How Long Does it Take to Sell a Business?
Are you wondering how long it takes to sell a business? Many business owners think it will take about five months. In reality, the average time it takes to sell a business is between six and ten months. This can be a long waiting period for an eager to exit business owner. However, there are many factors that will influence the time it takes to sell and strategies to help in reducing the selling time.
The selling price is the number one factor that impacts the time to sell. As the sale price increases, the days to sell also increases. This is due to the pool of potential and financially capable buyers decrease as the purchase price increases.
Buyers who have the financial resources to invest in larger businesses typically spend more time in the due diligence process. They may also have many professional advisors who are a part of the decision-making process and take longer to assess the opportunity. Larger businesses also tend to have more complex operations. While smaller companies can more easily be paid for with cash or seller financing.
No matter the size of the business, the more reasonable the initial asking price, the quicker the business should sell. Working with a professional business appraiser can help in determining a fair asking price. A business valuation can also help when it comes to the negotiation process and the final purchase price.
Type of Buyer
Next, the type of buyer influences the amount of time it takes to complete the sale. Someone who is paying top dollar will tend to analyze every detail. The more in-depth the due diligence, the longer the transactions takes. Below we discuss three main types of buyers.
- Individual buyers: Tend to be the quickest. However, they commonly use the SBA loan program to secure financing. This can increase the closing time between 30-90 days. One of the easiest and quickest ways to sell a business is by selling it to an employee. But, keep in mind financing and closing the deal still take some time.
- Strategic buyers: Often take the longest. While they may be familiar with the industry, planning a detailed integration plan is important. As such, the due diligence process may be extended in the attempt to ensure the strategic acquisition is successful and meets expectations. To find a strategic buyer consider asking companies who will be able to create synergy. Examples include a competitor or a business that offers a service before or after your product/service.
- Financial or Corporate buyers: Often fall in the middle. Private equity groups are common financial buyers. If the business is acquired as a roll-up or consolidation into a similar company the process will be quicker. If the business/industry are new to buyer, they may do a more in-depth due diligence process. Most large businesses are purchased by financial or corporate buyers. For more information see the blog on Financial vs. Strategic Buyers.
- Liquidation: While liquidation isn’t a type of buyer for say, it is one of the fastest ways to sell your business. This often does not give you the highest return but is helpful if you are in a rush. Assets may include tangible items such as machinery, equipment, and inventory. And intangible assets such as customer or supplier lists, online presence, and brand.
The industry the business operates in can also impact how many days the business is on the market. If your business is in an attractive industry such as technology or construction, it will likely sell quicker than a business in a low-growth industry. A potential buyer not only buys the business, but also the lifestyle it provides.
The business location can also impact the time it takes to sell a business. Businesses in high-population growth areas tend to sell faster. These areas also tend to have more buyers which makes a business easier to sell and often faster.
Revenue and Cash Flows
Most if not all buyers will want to see healthy revenue and positive cash flows. The healthier your company’s financials the easier it will be able to sell. Selling while your company is growing and having positive cash flow is easier than a company headed downhill. A business valuation can also help here with understanding how your business operations compare to similar companies and identify opportunities to improve.
The more financing options the seller offers, the quicker the business should sell. Most businesses are easier to sell when the owner is willing to finance a part of the sale. While all-cash deals are quicker to close, they are often lower-priced small businesses.
Bank financing is one of the most common options, particularly through an SBA loan. Using bank financing usually adds another 30-90 days to closing time. Quickly providing all the information a lender needs is key to reducing the timeframe. It is also important to work with an experienced SBA lender.
One of the best ways you can speed up the process is by having all the documents a buyer will want to see ready to go. It is recommended to gather at least three years of detailed financial statements. These will include income and cash flow statements, balance sheets, and the seller’s discretionary income. A broker is helpful in this process as they will have a more complete list of items a potential buyer will want to review. It is also helpful to be available to answer any questions the buyer may have. If either party is slow to respond this can delay the process from several weeks to many months.
Does your business run without you? A business that is highly owner dependent is often more difficult to sell. A potential buyer will want to be comfortable they can run the business without you. If key customer or vendor relationships walk out the door with you, this will decrease the value of the company and increase the risk for a buyer. Removing yourself from the day-to-day operations of the business will make the business more sellable and increase the value.
As a business owner looking to sell your business, it is important to prepare for a lengthy process before listing the business on the market. While the average time to sell a business is six to ten months, implementing the above strategies can speed up the process for both small and large businesses. The biggest tips include asking for a fair price, providing prospective buyers all the information they may need, and selling to employees or family members, prior to an outside third-party.
Using the services of a professional broker and valuation expert is recommended. Business brokers can help in understanding the current market, marketing the business, and finding a buyer. While a valuation expert can help determine if the selling or purchase price is a fair value. The valuation can also identify specific steps you can take to improve the value of the company. Whether you are looking to put the business on the market in a few days or several years it is never too late to prepare.
Peak Business Valuation is a leading business appraiser located in Utah. We specialize in help small to mid-size companies understand the value of their company, particularly during the sales process. Having a fair initial asking price is important in selling your company faster. We are always happy to answer any questions you have. Please reach out via email or by scheduling your free consultation below!
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