Selling a Services Business? Read This Before You Sign Anything
If you're the owner of a digital marketing or web design agency, accounting firm, or another high-margin service business, the thought of selling your company can feel equal parts exciting and overwhelming. Maybe you’re starting to think about your next chapter. Or maybe you’re simply ready to see the value you’ve built turn into a life-changing liquidity event.
Either way, selling a professional services business comes with its own set of complexities. There are questions around how to value your company, how to find the right buyer, and how to ensure the transition goes smoothly for your clients and team.
In this guide, we’ll break down how to sell a service business the right way—with insights specifically for founders doing this for the first (or second) time.
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Why Selling a Service Business Is Different
When it comes to M&A, not all businesses are created equal. Service businesses are asset-light. You likely don’t have inventory or equipment to transfer. Instead, your value lies in your client relationships, processes, team, and reputation - this is often classified as goodwill in a transaction.
This means that Buyers are going to examine your:
Recurring revenue and client concentration
How reliant the business is on you personally (owner dependency)
Team structure and tenure
Margin profile and growth trends
Industry tailwinds and scalability
The good news? These factors can absolutely translate into strong valuations—especially in the $2M to $20M revenue range. But the key is positioning your business properly.
Step 1: Know What Your Business Is Worth
There’s no single formula for valuing a service business. But most buyers will anchor on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization).
Here’s how to think about it:
Baseline multiple for service businesses at-scale: 3x–5x EBITDA*
Higher multiples (6x+) if you have recurring revenue, low owner dependency, and strong growth
We typically see high-margin service businesses in the $500K+ EBITDA range command the most interest. If you’re north of $1M EBITDA with solid financials and a scalable team, you may be in a prime position to attract multiple offers.
Working with an M&A advisor early can help you understand where you fall and how to improve your valuation.
At-scale is very subjective, however, to obtain these type of multiples buyers are generally wanting to see a minimum of $500,000 of EBITDA. But don't worry - if your business has less than $500,000 in EBITDA it doesn't mean you can't sell - it just may be a lower multiple (schedule a confidential call with our team to obtain your free value assessment HERE.
Step 2: Clean Up Financials and Documentation
Before going to market, make sure your financials are audit-ready. This includes:
Accurate, up-to-date income /profit & loss statements and balance sheets prepared by an accountant
Clear revenue and expense categorization
Tax filings are up to-date
Discretionary expenses (owner salaries, one-time expenses) are well documented and justifiable
All client and employee contracts are up-to-date and organized
All these documents are added to what we call a Data Room a secure place where buyers are able to obtain all the key information they need to submit offers and buy the business.
The more clarity you provide, the more confident a buyer will feel—and the smoother diligence will go.
Step 3: Reduce Owner Dependence
Buyers want to know your business will run just as well after you exit. If your name is on every client call or proposal, that’s a red flag.
Start shifting key relationships to your team, especially sales relationships. Build repeatable processes. Create SOPs. If you can show that your business runs on systems, not just your personal hustle and brand, you’ll be in a far better position to sell.
Step 4: Work With the Right M&A Advisor
This isn’t a process you want to DIY. Selling a service business is part strategy, part storytelling, and part negotiation. An experienced M&A advisor can help you:
Prepare your business for sale by building a data room
Craft a compelling narrative for buyers
Run a structured sale process to generate multiple offers
Manage offers and due diligence
Maximize your exit value
Look for someone who understands service businesses in your revenue range. And make sure their incentive model aligns with yours—they should only win when you do.
Step 5: Run a Thoughtful Sale Process
The right process matters. A good advisor will run a competitive, confidential process that drives real outcomes—not just listing your business and hoping for the best.
You’ll want to:
Identify strategic and financial buyers
Share a well-crafted presentation CIM (Confidential Information Memorandum)
Host management calls
Evaluate offers not just on price, but structure and how they align with your goals
It’s not just about getting an offer—it’s about getting the best deal with the right partner. As discussed in how to sell a business with $500,000 EBITDA the best deal doesn't always mean the highest price.
Step 6: Prepare for the Transition
Once the LOI is signed, due diligence and legal work begin. Be prepared to answer questions about every aspect of your business—financial, legal, and operational.
Post-closing, buyers typically expect a transition period, especially in service businesses. If your business heavily relies on your involvement, this transition may last up to 12 months. You can reduce this timeline by delegating responsibilities and gradually stepping back as the "face" of the brand.
Common Mistakes to Avoid When Selling a Service Business
Even experienced founders can stumble during the exit process. Here are some of the most common pitfalls to watch out for:
Waiting too long to prepare: Buyers reward clean operations and clear financials. Do not wait until you're desperate to sell to prepare your business—by then it's already too late. It's a good practice to start exit planning as soon as possible. Experienced entrepreneurs will even start exit planning from day one of their business.
Overestimating your business value: This is a challenging reality, especially when you've invested years or decades building your business from the ground up. Remember that market value reflects your business's current state—not the accumulated sweat equity of the past. A good advisor will help you establish realistic expectations.
Relying too heavily on one or two clients. High client concentration is a red flag for buyers. Diversifying your revenue base can make your business much more attractive. A good rule of thumb is that no single client should represent more than 10% of revenue, and your top 5 clients combined should not exceed 25-30% of total revenue.
Owner Dependency: This is one of the #1 deal killers for agencies and other service businesses. If you're the face of your business or if operations depend heavily on your personal involvement, it becomes almost impossible to sell without committing to a lengthy transition period.
Choosing the wrong buyer: The highest price doesn't always mean the best fit. Consider the deal structure (including cash at closing and potential earn-outs), post-close involvement requirements, cultural alignment for your team, and after-tax proceeds in your planning.
Avoiding these mistakes doesn’t just protect your downside—it can help unlock a far better deal.
Final Thoughts: Maximize Your Life-Changing Exit
Selling a service business isn’t just a transaction. It’s a major life decision and milestone.
With the right preparation and guidance, you can turn years of hard work into a meaningful liquidity event. Thankfully, you don’t have to navigate this alone.
At Breakwater M&A, we work exclusively with founders of businesses doing $2M–$20M in revenue and $500K+ in EBITDA. If you’re thinking about selling your service business—now or in the next few years—we’re here to help you maximize the outcome.
Get started with a confidential call with our team HERE.
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