How Long It Takes To Sell

You have gone through the rigorous process of deciding to sell your business, and you have decided that now is the time. You may wonder, how long will it take? 

For all transactions since 2000, the average time on the market is 200 days or about 7.3 months. But the average time to sell a business has increased over the years, from six months in the early 2000s to ten months in recent years. Selling a business has become more difficult and takes longer than it did ten years ago. 

Why? 

I attribute this to four reasons:

1. Internet: The internet has provided buyers of all goods and services with more options, and they have become more educated and selective as a result. When I started in the business in 2000, we used newspapers to sell businesses. These days, I don’t know anyone in the industry that advertises a business for sale in a newspaper. In the old days, businesses were easier to sell and often sold more quickly, likely due to a lack of qualified alternatives and businesses for sale. In the new age, the internet has opened up a range of alternatives for buyers and they have become much more selective. The time frame to sell a business has increased as a result.
2. Information: The internet has also provided a wealth of information on buying or selling a business. Today’s buyer is more educated, able to consider more options, and more selective in which business they decide to purchase.
3. More Businesses for Sale: In recent years, the number of businesses for sale has steadily increased and access to these businesses has gotten easier because of the internet. This has resulted in a larger number of choices for buyers, which has exerted downward pressure on the price of businesses and lengthened the time frame.
4. More Options: Today’s would-be entrepreneurs have more options available to them than in years past. Job mobility has allowed many to work remotely or freelance and, as a result, many potential buyers have instead opted to take a job “for free” rather than buying a business. This has significantly impacted any business that produces a profit of less than $100,000 to $200,000 per year and these businesses are much more difficult to sell than in past years. Businesses producing more than $200,000 per year have not been as impacted by this trend.

But don’t be discouraged. While selling a business now takes longer than it did two decades ago, it’s still possible to get your business sold in a reasonable period of time and for maximum value. How? This book explains.

Sources of Data and Their Accuracy

How accurate are statistics on the time frame?

The business of selling businesses is highly inefficient, especially for those selling smaller businesses. Almost no surveys are validated, and most producers of surveys lure participants in with free results if they complete a survey. This type of incentive can result in inaccurate data. 

For instance, at my firm, Morgan & Westfield, when confidentially marketing a business for sale, we use several web portals where we need to provide transactional data. Our dealmakers operate separately from our back-end administrative team, meaning that, when required to enter data into a web portal, the team may not have complete information available, but they still enter what they can. As a result, we already know that the results of these surveys contain transaction data known to be inaccurate. Many other firms are simply too busy to bother inputting data into databases. 

Nonetheless, two useful sources of statistics are available:

1. BIZCOMPS: This is a database of transactions for businesses sold in the United States, including the length of time the business was on the market. BIZCOMPS contains over 13,000 transactions dating back to 1996. Most of the transactions in BIZCOMPS are smaller businesses priced at less than $1 million. Additionally, almost all of the transactions were completed with the assistance of professional advisors, primarily business brokers.
2. Business Brokerage Press: This is an organization that produces an annual survey of its members. The members primarily consist of full-time business brokers. Out of a few thousand members, a large majority complete the survey on an annual basis. Non-members are also permitted to participate in the survey. The survey is mainly aimed at business brokers and M&A advisors in the Main Street and lower middle-market who sell businesses priced up to $10 million. The survey consists of several dozen questions, of which one is, “How many months is the average period between beginning the process and the closing?” Recent results from surveys have ranged from six to 11 months, with the time period slowly increasing over the years. This data seems to coincide with the information from BIZCOMPS. 

Note: Another useful transactional database that contains more middle-market transactions, the IBA Market Database, includes over 37,000 transactions. But the database doesn’t provide details on how long a business takes to sell. Unfortunately, there are not many useful sources of information regarding the time it takes to sell a business.

While the data can be useful, it’s far from perfect. The data should be used as a rough guide only and supplemented with a dose of common sense and professional advice.

Variables 

There are six variables that affect how long it takes to sell a business:

1. Selling price
2. Region
3. Financing and down payment
4. Industry
5. Attractiveness
6. Marketing strategy

Let’s take a closer look at each one of these variables.

Variable 1: Selling Price

Based on our analysis of BIZCOMPS, the time to sell a business varies from 8.1 months for businesses sold from $500,000 to $1 million, to ten months for businesses sold from $5 million to $10 million.

Larger businesses take longer to sell. Based on our experience at Morgan & Westfield, smaller businesses have, indeed, sold more quickly in the past, but that trend is reversing. Our experience is that businesses become much easier to sell once EBITDA (earnings before interest, taxes, depreciation, and amortization) exceeds $500,000 per year. The more profitable a business is, the more desirable it is and the more quickly it will sell. Larger businesses are easier to sell due to higher demand from professional buyers. Almost all larger businesses are purchased by financial or corporate buyers as an alternative to organic growth, and the demand for quality businesses in the lower middle-market is always high. 

In addition, the more reasonable the initial asking price, the faster the business should sell. Businesses valued in excess of $5 million to $10 million often go to market without an asking price.

Variable 2: Region

Businesses for sale in desirable, high-population growth areas tend to sell faster. For instance, it is easier to sell a business in Orange County, California, (211 days) than it is to sell a business in Iowa (252 days), but this depends on who the ultimate buyer of your business may be. Individuals are more selective about where a business is located than are corporate buyers. 

Many individuals looking to buy a business will consider relocating. In fact, a substantial portion of businesses that change hands in the Southwest and Southeast are sold to individuals moving to the area. If your business is located in a highly desirable region, the fact that people are willing to relocate opens up the number of potential buyers, which effectively speeds up the selling process. Having more potential buyers means that the business will be easier to sell and will often sell faster.

Variable 3: Financing and Down Payment

The more financing the seller offers, the faster the business should sell. But, again, this depends on who the ultimate buyer of your business may be. Wealthy individuals generally put less down than private equity investors and other corporate buyers. If you sell to an individual, expect to finance a significant portion of the purchase price if the buyer can’t obtain third-party financing, such as an SBA loan.

Offering reasonable seller financing terms should result in a quicker sale unless a buyer can obtain an SBA loan or unless they are a corporate or financial entity.

Variable 4: Industry 

A correlation exists between the industry type and the number of days a business is on the market. Manufacturing and technology businesses tend to attract more buyers and therefore sell faster than many retail and service-based businesses. 

If your business is in an attractive industry such as technology or manufacturing, it likely will sell sooner than if it is in a low-growth or unattractive industry.

Variable 5: Attractiveness

To make your business more attractive and help it sell faster, apply the following attributes:

• Increasing financial trends, such as increased revenues or margins
• Low capital expenditures, inventory, or working capital requirements
• Desirable industry
• Strong industry growth and/or stability and/or low-risk
• Scalable business
• Business is difficult to replicate
• High barriers to entry
• Weak competition 
• Strong competitive differentiation 
• Strong brand awareness
• Strong history
• Strong customer loyalty or repeat business
• Minimal customer concentration
• Strong customer contracts
• Recurring revenue
• Strong management team
• Strong infrastructure
• Documented intellectual property
• Favorable lease terms
• Desirable location
• Ability to relocate the business
• Minimal owner dependency
• Minimal dependency on key employees
• Long employee tenure
• Bank financing available to purchase your business
• Limited industry regulations and licensing requirements (this can be a positive barrier to entry if the buyer already possesses these requirements)

Variable 6: Your Marketing Strategy

Aggressively marketing your business for sale through the appropriate channels should help you sell your business faster. Find the best business broker or M&A advisor possible and give them everything they need to help you.

Timeline for Selling a Business

The following is a brief description of the steps involved in selling a business and the time frames involved for each step.

• Preparing the Business for Sale (1 to 2 months): Preparing your business for sale includes normalizing your financial statements, valuing your business, and creating an offering memorandum, teaser profile, and other key documents. Preparation is typically a controlled and predictable step and usually takes one to two months. Often, the biggest bottleneck at this stage is receiving updated financials. 
• Marketing the Business and Accepting an Offer or LOI (1 to 12+ months): This step involves confidentially marketing your business for sale and meeting with buyers. How long this period will take is often unknown, and requires little active effort from you other than meeting with prospective buyers and negotiating the offer or LOI. It can take 1 to 12 months to locate a buyer, and generally one month to negotiate an offer once you identify the buyer. This time period is often frustrating for a seller because you may feel as if nothing is happening. But it’s important to keep your focus on the business and maintain consistent revenues or growth while it’s being marketed for sale.
• Due Diligence and Closing (4 to 6+ weeks): Conducting due diligence usually takes four to six weeks, although it can sometimes take eight or more weeks depending on who the buyer is and how organized you are as the seller. Due diligence can be delayed for many reasons, such as delays with obtaining bank financing or as the result of inaccurate financial information. Negotiating and closing the transaction usually takes from one to two months once due diligence has been completed. In some cases, it can take several months to close the transaction due to third-party delays from attorneys, accountants, franchisors, banks, or license-transfer approvals. These guidelines are rough estimates only, and you should be fully prepared for the transaction to take significantly longer.

Other Factors To Consider

There are a couple of additional factors you should consider when planning how long it will take to sell your business.

Brokers’ Contracts: Why do brokers often require a 12-month exclusive contract? Because the contract length often coincides with the average length of time it takes to sell a business. Half a century ago, listing contracts were 30 to 60 days in length, and businesses were often sold within that period. The time it takes to sell a business has increased steadily over the last 50 years, along with the exclusivity period that most brokers require. 

Value of the Business vs. Time to Sell: Most of the factors that increase the value of a business will also have an impact on the amount of time it takes to sell the business. If you want to increase the value of your business or speed up the time frame, the steps you must take are often the same.

Key Points

When planning to sell a business, you should attempt to maintain a balanced viewpoint. Remember that an average is just an average. The actual time period can vary from one day to more than three years. 

Selling a business is a stressful, emotional event, and it involves anticipating other peoples’ actions, which are beyond your control. As a result, the data is varied and estimating the time is difficult. 

How can you prepare your business for sale and speed up the process? I’m glad you asked. That’s the subject of the next chapter.

Learn More

To view complete statistics on the time to sell a business, you can find my article How Long Does It Take To Sell A Business at the Morgan & Westfield website at morganandwestfield.com/knowledge.