Can I Time the Sale of My Business?

by Jacob Orosz (President of Morgan & Westfield)

Executive Summary

When it comes to the question of timing the sale of your business, there are three phases you must take into account:

1. Preparation – How long it takes to prepare your business for sale varies from one month to several years, depending on how much prep you need to do. The best way to know how much prep is required is to ask an M&A advisor to produce an exit strategy that outlines a prioritized list of steps you must take before selling.
2. The Sale – How long it takes to sell your business can vary from 6 to 24 months. There are over 20 factors that can influence how easy or hard your business is to sell and how long it will likely take.
3. The Transition – How long you must be involved in the transition process with the buyer can vary from one month to several years, depending on the type of buyer you sell your business to. Approximately one-third of transitions are short (a few months), one-third are medium (6-12 months), and one-third are long (more than a year). To gauge how long you’ll likely be involved in the transition, retain an M&A advisor to assess your business. They will determine the type of buyer most likely to acquire your business, which indicates how long they may wish to retain you.

The time required to sell your business, including all steps from start to finish, can vary from 8 months to 12 years. Most transactions take 1.5 years to 3 years to complete from start to finish.

To speed up the time frame:

• Retain an M&A advisor to prepare an exit strategy for your business, which contains a prioritized list of action steps to prepare it for sale and make it easier (and faster) to sell.
• Lessen your business’s dependency on you to reduce the likelihood of a long transition period.
• Choose a buyer who requires a shorter transition period. 

Can I time the sale?

If both you and your business are adequately prepared, you can time the sale within a year with about 50% to 75% probability. So, if you want to exit exactly three years from today, you can time your exit within one year (plus or minus) of the exact date you want to walk away. 

Introduction

When it comes to the sale of your business, how important is timing? Perhaps you’re looking to exit at a given moment to coincide with a change in personal circumstances, or perhaps you feel your business or industry is about to peak, and you want to capitalize at just the right moment. 

If timing is important to you, to what extent can you actually time the sale of your company? Firstly, there are three time periods you must take into consideration:

1. Preparation – How long it takes to prepare your business for sale
2. The Sale – How long does it take to sell your business
3. The Transition – How long you must be involved in the transition process with the buyer

Let’s explore each time period in greater detail, then examine the possibility of timing the sale as a whole.

1. The Preparation: How Long Does it Take to Prepare a Business for Sale?

This one is a wildcard and depends on the amount of work required:

• Not Much Work – If there isn’t much work to do here, then it may only take you one or two months to fully prepare. 
• A Lot of Work Required – If you haven’t done any prep and significant changes need to be made to boost your value, then selling could be substantially longer. If dramatic changes are required to your business, the time frame can be several years or even longer for some.

How much is needed to prepare my business for sale?

The best way to get an accurate answer to this question is to ask an M&A advisor to prepare an exit strategy for your business that outlines prioritized steps you must take to prepare your business for sale. This is a critical step, especially the prioritization. 

The importance of prioritizing your list

Nearly every business owner could take dozens of actions to prepare their business for sale, but there are often only a handful that need to be taken. It’s these critical actions that you want to focus on, and you should have an idea of how long they’ll take to implement. The remaining steps are usually optional, so you don’t necessarily need to factor them into the time frame.

2. The Sale: How Long Does it Take to Sell a Business?

Let’s examine how long it takes to sell a business. 

My Estimate

Following is my personal estimate and the probability for each, from formally beginning the sale process until closing. Note that the following times do not include a transition period:

If you’re curious about what can impact the time frame, see our article on what determines how easy it will be to sell your business.

3. The Transition: How Long Does it Take to Hand Over a Business?

Another critical consideration is how long the transition will take. 

Ask yourself this: is the length of the transition period important to you?

• No – If you’re attempting to time the sale of your business so you can capitalize on an industry peak, then how long the transition takes may not be important for you. 
• Yes – On the other hand, if you’re timing the sale of your business because you want to move on to something else in your life, something that requires a substantial portion of your time, then you should consider how long the transition period will take.

The length of the transition period generally falls into one of three:

• Short – This can range from almost nothing at all to a few months. Transitions are short if you don’t play a crucial role in your business, you already have a successor lined up to replace you, or if the buyer plans on immediately replacing you following the close. This is common with individual buyers, search funds, and some strategic buyers.
• Medium – This can range from three to twelve months, usually the case if the buyer would like to retain you while they find a replacement. The buyer will normally want you to stay and help train the new manager.
• Long – This can range from one year to several years or more. Transitions are long if the buyer would like to retain you in the long term to continue managing the business. This is common with private equity firms, independent sponsors, and many family offices.

I estimate that the transition period is split into thirds – approximately one-third are short-term, one-third are medium-term, and one-third are long-term. This is a rough estimate, but it should give you a general idea of how frequently each transition period arises.

How long will my transition period be?

To gauge the length of time you may be involved in the transition, retain an M&A advisor to assess your business and determine the buyers most likely to acquire it. This will determine how long they may wish to retain you.

While an experienced M&A advisor can make an educated guess about the type of buyer your business will sell to, it’s just that – a guess. Still, they should be able to provide you with a general idea regarding how long you’ll likely have to stay involved in the transition and what factors may influence the type of buyer you’re most likely to attract.

Adding the Exit Together

Knowing how long it takes to complete each step (preparation, sale, transition) impacts when you need to pull the trigger. 

Following is a summary of the estimated time frame for each step:

• Prepare: 1 month to 5 years
• Sell: 6 months to 2 years
• Transition: 1 month to several years

As you see, the time required to sell your business, including all steps from start to finish, can vary from anywhere from eight months to 12 years. Most transactions take around 1.5 years to three years to complete from start to finish.

So, if you want to time the sale of your business, you must first answer the following questions:

• What must I do to prepare my business for sale, and how long will it take?
• How hard or easy will my business be to sell, and how will this impact the timing?
• How involved will I need to be in the transition?

If you want to speed up the time frame, there are a few steps you can take:

• Retain an M&A advisor to prepare an exit strategy for your business, which contains a prioritized list of action steps you should take to prepare your business for sale.
• Take steps to make your business easier to sell. Your exit plan should also contain a list of recommendations.
• Take steps to lessen your business’s dependency on you and to reduce the likely length of the transition.
• Choose a buyer who requires a shorter transition period. To do this, you must position your business to appeal to this type of buyer.

Approximately one-third of transactions are short-term, one-third are medium-term, and one-third are long-term.

FAQs: Timing the Sale of Your Business

Can I time the sale of my business?

The answer, of course, is ‘sometimes’.

What impacts whether I can time the sale?

Let’s explore the factors that influence the degree to which you can time the sale:

• Level of Preparation: The more prepared you and your business are, the more likely you can time the sale. Time kills deals. To move fast, you must be prepared. The more prepared you are, the quicker you should find a buyer, complete due diligence, and finally transition.
• Attractiveness of the Business: The easier your business is to sell, the simpler it will be to time the sale. There are over 20 factors that can impact how easy or difficult your sale will be.
• State of the Economy & Industry: The stronger the current economy and dynamics in your industry, the faster your business will likely sell, and the easier it will be to time.

Ultimately, whether you can time the sale boils down to how prepared you are and how well the economy and your industry are doing. The more favorable both of those factors, the more likely you’ll be able to time the sale.

When is the best time to sell my business? 

The best time to sell is when all of the following stars align:

• You’re Prepared – You and your business are fully ready to sell.
• The Economy is Strong – The outlook for the economy is bright.
• Interest Rates are Low – Low interest rates always favor a business sale.
• Your Industry is Booming – The sector is on an uptick.
• Your Competitors are Acquisitive – There are lots of acquisitions in your industry, whether individual or rollups.

Conclusion

Comedians tell us the timing is everything, and the same might go for business owners. Timing your sale can be just as important as the sale itself. 

Perhaps you always knew you’d retire by 40. Perhaps a pending change in the law means your industry is about to be swamped by cheaper alternatives. Perhaps your health has presented you with an inescapable deadline. 

Happily, if you and your business are adequately prepared, you can time the sale within a year with an approximate 50% to 75% probability. That means if you want to sell exactly three years from