From Valuation to Closing: How Long Does It Take To Sell a Business?

If you’re a business owner thinking about selling your company, you’re likely curious about one key question: How long does it take to sell a business? 

The answer to this question isn’t a one-size-fits-all proposition. Instead, it’s a complex puzzle that depends on a multitude of factors. 

Early preparation from you as the seller can certainly help speed things along, but selling a business involves significant preparation, negotiation, and logistical considerations. The entire process will likely take somewhere between several weeks (in the most optimistic scenario) to many months, even a year or more.

Let’s delve into all the factors that affect how long it takes to sell a business.

Factors Influencing the Timeline of Selling a Business

Before diving into specific timeframes, let’s dissect the factors that influence the duration of selling a business. 

These elements can vary widely from one situation to another and often overlap, making the process dynamic and nuanced.

1. Selling Price

The price at which you’re willing to sell your business plays a fundamental role in determining how long it takes to find a suitable buyer. If you’ve set an unrealistically high selling price, you might wait for an extended period with no takers. Conversely, pricing your business too low might attract quick offers or a bunch of tire kickers, and you could end up leaving money on the table. Striking the right balance is essential.

2. Asking Price vs. Selling Price

It’s crucial to understand that the asking price and the actual selling price can differ significantly. Negotiations are a standard part of selling a business. Potential buyers may make counteroffers, which can lengthen the process as you work towards an agreement that both parties find acceptable.

3. Multiple of SDE or EBITDA in Business Valuation

Buyers often evaluate businesses based on their Seller’s Discretionary Earnings (SDE) or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). The multiple of SDE or EBITDA you expect can affect the time to sell. Businesses with higher multiples may take longer to find suitable buyers.

4. Financing

The availability of financing options can expedite or prolong the selling process. If potential buyers struggle to secure funding, it can extend the timeline. Conversely, buyers with readily available financing can move quickly to finalize the deal.

5. Industry

The type of industry your business operates in can significantly affect the time it takes to sell. Some industries are more attractive to buyers and may experience faster sales. Others, especially those facing challenges or declining markets, may require more time to find the right buyer. A business attractive to buyers often operates in a thriving industry with growth potential and minimal risks.

6. Location

The geographical location of your business also plays a role. Businesses in prime locations with high demand may attract buyers more swiftly. In contrast, businesses in less desirable areas may face a longer wait. A growing population, based on Acquira’s experience, is an attractive component for many savvy business buyers. 

7. Marketing

Efficient and targeted marketing can speed up the selling process. Being proactive in showcasing your business across multiple channels can help you shorten the timeline.

8. Economic Factors

Economic conditions, both at the local and global levels, can affect the pace of selling a business. During economic downturns, buyers may be more cautious, leading to a more extended selling timeline. Conversely, robust economic conditions can speed up the process.

9. Structure & Organization

Having a well-organized business with clear financial records, contracts, and operational systems in place can expedite the selling process. Buyers appreciate transparency and are more likely to move quickly when everything is in order. Having a business that is run by a management team and isn’t dependent on a single owner-operator is also likely to appear more attractive.

10. Type of Prospective Buyers

The type of buyer you’re dealing with can also influence the timeline. There are three primary categories of buyers: individual buyers, private equity groups, and strategic buyers. Each group has its own unique considerations and may require different amounts of time to complete the transaction.

Identifying qualified buyers early in the process can significantly reduce the time it takes to complete the transaction.

11. Dissemination of Information

How and when you disclose information about your business can impact the selling timeline. Providing relevant information to potential buyers promptly can build trust and expedite negotiations.

Understanding The Value of Your Business

Understanding the value of your business is a critical step in the sale process. Accurately determining your business’s worth is essential for setting a fair asking price and attracting potential buyers. There are several methods for business valuation, each with its own strengths and weaknesses:

• Asset-Based Approach: This method values your business based on its tangible assets, such as equipment, property, and inventory. It’s particularly useful for businesses with significant physical assets but may not fully capture the value of intangible assets like brand reputation or customer relationships.
• Earnings Multiplier or Income-Based Approach: This method values your business based on its earnings, typically using a multiple of Seller’s Discretionary Earnings (SDE) or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). It’s a popular approach for businesses with strong, consistent earnings.
• Market Value Approach: This method values your business based on the market value of similar businesses that have recently sold. It provides a comparative perspective but requires access to reliable market data.
• Discounted Cash Flow (DCF) Analysis: This method values your business based on its projected future cash flows, discounted to their present value. It’s a comprehensive approach that considers future earning potential but can be complex to calculate.

Accurate valuation is crucial for a successful sale, and it’s recommended to hire a professional business appraiser to provide an objective and well-documented valuation. This not only helps in setting a realistic asking price but also instills confidence in potential buyers.

Hiring a Business Broker or M&A Consultant

Hiring a business broker or M&A consultant can be a cost-effective way to sell your small business. A business broker is a professional intermediary who manages the sale process, offering expertise in valuation, marketing, negotiation, and handling legal complexities. M&A consultants have prior experience selling or buying businesses. This experience can help you get more value for your business, reduce the time it takes to sell, and prepare your business for a sale. They both act as a liaison between you and potential buyers, facilitating a smoother and often quicker sale process.

A business broker or M&A Consultant can help you:

• Determine the Value of Your Business: Brokers have the expertise to conduct thorough business valuations, ensuring your asking price is competitive and realistic.
• Create a Marketing Plan: They can develop a comprehensive marketing strategy to attract potential buyers, utilizing their networks and industry connections.
• Negotiate the Sale Price and Terms: Brokers are skilled negotiators who can help you achieve the best possible terms and price for your business.
• Handle Due Diligence and Closing: They manage the due diligence process, ensuring all necessary documentation is in order and facilitating a smooth closing.

When hiring support for your business sale, it’s essential to research and interview several candidates to find the right fit for your business. Look for a broker with experience in your industry and a proven track record of successful sales. Their expertise can significantly streamline the sale process and increase the likelihood of a successful transaction.

Preparation Phase

Now that we’ve laid the foundation by understanding the various factors influencing the timeline of selling a business, let’s dive deeper into the crucial phases that can significantly affect the speed and success of your business sale.

The first is the preparation phase. It is key to a smooth and efficient business sale. 

It involves several essential steps that can help you attract potential buyers more efficiently and enhance the overall process.

Before listing your business, consider conducting a thorough financial audit. 

This step involves scrutinizing your financial records, including income statements, balance sheets, and tax returns. 

Audited financials instill confidence in buyers and can expedite the due diligence process, as they have access to accurate and well-documented financial information.

Organize and update all relevant documentation. 

This includes contracts, customer lists, employee agreements, and any other vital records. 

Well-organized documentation streamlines negotiations and reassures buyers that your business is well-maintained and transparent.

Having a realistic and well-documented business valuation is crucial. 

Overpricing or underpricing your business can lead to delays in finding the right buyer. 

Engaging a professional business appraiser can help you determine a fair market value, enhancing your chances of a swift and profitable sale.

Marketing and Exposure

Once your business is prepared for sale, it’s time to ensure that potential buyers are aware of your opportunity. 

Marketing and exposure play a significant role in attracting interested parties.

Marketing Strategies: Consider implementing a comprehensive marketing strategy. This includes creating an enticing business profile or prospectus that highlights the strengths and potential of your business. Employing both online and offline marketing tactics can help you reach a broader audience.

Online Platforms: Utilize online business-for-sale platforms to your advantage. These platforms, such as business listing websites and social media, can provide broad exposure to a global pool of buyers. Posting detailed listings with high-quality photos and accurate descriptions can generate interest quickly.

Professionals: Engaging a professional business broker or intermediary can streamline the marketing process. Acquira can be a key ally in this process. These experts have networks of potential buyers and can match your business with qualified prospects, potentially reducing the time to find the right buyer.

Networking: Don’t underestimate the power of networking within your industry. Attend industry events, join relevant associations, and tap into your professional contacts. Word of mouth can be a powerful tool in attracting potential buyers.

Don’t forget to contact Acquira. If your business falls within our investment thesis, we’ll buy it with zero fees to you. If it falls outside of our criteria, we can introduce you to one of our trusted broker partners. 

Auction Process & Market Conditions

An auction process can be an effective way to sell your business, especially if you’re looking for a quick sale. An auction involves presenting your business to a group of potential buyers and soliciting bids in a competitive, time-bound environment. Auctions can be conducted in person or online, providing a dynamic and potentially fast way to sell your business.

However, auctions can be a high-pressure sales method that requires careful preparation and negotiation. It’s essential to understand the auction process and market conditions before choosing this sales method. Here are some key considerations:

• Preparation: Ensure your business is well-prepared for the auction. This includes having all financial records, contracts, and operational details in order. A well-prepared business is more likely to attract competitive bids.
• Market Conditions: The state of the economy and market trends can significantly impact the success of an auction. A strong economy and a growing market can increase demand for businesses, leading to higher bids. Conversely, a slow economy and a declining market can make it more challenging to achieve a favorable sale price.
• Choosing the Right Auctioneer: Work with an experienced auctioneer who understands your industry and has a track record of successful business auctions. They can help you navigate the process and maximize the value of your business.

Understanding market conditions and preparing thoroughly can help you leverage the auction process to achieve a successful and timely sale.

Negotiation and Due Diligence

As potential buyers show interest, you’ll enter into negotiations and due diligence, which are critical phases that can impact the timeline.

Negotiation Stages: Negotiations can be protracted, as both parties seek to strike a mutually beneficial deal. Be prepared for discussions on price, terms, and contingencies. Flexibility and open communication are essential to keep negotiations moving forward.

Due Diligence: Buyers will conduct due diligence to verify the information you’ve provided and assess the risks associated with the purchase. Due diligence can be time-consuming, involving detailed reviews of financials, contracts, legal matters, and operational procedures. Being organized and responsive during this phase can help expedite the process.

Legal and Regulatory Processes

Navigating the legal and regulatory aspects before sealing the deal can sometimes cause delays.

Ensuring that all legal matters are in order and addressing any potential obstacles promptly is crucial.

Sometimes, regulatory approvals may be necessary, especially if your business operates in a heavily regulated industry. These approvals can add time to the selling process, so it’s essential to identify potential hurdles early and work with legal professionals who specialize in your industry.

Financing Options

While we’ve briefly touched on buyer financing earlier, it’s essential to delve deeper into how these options can impact the closing timeline. 

Buyers may rely on various financing methods, including personal funds, loans(SBA or bank loans), or even seller financing. Often it is a combination of all three. 

SBA loans are often more attractive for buyers with more generous repayment terms but are usually slower than a traditional bank loan. On the other hand, the Small Business Administration offers various loan programs that can be beneficial for both buyers and sellers during the transaction.

The availability and approval of these financing options can significantly influence how quickly a deal can be finalized. 

Buyers with secure financing in place can proceed swiftly, while those still seeking funding may introduce delays.

Streamlining the Closing Process

A smooth closing process can expedite the sale. To ensure a quicker and smoother transition, here are some tips:

• Due Diligence Preparedness: As mentioned previously, being prepared during the due diligence phase is crucial. Ensure all requested documents and information are readily available. Proactive preparation can lead to faster due diligence completion.
  
• Clear Communication: Maintain open and clear communication with the buyer. Promptly address any inquiries, concerns, or requests for additional information. Effective communication can prevent misunderstandings and unnecessary delays.
  
• Legal and Financial Assistance: Seek legal and financial expertise to navigate the intricacies of the closing process. Having professionals who specialize in business sales like Acquira can help you avoid common pitfalls and streamline the legal and financial aspects of the deal.
  
• Contingency Planning: Anticipate potential roadblocks and develop contingency plans. Being proactive in addressing issues that may arise can prevent them from becoming significant obstacles that prolong the closing.
  

Handover & Transition Period

The handover and transition period is a critical step in the sale process. Ensuring a smooth transition of ownership is essential to maintain the value of your business and set the new owner up for success. The transition period typically involves several key activities:

• General Advice and On-the-Job Training: Provide the new owner with comprehensive training and advice on running the business. This includes sharing insights on daily operations, customer relationships, and key business processes.
• Orientation with Employees, Key Customers, and Suppliers: Introduce the new owner to employees, key customers, suppliers, and other stakeholders. Building these relationships early on can help ensure continuity and stability.
• Transfer of Intellectual Property and Business Assets: Ensure all intellectual property, such as trademarks and patents, and business assets, such as equipment and inventory, are properly transferred to the new owner.
• Settlement of Finances and Payment of Debts: Finalize all financial matters, including settling any outstanding debts and ensuring the new owner has a clear understanding of the business’s financial position.

The length of the transition period can vary depending on the complexity of the business and the needs of the new owner. It’s essential to negotiate the terms of the transition period as part of the sale agreement to ensure a smooth handover. A well-executed transition period can help maintain the value of your business and set the stage for the new owner’s success.

How to Sell Your Business Faster?

Now that we’ve examined the various phases of selling a business, let’s consolidate our knowledge into practical steps to expedite the process:

Valuation: Start with a realistic and well-documented business valuation. Avoid overpricing or underpricing, as this can lead to unnecessary delays. Engage a professional appraiser to determine a fair market value.

Financing: Encourage potential buyers to secure financing early in the process. Buyers with financing in place can move quickly, reducing the timeline.

Exit Strategy: Plan your exit strategy well in advance. Knowing your goals and preferences can help you make informed decisions during negotiations and avoid unnecessary delays caused by indecision.

Keep Your Business on the Market: Don’t take your business off the market until you’ve reached a firm agreement with a buyer. Keeping it available can attract multiple potential buyers, increasing the chances of a swift sale.

Prepare for Due Diligence: Organize your business documents and financial records before listing your business for sale. Being prepared for due diligence can accelerate the process and instill confidence in buyers.

FAQs

Let’s address some frequently asked questions regarding selling a business:

Conclusion

Selling a business is a complex and dynamic endeavor influenced by many factors.

Selling a business is a complex and dynamic endeavor influenced by many factors. 

From the initial contemplation of the selling price to the final closing, each stage requires careful consideration and strategic planning. Smaller businesses may face unique challenges in attracting buyers, but with the right preparation and strategy, they can achieve a successful sale.

The preparation phase sets the foundation for success, emphasizing financial audits, documentation, and accurate business valuation.

Understanding the impact of buyer financing options and streamlining the closing process are key to expediting the sale. To sell your business faster, focus on valuation, financing readiness, exit strategy, market presence, and thorough due diligence preparation.

If you’re thinking about selling your small business, consider reaching out to Acquira for a FREE business valuation and to see how our industry experts can help you get the maximum payout with the least amount of hassle. 

Key Takeaways

• Selling a business’s timeline varies but generally takes several weeks to many months.
• Factors influencing the timeline include pricing, financing, industry, location, and marketing.
• Preparation, organized documentation, and a realistic valuation are crucial for a successful sale.
• Encourage buyers to secure financing early, plan an exit strategy, and keep your business on the market.
• Effective communication, legal and financial assistance, and contingency planning streamline the closing process.