF Data’s coverage starts at $10 million in deal size, an order of magnitude above the median business that sold in the quarter. A number from any of them is a starting point for a conversation with a credentialed valuer, which is the subject of how to value a small business, not a price.

What a buyer will pull apart in your numbers

The most citable list of the adjustments a buyer’s side expects to make is a federal lending rule. SBA SOP 50 10 8.1 requires a quality of earnings report, on top of the business valuation, for business expansion and initial acquisition transactions “where the Purchase Price as defined in Paragraph A.1 is equal to or greater than $3 million,” with the threshold “determined before the application of buyer equity, seller debt, or other financing sources.” Owner buyout and ESOP or cooperative transactions are exempt. That SOP takes effect on October 1, 2026; the SOP in force until then is SOP 50 10 8, effective June 1, 2025, which has no quality of earnings requirement.

What the report has to do, in the SOP’s own words:

• Reconcile “the business’s accountant-prepared financial statements, tax returns, internal financial statements, and IRS transcript data to produce a normalized, adjusted earnings figure that reflects recurring, arm’s-length operations.”
• Include a cash proof, “a financial analysis that reconstructs cash receipts and disbursements by reconciling bank statement data to the income statement and tax return for each period under review,” performed “on both a trailing 12-month basis and the last two fiscal years.”
• “Identify and document all add-backs and adjustments to the seller’s reported earnings, including non-recurring revenue or expenses, above- or below-market owner compensation, related-party transactions, deferred maintenance, and accounting methodology differences between cash-basis and accrual-basis reporting.”
• Assess “the quality and sustainability of the business’s revenue base, including customer concentration risk, contract continuity, and the likelihood that existing revenue and margins will be maintained post-sale.”

The lender must then use the earnings from that report in its debt service coverage calculation. The minimum historical coverage ratios in the same SOP are 1.25:1 for an initial acquisition, 1.15:1 for a business expansion, 1.25:1 for an owner buyout and 1.25:1 for an ESOP or cooperative.

Two practical points follow. The report is commissioned for the lender: the SOP says it “must be performed by an independent, experienced financial professional” and “may not be prepared by or for the borrower or seller,” so a seller cannot hand over a friendly version. And every item on that add-back list is something a seller can clean up in the year before a sale, while it still belongs to the operating history rather than to a negotiation.

Asset sale or stock sale, and why the allocation is negotiated

The tax outcome of a sale is set by its structure, and the structure is a term of the contract rather than an afterthought.

The IRS position on a typical small-business sale is that “the sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.” It adds that “the residual method must be used for any transfer of a group of assets that constitutes a trade or business.”

The residual method sorts everything into seven classes on Form 8594, Asset Acquisition Statement Under Section 1060, which both the buyer and the seller attach to their returns for the year of the sale.

Consideration is reduced by Class I, then allocated to Classes II, III, IV, V and VI in that order, within each class in proportion to fair market value, with the remainder falling to Class VII. The instructions add a hard cap: “the amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date.”

Two details are worth carrying into a negotiation. A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business is a Class VI section 197 intangible, and section 197(a) makes the buyer amortize it “ratably over the 15-year period beginning with the month in which such intangible was acquired.” And section 1060 provides that a written allocation agreed by the parties binds both of them “unless the Secretary determines that such allocation (or fair market value) is not appropriate.” Buyer and seller are dividing the same dollar into different tax outcomes, and whatever they sign, they both live with.

Where the target is a corporation and the buyer wants asset treatment without buying assets, section 338(h)(10) allows a qualifying stock purchase to be treated as if the target “sold all of its assets in a single transaction.” Which structure fits, and what each one does to your particular return, is a question for your own CPA and your attorney before the letter of intent is signed, not after. The documents that carry all of this are covered in exit planning legal considerations.

The rate rules that decide the federal bill

These are published rules. How they apply to one owner’s sale depends on facts this page does not have.

Long-term capital gains rates for tax years beginning in 2026, from Revenue Procedure 2025-32:

Two rates sit outside that table under section 1: unrecaptured section 1250 gain is taxed at 25 percent, and 28-percent rate gain, which covers collectibles and the includible part of a section 1202 gain, at 28 percent.

Net investment income tax. An additional 3.8 percent applies to individuals, estates and trusts above modified adjusted gross income of $250,000 for joint filers and surviving spouses, $125,000 for married filing separately and $200,000 for everyone else, reported on Form 8960. Those thresholds are fixed by statute and are not adjusted for inflation, so a one-off gain in the year of a sale runs into them at the same level every year.

Qualified small business stock under section 1202 now runs two regimes side by side, and which applies turns on when the stock was acquired. Public Law 119-21, enacted July 4, 2025, rewrote the rules for stock acquired after that date.

Installment sales. Publication 537 defines an installment sale as “a sale of property where you receive at least one payment after the tax year of the sale,” reported on Form 6252. Regular inventory sales, dealer dispositions and publicly traded stock or securities are not eligible. One trap is worth knowing before you agree to be paid over time: “you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year.” Spreading the payments does not spread that piece of the tax. Exit planning for retirement covers how payment timing interacts with an owner’s income needs.

What is actually left

The headline price is not the figure that reaches your account. Three things stand between them, and only the first is published at all.

Consideration is not all paid at closing. In Q2 2026, advisors reported cash at close of 88 percent of consideration for deals under $500,000, 92 percent for $500,000 to $1 million, 91 percent for $1 million to $2 million, 84 percent for $2 million to $5 million and 83 percent for $5 million to $50 million. The rest is seller financing, earn-outs and retained equity combined. Market Pulse does not publish the split between those three, so no one can tell you what share of deals carry a seller note.

Take that as plainly hypothetical arithmetic. On a $1.5 million price in the $1 million to $2 million band, 91 percent cash at close is about $1,365,000 received at closing, with roughly $135,000 sitting in some mix of a seller note, an earn-out or equity you keep. The last figure arrives later, if the conditions attached to it are met.

Debt comes out of the closing proceeds. Secured lenders are paid before you are, and any personal guarantee that survives the sale is a term to negotiate rather than assume.

Fees are negotiated and unpublished. The IBBA’s own glossary carries no entry for the Lehman or double Lehman formula, and the trade body publishes no fee schedule. Commission percentages and tiered formulas quoted elsewhere carry no named source. Ask any broker or M&A adviser for their fee schedule and their minimum fee in writing before signing a listing agreement, and ask your attorney and your CPA for an estimate of their own fees for a transaction of your size.

Who to bring in, and when

Four roles, and they are not interchangeable. A CPA prices the tax consequences of each structure and cleans the historical statements a buyer will test; if a lender is involved, SBA rules rank accounting work as audited, then reviewed under AICPA SSARS AR-C 90, then compiled, then tax returns. A credentialed valuer produces the valuation, and for a 7(a) change of ownership the SBA will accept only a qualified source holding one of five accreditations: ASA, CBA, ABV, CVA or BCA. The Certified Exit Planning Advisor credential is not on that list, so a CEPA-prepared valuation will not satisfy an SBA lender unless that person also holds one of the five. An attorney drafts and negotiates the documents. A broker or M&A adviser runs the process; federal law exempts most of them from SEC broker-dealer registration under 15 U.S.C. section 78o(b)(13), for target companies with EBITDA under $25 million or gross revenues under $250 million, figures the statute indexes every five years. Our directory lists CPA firms by state, and where the gap is the reporting pack and the forecast a buyer will ask for, fractional CFO work is the closer description of the hire.

Frequently Asked Questions

Sources

16 links

• IRS: sale of a business
• IRS: Instructions for Form 8594, Asset Acquisition Statement Under Section 1060
• IRS Publication 537, Installment Sales
• IRS Publication 544, Sales and Other Dispositions of Assets
• IRS: net investment income tax
• IRS Revenue Procedure 2025-32
• 26 U.S. Code section 1060, special allocation rules for certain asset acquisitions
• 26 U.S. Code section 197, amortization of goodwill and certain other intangibles
• 26 U.S. Code section 1202, partial exclusion for gain from certain small business stock
• 26 U.S. Code section 338
• 15 U.S. Code section 78o, registration exemption for merger and acquisition brokers
• SBA SOP 50 10 8.1, effective October 1, 2026
• SBA SOP 50 10 8, effective June 1, 2025
• IBBA and M&A Source Market Pulse Q2 2026 highlights
• IBBA resource center glossary
• BizBuySell Insight Report