How Long Does it Take to Sell a Business?
A variety of factors affect final sale prices for small business. But one oft-overlooked factor is the amount of time the business has been on the market.
A variety of factors affect final sale prices for small business. But one oft-overlooked factor is the amount of time the business has been on the market. The longer a business remains unsold, the more its perceived value diminishes. Understanding this factor can help you plan the sale of your business, and incentivize you to ensure you’re prepared for the most efficient possible sale process.
The Evolution of Days on the Market
Following the 2012 recession, the time necessary to sell a business increased by about 22%, to 200 days. As the economy improved for 10 consecutive quarters, the median number of days on the market shrunk to 188 days. By the end of 2014, the figure was 154 days.
With the acceleration of economic growth, buyers’ personal finances and investment prospects improve. Lending policies have relaxed, with numerous financing options available. More buyers than ever can afford to buy. But sellers should not be unrealistic. Selling a business can be a time-consuming undertaking, and it requires a significant commitment.
Setting a Realistic Timeline
Many owners are eager to close the deal once they finally decide to sell. But a sale takes upwards of six months—much longer than many owners anticipate. One study found that half of owners expected the entire process to be done in under five months. Brokers tend to have a more realistic timeline.
A little luck and a lot of planning can accelerate closing, but a rapid sale often depends on factors beyond your control. This is why sellers must have realistic expectations about the timeline for a sale. To estimate the timeline, the following can help:
- Prepare the business for prospective buyers and due diligence. A descriptive listening, three years of clear and detailed financial statements, and well-managed operational processes can make a business more appealing to buyers. These simple steps will also expedite the process of due diligence. First impressions matter, so ensure your business has curb appeal—literal and otherwise. A fresh coat of pain on your building can make a big difference, as can impressive numbers and organized books.
- Get help if you need it. An experienced M&A advisor or broker can help you anticipate buyer needs. They may be able to expedite the sale process by taking over some responsibilities and freeing you to run your business. Finding an advisor often takes as little as a week.
- Set your target price. A broker or professional appraiser can discuss with you relevant market factors, as well as industry-specific issues that can affect value. Online valuation tools may help, but the most specific and accurate valuation comes from an expert in your industry and niche.
- Prepare for the sale. Before putting your business on the market, assemble a list of potential buyers. Prepare confidential disclosure documents to put in a selling memo once buyers sign a non-disclosure agreement. This advanced preparation can shorten the sale timeline, particularly if you immediately get an interested buyer.
- Market your business. The right market conditions can make a big difference. Marketing your business can take a month to a year or longer. Spend this time promoting your business and ensuring it’s ready for due diligence.
- Remain engaged during negotiations. The terms of the deal matter as much, or even more, than the final sale price. Be prepared for up to four weeks of negotiations. An experienced advisor can be indispensable to this process.
- Plan on a three-month closing timeline. No deal is final until the paperwork is signed. Being prepared to address issues as they arise can help you finalize the sale more quickly by addressing financing and compliance concerns.