HOW LONG DOES IT TAKE TO SELL A BUSINESS?
Are you wondering how long it will take to sell your business? The level of preparation required to ensure you find the right buyer, the time frame the business spends on the market, the due diligence period, plus the negotiation and settlement all add to the time required to sell a business.
Many business owners, eager to exit their businesses, optimistically believe it will only take a few months to sell their business.
While this may happen, it usually takes longer. The timeline depends on your motivation and answers to the following questions:
Is there an urgency to sell?
Do you want to get the best price you can?
The timelines between the two can range significantly.
In the first instance, circumstances may force you to reduce your time frame to sell. If you are under pressure to sell as quickly as possible, you may be forced to settle for a lesser price.
There are many reasons for this. You are sacrificing sales preparation and buyer selection. Your business may not be optimised for sale. If a seasoned buyer is aware of your motivation to sell, i.e. time pressure, they can use this to their negotiating advantage. They may drag the due diligence and negotiation process out and force you to sell at a price well below what you could have in normal circumstances.
In the second instance, your motive is to sell for maximum profits. Here, you have more control over your outcome, but the sale process may take longer. A business packaged correctly for sale minus any time pressures can stand stronger in a negotiation process and command a higher price.
I have been scratch building, creating value and selling businesses for over 25 years. From this experience, I can tell you the more prepared you are, the quicker you will sell your business for a price you want.
Choosing the correct strategy to sell your business can mean the difference between hundreds of thousands, if not millions of dollars. You’ve invested blood, sweat, tears, life savings and years building your business.
Additional factors affecting the average time it takes to sell a business
Your business’s industry is one of the most important factors that affect the time it takes to sell a business. Some industries may be booming and showing growth trends while others are trending downwards. Businesses that are tightly niched are generally more difficult to sell because of the availability of buyers. The plus side is that interested buyers are more likely to be serious about the deal.
Economic market conditions
Economic conditions can present challenges to the timeframe of a business sale. It’s hard to ignore the economic disruption that the coronavirus pandemic (Covid-19) has caused many small businesses. This disruption may likely cause buyers to hesitate in making a financial commitment to buying a business.
You can speed up the sale process of your business by addressing how your business has responded to the pandemic risks with complete transparency and any plans you’ve implemented to reduce the impact on your bottom line.
The size of the business
The size of the business also makes a big difference. A larger company may take longer to sell because there are fewer buyers with the resources to make an offer. The bigger the deal, the longer it can take to finalise.
The sales price
What is a realistic asking price? The selling price of your business is one of the key deciding factors in the sale of the business. Are you basing your selling price on your current business valuation or the future potential of your business?
If you are selling on your current business valuation, you need to know a realistic market figure. If you are selling on the future potential of your business, your selling price needs to be directly proportional to the level of preparation and how smartly packaged for sale your business is.
Failure to do this in either case above will most likely result in your sale price being seen as overpriced.
Preparation and “know how” are the best ways to reduce the time to sell your business while attracting the best possible sale price.
Here are some preparation steps to help you reduce the time to sell your business without compromising your sales price.
1. Get your financial information in order
When deciding to sell your business, one of your priorities should be to sort out your financial paperwork. To make an accurate assessment of your business, you’ll need to prepare your financial information, ideally, for the past two to three years.
If you want to command a higher sales price and reduce the time to sell your business, you need to show confidence and competence in your financials.
You need a clear understanding and representation of essential factors such as profits, losses, cash flow, sales, assets, liabilities, debtors and creditors.
Most businesses sales have a due diligence process. The potential buyers will audit your financials and business claims during this due diligence period.
Professionally created financial and forecasting reports can positively impact the sales process and shorten the due diligence period.
Disorganisation, lack of preparation and planning often result in the closing of the sale not opening because this dissolves confidence. Potential buyers move on to more attractive offers that appear more structured and less risky.
2. Get a credible business valuation
Often a business owner’s sale price may differ significantly from a realistic market valuation.
Getting the asking price right is one of the most stressful parts of a business sale. Asking for too much could result in a prolonged sales period as buyers may shy away. Additionally, your listing could appear too long on the market and start to raise questions as to why this business is not selling.
Some business owners may think that a business valuation or appraisal is unnecessary. However, trying to skip this step in the process is likely to be to your disadvantage. Simply guessing at the value of your business is likely to result in either a price that’s unrealistically high and turns away potential buyers or a price that’s unnecessarily low and keeps you from cashing out at maximum value.
If your business valuation doesn’t meet your expectation, you can use it as a starting point and take the time to increase the valuation of your business before putting it on the market.
It may take longer to sell your business, but the potential profits at the end of your sale will be well worth it.
However, if you are looking for a quick sale and are happy with the valuation estimate, you can go to market and sell at the current price recommendation.
3. Get professional advice and the right team around you
Having a team of well informed and trusted advisors is crucial when selling your business.
The sale of your business represents the result of years of sacrifice and hard work. It’s likely to be one of the most important financial events of your life. Most business owners need expert help to get this right and ensure they are well protected in the legal and negotiation process.
Your team may consist of a business broker, business valuation expert, accountant, tax advisor, business advisor and lawyer.
There is a lot to consider when selling a business: tax implications, financial options, cash flow planning, retaining employees, the negotiation process, handover period and roles etc., so it’s essential to surround yourself with specialists that can help you navigate the minefield effectively and efficiently.
4. Find the right buyers for your business
Putting your business on “business for sale” websites such as businessforsale.com or LINK.com and in newspapers is one avenue for finding a potential buyer. Both of these options can create a lot of interest and attract more buyers, but it’s not the only way.
Consider finding a buyer in your existing contacts or network. Anyone could be a potential buyer.
A shortlist of potential buyer groups might look like this:
- Employees of competitors
- People looking to be an owner/operator
- Family or friends
Buyers are generally divided into three groups: strategic, financial and operator buyers.
Are generally the highest-paying buyer group. Yoru business will be of interest in their long term growth plans. Strategic buyers could be one of your competitors or a larger business that wants to enter a new market.
Tend to put profitably and stability first. Financial buyers are more interested in your company’s profitability and stability. They could be companies or individuals with money to invest. They are generally after a solid, well-managed business that requires little fixing up.
Are buyers who generally want to be business owners. These include entrepreneurs and managers (including your own employees) who see your business as a gateway to a secure job, income or lifestyle.
Knowing the types of buyers you want to attract to your business will help you better prepare and improve the presentation and marketing of your business for sale. Finding the right buyer is the key to a smooth and efficient transaction.
5. The negotiation process
Once you’ve reached the right potential buyer, you’ll be entering the often drawn-out negotiation process to complete the sale. You’ve made it this far, now all you need to do is close the sale, right?
Unfortunately, this is not the case. It’s not as simple as a buyer and seller connecting, agreeing on a price and then transferring ownership.
Negotiation may take several weeks or even several months to complete. Some potential buyers may want to acquire the business for the lowest price possible, but that doesn’t mean you have to settle for the offer, especially if you’ve taken the time to have your business valued correctly.
This is why knowing what your business is worth is incredibly important.
Value creation can help resolve conflicts and deadlocks and transform a good deal into a great one. It can help you present the best aspects of your business and help you find solutions to disagreements faster that will benefit both parties.
Are you preparing to sell a business?
➡️ Are not sure what the true value of your business is
➡️ Are worried you will sell for a fraction of your company’s true value (like most people)
➡️ Have capped out at your current experience level
➡️ Want to maximise the valuation of your business
➡️ Want a clear pathway to find the best prospective buyers and negotiate the best price
We can help! We have over 25 years of experience.
We help small business owners like you build a structured exit roadmap to maximise their business valuation and sell for maximum profits without a hefty price tag charged by most other consulting firms.
Where to start?
Let’s begin by discovering what your business is worth with our quick and easy, no-obligation FREE Business Valuation Estimate. There’s no obligation or complicated questions, and your information is completely confidential.
You have spent years, tears, blood, sweat and your life savings building your business. It makes sense to maximise your cash out.
As always, I wish you all the best.