How Long Does It Take To Sell a Business?
Entrepreneurs often wonder, "How long does it take to sell a business?" The answer is not simple. The time it takes to sell a company can change a lot. It usually takes between six to eleven months, but it can take longer or shorter.
Many things affect how long it takes to sell a business. These include the company's size, what industry it's in, where it's located, its financial health, and the state of the market. Also, how well the seller is prepared, what they expect to get for their business, and who might want to buy it can all play a role. Knowing these factors and the usual steps in selling a business can help owners plan better.
Key Takeaways
Understanding the Average Time to Sell a Business
Many business owners wonder how long it takes to sell their business. The International Business Brokers Association (IBBA) says it usually takes 6 to 10 months. For deals over $500,000, it can take 8 to 10 months.
The process of selling a business is complex. It starts with a Letter of Intent (LOI) and takes 3 to 4 months to close. This time is for due diligence, negotiations, and legal paperwork.
Several things can affect how long it takes to sell a business. These include:
For deals under $5 million, SBA 7(a) financing is common. This financing takes 30 to 45 days for due diligence. Tasks like working with an M&A advisor and preparing sale materials can take 30 to 60 days.
To attract more buyers, broad confidential marketing is key. This approach increases the chances of finding the right buyer for your business.
After an LOI, legal work starts. This includes creating documents and negotiations. Experts suggest starting the process in the first quarter to have enough time.
Keeping the sale confidential is crucial. Knowing the average time and what can affect it helps owners plan better.
Factors Influencing the Time to Sell a Business
Many factors can affect how long it takes to sell a business. These include the seller's price expectations, the business's location, the industry, its financial trends, and the size of the buyer pool. When these factors are in favor, the sale can happen faster. But, if they're not, finding a buyer can take longer.
The seller's price expectations are very important. If the price is too high or not fair, it can scare off buyers. This makes the selling process longer. But, if the price is right, more people will be interested, and the sale can happen quicker. It's best to sell when the business has shown steady growth for three years. This shows stability and growth potential to buyers.
A conceptual illustration depicting various factors influencing the time to sell a business: a large hourglass in the center, with different elements inside representing market conditions, business valuation, legal processes, and buyer interest, surrounded by gears and cogs symbolizing the complexities of negotiation and timing, set against a backdrop of a bustling city skyline to signify the dynamic business environment.
The location of the business also matters a lot. Businesses in good locations with strong economies attract more buyers. This leads to a quicker sale. But, businesses in less desirable areas may take longer to sell because there are fewer buyers.
The industry of the business is also key. Businesses in growing industries sell faster because they attract more buyers. It's best to sell when the business is at its peak, after it has grown a lot but before it starts to decline. This is when the business is strongest and most attractive to buyers.
Financial trends are also important. Businesses with steady growth are more appealing to buyers. This makes them sell faster. But, businesses with declining finances are harder to sell, especially if they've never been profitable.
The size of the buyer pool also affects the sale time. A bigger pool of buyers means a faster sale because there's a better chance of finding a good match. But, a smaller pool means it takes longer to find the right buyer.
Business owners should team up with experts like brokers, CPAs, attorneys, and M&A advisors. They can help navigate these factors and find the best time to sell. By understanding the impact of price, location, industry, finances, and buyer pool size, sellers can sell their businesses successfully and quickly.
Preparing Your Business for Sale
To sell your business for the best price, you need to prepare well before listing it. This means taking several important steps. These steps can make selling your business easier and more appealing to buyers.
Getting a professional business valuation is a key first step. This valuation gives a fair estimate of your company's value. It looks at assets, debts, income, and growth chances. A detailed valuation helps set a fair price and can be a strong negotiating tool.
Creating a clear exit strategy is also vital. This plan should cover your sale goals, like the timeline, price, and type of buyer you want. A solid strategy keeps you focused and makes better decisions during the sale.
Preparing for due diligence is another crucial step. Buyers will ask for lots of documents, like financial reports and employee records. Putting these in a virtual data room makes things easier and shows your company's openness and professionalism.
Getting a quality of earnings (QoE) analysis before selling can also help. This analysis deeply checks your company's finances. It finds any issues or needed changes that could affect the sale. Fixing these problems early can boost buyer trust and avoid surprises later.
Other steps to get your business ready for sale include:
By putting effort into preparing your business for sale, you can make it more appealing to buyers. This can speed up the sale and lead to a better outcome. Getting help from experts like business brokers, accountants, and lawyers can be very helpful during this time.
Recommended by LinkedIn
The Business Sale Process: A Timeline
Selling a business is a detailed and time-consuming task. It usually takes 6 to 12 months from start to finish. But, about 80% of businesses might take years to sell, not just months.
The sale process has three main stages:
The timing of a business sale is crucial. Selling during a downturn can lower the value. With 2,400 businesses for sale daily, the current market favors buyers for at least a decade.
Phase 1: Preparation Before Going to Market
The first phase of selling a business is all about getting ready. It can take 2-6 months, depending on the business and the seller's preparation. During this time, owners and their M&A advisors gather important documents and make marketing materials.
Getting an accurate business valuation is key. It sets a fair price and helps in negotiations. Advisors use different methods to value a business, looking at its finances, market, and trends.
Creating a confidential information memorandum (CIM) is also important. It gives a detailed look at the business, including its history and finances. The CIM attracts serious buyers and shows the business's value. A good CIM is crucial for getting interest and buyers.
Sellers also need to gather many documents for due diligence. These include:
Putting these documents in a virtual data room makes it easy for buyers to review them. This speeds up the due diligence and sale process.
Good preparation is vital for a successful sale. With the right advisors, a solid valuation, a great CIM, and all documents ready, sellers can sell their business well. This sets them up for success in the next phase.
Phase 2: Finding the Right Buyer
After getting ready, the next step is to market the business to potential buyers. This phase is key to finding the right buyer while keeping everything confidential. The time it takes can vary a lot, from one month to over a year. This depends on the business's location, financial health, industry, and the quality of interested buyers.
The first thing to do is get buyers to sign non-disclosure agreements (NDAs). This keeps the business's sensitive information safe. Then, the team starts qualifying buyers by checking their financials and experience. Buyers who pass the test get a detailed document called the confidential information memorandum (CIM).
The CIM shows the business's key details, like how it works, its finances, and growth chances. Buyers might ask more questions after seeing the CIM. The seller and their team must answer these quickly to keep the interest alive. Sometimes, buyers want to see the business in person. These visits are planned carefully to not disrupt the business and keep things secret.
As the marketing goes on, buyers will make offers and letters of intent (LOIs). These outline the deal's terms, like the price and how to pay. It's important to negotiate and compare these offers to find the best buyer.
The time it takes to find a buyer can vary a lot. It might happen in a month, or it could take months or even a year. The business's location, finances, industry, and the quality of interested buyers all play a role in how long it takes.
Marketing Your Business for Sale
Attracting the right buyers for your business starts with a solid marketing plan. Keeping your business's reputation safe is key. An M&A advisor can guide you through this, ensuring everything stays confidential.
An M&A advisor crafts a marketing plan that finds the right buyers. They make materials like a Confidential Information Memorandum (CIM) that show off your business's best sides. This draws in buyers who are truly interested.
Good strategies for selling your business include:
With an M&A advisor and a smart marketing plan, you can attract more buyers. This leads to a better sales process. You might get a higher price and better terms for yourself.
Phase 3: Due Diligence and Closing the Deal
The final phase of selling a business is due diligence and closing the deal. This usually takes 3-4 months. The buyer checks the company's finances, legal status, and operations to confirm the seller's information. For deals under $5 million, SBA financing, like the SBA 7(a) loan, is often used. This requires detailed documentation and background checks.
The time for due diligence depends on the buyer's experience and the deal's complexity. Individual buyers might spend 45-60 days, while private equity groups could take 60-180 days. Buyers can talk about the due diligence time, and sellers can try to shorten it. During this time, the buyer might decide to go ahead, pull out, or ask for a price change.
Legal advice is key in making deal documents, like the purchase agreement and non-compete agreement. Lawyers for both sides may go back and forth with changes until everything is settled. Once due diligence is done and the documents are ready, the buyer and seller work together for a few months. They focus on a smooth transition through training and advice.