How Long Will it Take to Sell My Business?

How long will it take for selling a business?

Here’s the bad news: In the past twenty years, the closing time for a middle market ($1M to $50M in sale price) business sale has gone from a couple of months to almost a year.

And, here’s the good news: You can reduce the time it takes to sell your business by following a few straightforward guidelines.

The length of time it takes to sell your business and the kind of deal you get are in direct relation to how well you’ve prepared your business for sale and the degree to which you’ve made the buying process easy for the buyers. Few California business brokers take the time to properly prepare a business for sale.

Put another way, if you make your business attractive to the right buyers and “smooth the path” to buying by removing any obstacles to buying, then you’re more likely to sell for agreeable terms and close the sale quickly.

First… Understand the Sales Process

In my article on The process of selling a business, I lay out the five main phases of selling a business:

1 Initial Meeting

We meet, discuss your business and your plans, and begin to lay out a strategy for selling your business.

2 Research, Plan, Build Value

This next phase can take a few weeks or several years. It’s the time we use to research and analyze your business, look at the market, and advise you on ways you can build more value into your business. You decide when you’re ready to sell.

3 Marketing

This phase is extremely structured to minimize the amount of time it takes and improve the results. We’ll prepare the marketing materials, create and vet a list of potential buyers, actively market your business to this pre-vetted list, meet with potential buyers, then conduct a date-driven “auction” to pit buyer against buyer and drive the process quickly.

4 Due Diligence

This is the phase in which most deals fall apart, and is what makes the selling process take as long as it does. Buyers are scrutinizing businesses like never before, causing the due diligence process to sometimes drag on and on.

5 Final Negotiations, Deal Structuring, and Final Paperwork

To expedite the process, we do most of the negotiations, deal structuring and paperwork concurrent with Phase 4, Due Diligence.

Understand that there is a clear and well-defined process through which your sale will progress, even though the selling process itself is fraught with complexity and inconsistency. No two business sales are ever alike, but the selling process remains consistent.

The actual time from the start of Phase 1 to the completion of Phase 5 and the celebration can be as little as six months, or as long as eight to ten years. This time frame depends considerably on these factors:

• The length of time you take to complete Phase 2, where you build value into your business and decide when you’re actually ready to sell…
• The degree to which we make the process transparent – more transparency usually results in shorter Due Diligence and faster time to close…
• The degree to which your business and the buyer are a good fit for one another.

In a best case scenario, you can expect the entire selling process to take between six and eight months, although as I indicated, the industry average is much longer.

You can pave the way to a faster, more amenable sale by understanding that buyers, and the buyer’s professional advisors, are looking for reasons to argue for a lower value of your company. Your goal is to make it easy for them to want your company even more through the process.

Second… Bring Transparency to the Engagement

We’ve found that the best way to remove the obstacles to selling and make a business more attractive to buyers is by infusing the process with what we call “Transparency.”

By “transparency,” I mean putting everything out on the table, both up front and during the sales process. Selling a middle market business is inherently an opaque process, where information is often hidden or obscured, and the process itself isn’t well understood.

The idea behind transparency is to reduce “surprises” to a minimum. That includes surprises to you as the seller, such as the value of your business as defined by the buyers and market, and surprises to the seller like undisclosed environmental contamination, law suits, employee problems, and competitive pressures.

Every new surprise makes the buyer look for more potential hidden issues, reduces the value of your business in their eyes, and increases their risk. They are buying your business for your people, customers , technology, and the ability of the business to make money in the future without you. If they see anything that might reduce the value or increase the risk, they’re likely to question the deal.

Issues will be found. By disclosing everything up front – the good, great, and ugly – you’re going to significantly reduce the time it takes for due diligence, and simultaneously put yourself into a much better negotiating position with the buyer.

Third… Ease the Transition

You’re now facing greater competition in selling your business. Buyers are more diligent, , the number of middle market businesses for sale is increasing each year. It’s in your best interest to do all you can to make your business highly attractive to prospective buyers.

One way to make your business more attractive to a buyer is to facilitate an easy transition from your ownership to theirs. This could mean staying on for a longer transition time, or bringing in and training top-level management and staff before you put your business on the market.

Fourth… Optimize Your Systems and People

Buyers want to know that the change in ownership will not adversely affect employees continuing to perform, vendors continued willingness to supply, and customers continuing to buy. They need to see that there is an organization and a system in place which will continue to profitably sell and produce products and services after the closing.

Fifth… Emphasize Future Profit or Potential

Understand the inherent value of your business to prospective buyers – from their perspective. For example, a buyer may be interested in your customers and expertise, but be uninterested in your equipment or facilities.

One company with whom we worked on the buy side wanted the Seller to relocate to their home town. Another company with whom we worked on the sell side found that their greatest asset was the relationships they had with their customers.

The point is that you may have a significant “hidden” value that doesn’t necessarily appear in the balance sheet. Your buyer wants to know that his or her future is secure, either by way of the potential driven by your human and non-human assets, or by way of a well-defined growth in profit.

By finding and emphasizing the benefits a buyer will receive through transfer of ownership, you can create a bidding war, drive up the sale price, and close the deal more quickly.