Are you looking into selling your business and wondering how long the process generally takes? We have worked with clients in industries such as landscaping, pest control, manufacturing, and distribution with $1 million to $25 million in revenue and have found that it takes around 6-11 months on average to sell your business.
The prospect of selling your business can be nerve-racking, emotional, or exciting. We always caution owners to be proactive and consider all possibilities in selling or waiting to sell their business. Some businesses sell in less than six months and others never sell at all.
Our timeline of how long it takes to sell your business will serve as a general guide for how long each part of the process will take, but ultimately, there are other factors that may impact the speed and success of the sale of your business. This will also help serve as a guide of how you can contribute to making the sale of your business quick and successful.
6 Factors That Affect the Timeline of Selling Your Business
- Purchase price
- The buyer
- Type of business
- Structure and organization
- Amount of time it takes to respond to requests
Below, we will discuss how these factors can impact the speed of selling your business.
1. The Sale Price of Your Business
In general, the higher the sales price of your business is, the longer it will take to sell. The higher the cost is, the fewer qualified buyers you will have. This is simply due to the fact that fewer buyers will have the funds to afford your business if it is valued higher.
The sale price of your business will impact which type of buyer you ultimately work with. Each buyer has their own characteristics that influence how long it will take to sell.
2. The Type of Buyer That Purchases Your Business
Every buyer is different. Some will need longer due diligence periods, while others need more time to line up financing. Here are the different types of buyers you'll encounter and how they'll impact your timeline to sell:
Individual buyers - They are one of the most common types of buyers you will come across. These buyers will usually apply for an SBA 7(a) loan for financing. The process of getting approved for the loan can take around 45-90 days. Despite this approval period, selling to an individual buyer can be faster than selling to a different kind of buyer.
Private equity groups (PEG’s) - These buyers are generally sophisticated and have full teams of analysts that assess opportunities for acquisition. They are knowledgeable and ask a lot of questions, which can extend the due diligence period. However, their financing periods are quick.
Strategic buyers - They are usually business owners within the same industry as our business, looking to add a complementary business to theirs or to increase their market. They will usually know a lot about your industry, but corporate and regulatory approvals may cause the process of due diligence to take longer.
Since their goal of the merger and acquisition is to purchase a complementary business that will function in synergy with their existing company, the post-merger integration plan will be crucial to the success of a sale with a strategic buyer.
On average, PEG’s and strategic buyers will have the longest due diligence periods out of any type of buyer, but your results will vary depending on the group you select.
3. The Industry of Your Business
The appeal of your business will rely on the type of industry it is in and how profitable it is. For example, home service companies with recurring revenue are some of the most attractive industries to buyers since it provides a consistent revenue stream.
However, If you happen to own a business in the home care industry that requires specific licensing, that can impact the timeline of selling your business. Individual buyers may need to spend time obtaining the proper licensing before the sale can go through.
On the other hand, private equity groups and strategic buyers may already have the correct licensing if they own a similar type of business. Although, there is still a chance that a private equity group or strategic buyer also needs to go through the licensing process.
4. The Location of Your Business
The industry and area your business is in can affect how marketable your business is to buyers. Up and coming cities like Raleigh, or resort locations such as Wilmington or the Outer Banks are desirable types of locations.
Your potential buyer may be moving to the location your business is located, making purchasing your company the perfect opportunity for them due to the financial and lifestyle aspect. If your business is located in an up-and-coming city, the possibility for organic growth can appeal to the buyer.
5. How Your Business is Structured
The way your business is structured refers to how involved you are in the daily operations, how streamlined your processes are, and how you keep track of your finances. If the following statements are true about your company, your business will be more attractive to buyers:
- You are removed from the daily operations of your business.
- You have streamlined processes within your company with operations manuals.
- You have detailed financial information that can be quickly accessed.
If you are deeply enmeshed in your company’s day-to-day operation or your processes are not current and streamlined, it can serve as a roadblock to potential buyers.
Buyers are typically looking for businesses that they can acquire and begin running with a decent amount of ease. The easier it is for buyers to picture stepping into your shoes as the owner, the less risky and more attractive your company will be.
6. How Promptly You Provide Information to Your Broker & Buyers
One of the simplest ways you can speed up the process of selling your business is to provide information to all involved parties quickly. The quicker a broker or buyer is able to review your company’s information, the smoother and faster the process will move along. Some information you should consider preparing ahead of time includes:
- Lease agreements
- A list of utilities
- Social media accounts
- Standard operating procedures
- Operations manual
The financial information you will need to provide to a broker usually consists of three years of tax returns, P&L’s, balance sheets, and an aging report of your accounts receivable. In addition to preparing this type of information for brokers, you should also consider what your ideal sale would look like.
If you have a clearer picture of what you are looking for out of the sale ahead of time, it will assist the broker in finding more qualified buyers to purchase your business.
As you generate this picture in your mind, you should remain open to the fact that some of the details you imagine may be subject to negotiation depending on which buyer you select.
What Step Can You Take Next in Selling Your Business?
Now that you know how long the process of selling your business can take and what steps affect it, you can better prepare for the sale of your business. If you want to sell your business in a year, it would not hurt to get started now.
However, if you want to wait about 4 years to sell your business, you can put off listing your business until you are ready to sell.
No matter where you are in your timeline of deciding whether or not you are ready to sell your business, getting a valuation of your business is useful and informative. It requires minimal effort on your part and can give you insights into what your business is worth and what influences that number.