Going into a big transition, such as selling your business, it’s natural to want to know the estimated time frame. Like everything else in growing your business, selling typically takes longer than you anticipate.
That being said, there are three main factors directly influencing the length of time it takes to sell your business. Additionally, they also influence your success closing the deal.
Preparing the Business
Your business needs to be prepared to go to market. This is not a ready, shoot, and then aim type of situation. Buyers will look at your business like an investment. This means that everything needs to be buttoned up and ready for an in-depth evaluation.
Here are a few things that indicate your business is prepared:
- Financials generate reports in a GAAP (Generally Accepted Accounting Principles) based format;
- Reports are tied to tax returns;
- Reports are completed in a timely manner;
- No outstanding debts, contractual obligations, or tax issues.
Structurally, the organization needs to be set up to run without the owner involved. That means that management exists and is in place to facilitate the transfer without the risk of the buyer losing business.
Operational and organizational systems are essential to creating value in your organization. All these factors help solidify the value of the investment the buyer sees when looking at your business.
Market Conditions & Money Availability
Macroeconomics impact the viability of selling your business.
So often business owners overlook market trends and the availability of financing options when timing their exit. Timing is typically determined by when they are ready to leave.
Bottom line: it takes cash to buy a business. If you want to sell your business for $500,000 to $1 million, you need to take into account how accessible financing options are to a buyer.
Businesses can be purchased through an individual’s money, conventional SBA financing, or professional money like Private Equity or Venture Capital investments.
When the market takes a nosedive, like it did in 2008, money to invest into a business venture becomes hard to come by. Investors get tight. Banks increase lending requirements. With those conditions, transactions take a lot longer to complete.
When money is easier to get and has cheaper rates, there will be more transactions.
The last major influencer is the value the owner wants for the business.
There is often a significant valuation range between the enterprise value (market value) and what the owner wants for the business. As entrepreneurs, we’ve spent years if not decades diligently growing our business. We weather the lows and celebrate the highs. Every day is a battle we show up to fight.
Unfortunately, the market value doesn’t reflect that battle. It only represents cold hard numbers combined with market trends and demand in the market. Accepting the reality and swallowing the difference is by far the most difficult step for an exiting owner.
The distance between the enterprise value and the owner’s expectations has a direct relationship on how long it will take to sell the business. As an extreme example, I tell owners I can sell anyone’s business for a $1.00 and very few for a $1 million. The closer to $1.00 the faster I can sell it.
The Timing in Black and White
Now that you understand there are three main factors influencing the specific timing of a business sale, I can share my typical outlines:
- 1 month to get preliminary information together needed to go to market;
- 4-6 months to find a qualified buyer and get the sale into escrow;
- 2-3 months to close the deal.
Overall, the average process takes 9-12 months to sell your business. The more you prep work you have completed prior to taking your business to market, the more time you can shave off of this process. At Exit Consulting Group, I’ve worked with some clients to cut that time in half.
I advise clients to start planning their exit 1-3 years prior to actually selling. With this extra time, we can implement value drivers and time the market in a way that increases our chances of a profitable transaction.