How Long Does it Take to Sell a Business?

by Jacob Orosz (President of Morgan & Westfield)

Executive Summary

The average time to sell a business ranges from ten to twelve months. 

Factors That Affect the Length of a Sale

The following variables affect the time it takes to sell a business:

• Price Expectations – The more realistic the seller’s expectations regarding price, the faster the business will sell.
• Geographic Location – Businesses in high-population or growth areas tend to sell quicker.
• Flexibility on Terms – The more open the seller is to accepting terms, the quicker the business will generally sell.
• The Industry – Businesses in high-growth, highly-desired industries often sell faster.
• Marketing – The more effective the marketing strategy to sell the business, the quicker the business will likely sell.
• Financial Trends – The more positive the financial trends in the business, the quicker it should sell.
• Level of Preparation – The more prepared the seller is, the quicker the business will sell.
• Buyer Pool – The larger the buyer pool of buyers for the business, the faster it may sell.

A Timeline for Selling a Business

Following is an overview of the steps to selling a business and the estimated time frame for each:

• Step 1 – Preparation Before Market: This step includes valuing the business, preparing a CIM, and creating other key documents. It generally takes one to two months.
• Step 2 – Finding a Buyer: This step involves marketing the business for sale and meeting with buyers, which can take from one month to more than a year.
• Step 3 – Due Diligence to Closing: This step involves conducting due diligence, preparing the purchase agreement, and closing the transaction. This generally takes three to four months.

How to Sell Your Business Faster

Following are tips on how to sell your business as quickly as possible:

• Valuation – Obtain a valuation from an M&A advisor that contains a list of steps you can take to improve the value and increase the attractiveness of your business.
• Exit Strategy – Ask an M&A advisor to prepare an exit strategy, which contains a list of steps you can take to mitigate any risk a buyer may perceive in your business.
• Prepare for Due Diligence – You can speed up the due diligence process by uploading the documents most buyers will request to a virtual data room and retaining a firm to perform a quality of earnings analysis (QoE) before you go to market. This allows you to resolve problems before a buyer discovers them.
• Financing – Educate yourself on the most common deal structures so you can set clear expectations with buyers early in the process regarding what terms you may be willing to accept. 

Most of the factors that increase the value of a business will also have a direct, positive influence on the time it takes to sell. 

Introduction

How long it takes to sell a business is among the most frequent queries we receive, and understandably so. Once you decide to put your blood, sweat, and tears on full display, patience suddenly comes at a premium. 

The average time to sell a business has increased over the years, from six months in the early 2000s to nearer ten months today. In this article, we explore why selling a business takes longer than it did ten years ago and what you can do to expedite the sale. 

We break these reasons into six variables, as follows:

• The seller’s price expectations
• The multiple of SDE or EBITDA
• Where your business is located 
• Financing available for your business
• The industry your business operates in

Statistics: How Long it Takes to Sell a Business

BIZCOMPS is a database of business-for-sale transactions in the US, which includes the length of time the business was on the market. BIZCOMPS contains over 13,000 transactions dating back to 1996. 

While most of the transactions listed are smaller businesses, their data on business sales is some of the best available. The trends are generally also applicable to mid-sized businesses, and the data matches our own insights.

It’s important to note that almost all of the transactions in BIZCOMPS were completed with the assistance of professional advisors, which often shortens the timeframe.

For all transactions since 2000, the average time on the market was 200 days (approximately 7.3 months). 

What accounts for this time frame? The reasons are explored below.

Six Variables that Affect M&A Lead Time

Variable #1: Selling Price

The selling price is the price at which the ultimately sold, as opposed to the asking price, which is the price a seller is requesting at the outset.

While middle-market businesses seldom go to market with an asking price, the size of the business can impact how long it takes to sell.

Below are statistics on the average time it takes to sell a business broken down by sales price (not asking price):

• Less than $100,000: 199 days (6.3 months)
• $100,000-$500,000: 218 days (7.2 months)
• $500,000-$1,000,000: 243 days (8.1 months)
• $1,000,000-$5,000,000: 291 days (9.7 months)
• $5,000,000-$10,000,000: 329 days (10 months)
• $10,000,000-$100,000,000: 296 days (9.7 months)

Larger businesses take longer to sell, according to BIZCOMPS. At Morgan & Westfield, we’ve found smaller businesses have indeed sold more quickly in the past, but we believe that trend is reversing. In fact, most mid-sized businesses are far easier to sell than smaller businesses. 

Generally speaking, the higher the SDE or EBITDA of a business, the more attractive it is to buyers, and the easier it’ll be to sell. Regardless, the data seems to line up with our sources, indicating that the time to sell a business in today’s market is around 10 months or more.

Variable #2: Asking Price

As mentioned above, middle-market businesses don’t usually go to market with a price, although the seller’s expectations regarding the price can have a significant impact on how long it takes the business to sell.

For example, we regularly represent clients who accept a realistic offer early on, which may speed up the process. On the other hand, we also represent some who hold out for the optimal price and reject offers that others would accept. Waiting for the perfect price can easily delay the process by months or even years. 

The following statistics show the average time it takes to sell a business based on the difference between the asking price and the selling price:

• 0%: 203 days (6.7 months)*
• 1%-5%: 214 days (7.1 months)
• 6%-10%: 213 days (7.1 months)
• 11%-20%: 221 days (7.3 months)
• 21%-30%: 226 days (7.5 months)
• 31%-40%: 225 days (7.5 months)
• 41%-50%: 242 days (8 months)
• 51%-75%: 240 days (8 months)
• 76%-100%: 285 days (9.5 months)

*0% means the business sold for the full asking price

While this data isn’t directly applicable to mid-sized businesses that go to market without an asking price, it illustrates the potential impact of the seller’s expectations on the time frame. The more reasonable the seller’s expectations, the faster the business should sell. 

For businesses that go to market with a price, those priced at more than 76% of the ultimate selling price take 40% longer to sell than businesses that sell at the asking price. 

Variable #3: Multiple of SDE or EBITDA

This variable considers whether your business is reasonably priced. 

For example, a business with an EBITDA of $2,000,000 that ultimately sells for $8,000,000 has a multiple of 4.0.

But the data can be misleading because the multiple at which a business is sold and the attractiveness of the business aren’t necessarily correlated, at least not directly. 

Multiple Problems

Businesses sold at less than one multiple may be highly unattractive and take longer to sell, while those sold at a high multiple may be more appealing, such as manufacturing or technology companies, or they could be the result of a business with low cash flow. 

On the other hand, a middle-market business that generates $10 million in revenue but only $100,000 in EBITDA and that sells for $2 million works out to a 20.0 multiple. A 20.0 multiple certainly isn’t the norm, and these outliers should be removed from the dataset.

We believe the trends are reversing: mid-size and larger businesses are selling much faster than they have in the past, due to demand from well-financed buyers.

Multiples may also be highly skewed for lower-priced businesses. 

For example, a business with an SDE of only $20,000 that sells for $80,000 can distort the data. Bear in mind that this data only considers the selling price and not the initial asking price (if there is one). 

Lastly, the size of the business should also be considered – multiples are higher for larger businesses.

Despite these challenges, we chose to analyze the data to examine the correlation, whether it be direct or indirect:

• Less than 1.0 Multiple: 207 days (6.9 months)
• 1.0–2.0 multiple: 210 days (7 months)
• 2.0–3.0 multiple: 226 days (7.5 months)
• 3.0–4.0 multiple: 236 days (7.8 months)
• 4.0–5.0 multiple: 232 days (7.7 months)
• 5.0–10.0 multiple: 256 days (8.5 months)

So, the correlation between the multiple and number of days on the market is slight. We don’t know if this correlation is direct or indirect, but the data does shed light on the seller’s expectations. The more reasonable they are, the faster the business will tend to sell.

Variable #4: Region

The following statistics show the average number of days a business was on the market, broken down by region:

• Canada: 245 days (8.1 months)
• Midwest: 240 days (8 months)
• South: 219 days (7.3 months)
• Northeast: 217 days (7.2 months)
• West: 215 days (7.1 months)

Businesses in desirable, high-population growth areas tend to sell faster. For instance, businesses in Orange County, California, sell faster (19% faster, 211 days), on average, than businesses in Iowa (252 days). 

In our experience, businesses in larger cities also tend to sell faster because they have a larger base of potential buyers. Businesses in rural areas with a limited population base tend to take significantly longer to sell than those in highly populated areas. They also tend to sell quicker if they’re located in a region that’s growing economically.

Variable #5: Financing and Down Payment

Below are statistics for the average number of days a business is on the market, broken down by the size of the down payment. It’s a long-held belief by nearly all business and M&A brokers that a business is easier to sell when the owner is willing to finance a portion of the sale. These statistics also include transactions in which bank financing was involved. 

Most deals in the BIZCOMPS database with less than a 20%-30% down payment likely involved some form of bank financing, which can cause statistical errors, as such deals take an extra 30 to 90 days to close. Also, all-cash deals are generally quicker to close and often represent lower-priced businesses in which due diligence is expedited.

• 0-10% down payment: 215 days (7.1 months)
• 11%-20% down payment: 241 days (8 months)
• 21%-30% down payment: 255 days (8.5 months)
• 31%-40% down payment: 221 days (7.3 months)
• 41%-50% down payment: 209 days (6.9 months)
• 51%-60% down payment: 195 days (6.5 months)
• 61%-70% down payment: 216 days (7.2 months)
• 71%-80% down payment: 230 days (7.6 months)
• 81%-90% down payment: 237 days (7.9 months)
• 91%-99% down payment: 240 days (8 months)
• 100% down payment: 215 days (all cash, no financing) (7.1 months)

We believe most deals in the database with less than a 30% down payment involved bank financing, which lengthened the amount of time to close the transaction. We regularly receive offers from buyers that include creative financing terms. 

Highly motivated sellers tend to be open to these, while less motivated or more patient sellers prefer to wait for an offer with more cash down, which lengthens the time frame. The more open a seller is to flexible terms, the faster the business will generally sell.

Variable #6: Industry 

The following statistics show the average number of days given industries’ businesses are on the market, from low to high:

• Communication (SIC Code 48): 193 days (6.4 months)
• Transportation (SIC Code 40-47): 206 days (6.8 months)
• Retail (SIC Code 52-59): 211 days (7 months)
• Services (SIC Code 70-89): 214 days (7.1 months)
• Insurance, Finance, and Real Estate (SIC Code 60-67): 216 days (7.2 months)
• Manufacturing (SIC Code 20-39): 244 days (8.1 months)
• Wholesale (SIC Code 50-51): 243 days (8.1 months)
• Electric, Gas, and Sanitary Services (SIC Code 49): 247 days (8.2 months)
• Construction (SIC Code 15-17): 270 days (9 months)

As we can see, a correlation exists between industry type and the number of days a business is on the market. However, much of this data seems to defy conventional wisdom. Most brokers believe construction-related businesses are difficult to sell, and the data supports this long-held belief. But most brokers believe manufacturing-related businesses are easier (and therefore quicker) to sell, and the data doesn’t support this belief. In our experience, businesses in highly desirable industries, such as tech and life sciences, tend to sell faster.

Summary of the Six Variables

This graphic explores the main variables that affect the length of time it takes to sell a business:

M&A Data Sources and Accuracy

Industry Surveys

Business Brokerage Press produces an annual survey of its members. They number a few thousand, primarily full-time business brokers and other M&A intermediaries. Non-members and other advisors are also permitted to participate. 

The survey consists of several dozen questions, usually including, “What’s the average period between listing and sale?” Recent results have ranged from six to 11 months, with the period slowly increasing over the years. This data seems to coincide with the numbers from BIZCOMPS and other sources from the middle market.

How Accurate are the Statistics?

The business of selling businesses is highly inefficient, with limited resources. Almost no surveys are validated, and most researchers lure participants in with free results if they take part. Incentives like this can skew the data. 

While the data is still sometimes accurate and useful, remember that it isn’t without weaknesses. It should be used as a guide and supplemented with good old common sense and professional advice from those with real-world experience.

Other Sources of Statistics

Another useful transactional database, the IBA Market Database, includes over 37,000 transactions. However, it doesn’t provide details on how long a business takes to sell. 

At the time of writing, we know of no other useful source of statistical information regarding the time it takes to sell a business. We’ll keep searching. 

General Factors that Affect Lead Time

Below is a list of general factors that affect how long it takes to sell a business. These factors have arisen over the years, but we believe they’ve had the most significant impact on the increase in recent years.

• Internet: The Internet has increased the options for buyers of all goods and services. Before the internet was widespread, most businesses were sold through newspapers, snail-mail or fax campaigns (yes, you read that right), or the telephone. This created a highly inefficient market, and it was more difficult for a buyer to compare options. There’s a limit to how many faxes you can send or receive per day. Ironically, businesses were easier to sell and often sold more quickly, probably due to a lack of readily available alternatives and information for buyers.
• Information: The internet has also provided a wealth of information on buying or selling a business. As a result, today’s buyer is more educated and is often considering more options. This applies not only to individual buyers but also to institutional buyers from private equity firms, independence sponsors, search funds, and family offices.
• More businesses for sale: In recent years, the number of businesses for sale has steadily increased. This has resulted in a larger number of options for buyers and depressed prices with the possibility of a protracted sale.
• Economic factors: Economic factors always affect the rate at which businesses sell. Interest rates, the current rate of economic growth, and consumer sentiment can all affect business sales. 

Specifics that Affect Lead Time

The following is a list of specific factors that may affect how long it takes to sell your business:

• Price Expectations: The more reasonable your price expectations, the faster your business will likely sell. If you own a business valued at less than $5 million, it will probably take longer to sell than a business valued at more than $5 million. Ironically, larger businesses are often easier to sell due to higher demand from professional buyers. Almost all larger businesses are acquired by financial or corporate buyers as an alternative to organic growth, and the demand for a quality lower middle-market business is always high. The time frame also depends on whether the sale is a negotiated process or an auction.
• Geography: If your business is for sale in a high-population or high-growth area, it will likely sell faster.

Almost all larger businesses are acquired by financial or corporate buyers as an alternative to organic growth.

• Financing: If you are more flexible and open to terms, that should result in a quicker sale.
• Industry: If your business is in an attractive industry, such as emerging tech, it’ll likely sell sooner than in a low-growth industry, such as office supplies.
• Marketing: Aggressively marketing your business for sale through the appropriate channels should help sell it faster.
• Financial Trends: If your business is experiencing positive financial trends, such as increased revenues or margins, your business will be easier to sell and should, therefore, sell faster.
• Buyer Pool: If your business requires highly specific skills or licensing and has a limited pool of buyers, such as many professionals or healthcare practitioners, your business may take longer to sell.

A Timeline for Selling a Business

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

How long does it take to prepare a business for sale?

Preparation includes valuing your business, preparing a CIM, and creating other key documents. Preparation is often a controlled and predictable step. The time it takes may vary from three to eight weeks. 

How long does it take to find a buyer?

This step involves marketing your business for sale and meeting with buyers and requires little active effort from you other than meeting and responding to their requests for information. How long this period takes is less predictable and is often frustrating for the seller, who may feel as if nothing is happening. 

This tends to be an all-or-nothing situation, but you must keep your focus on your business and maintain consistent revenues or growth. Locating a buyer and accepting a letter of intent can take anywhere from one month to more than a year.

How long does a business closing take? 

Negotiating and closing a deal takes from two to three months in ideal circumstances, but in reality, it can sometimes take six or more. Several factors during this stage are unpredictable. Due diligence can be delayed for many reasons, such as obtaining bank financing or inaccurate financial information. Finally, it can take several months to close the deal due to delays from attorneys, accountants, franchisors, banks, license-transfer approvals, or other third parties. 

On average, it takes about one month to negotiate an LOI with a buyer, two months to complete due diligence, and one to two months to negotiate the purchase agreement and close. These are guidelines only, and you should be fully prepared for things to take significantly longer.

Why do most M&A firms ask for a 12-month exclusive contract? 

The contract length often coincides with the average time it takes to sell a business. Half a century ago, listing contracts were 30-60 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. 

Steps to Sell Your Business Faster

Below is a list of specific actions you can take to ensure your business sells as quickly as possible:

• Valuation: If you’re serious about selling your business, we recommend obtaining either an opinion of value or a formal business valuation and a list of specific action steps you can take to improve the value of your business. These steps can be implemented right before your business is on the market or several years in advance. It’s never too late (or early) to prepare. 
• Exit Strategy: Planning the sale of your business is critical. An M&A advisor can prepare a formal exit strategy for you that examines hundreds of variables and includes a 20-30 page customized plan, along with checklists of documents you need to prepare and specific action steps you can take before putting your business on the market.
• Prepare for Due Diligence: Prepare for due diligence by uploading a list of documents most buyers will request to a virtual data room. Doing so speeds up the sale and increases the chances of a successful transaction. 
• Financing: Educate yourself on the most common deal structures so you can set clear expectations with buyers early in the process about what terms you may be willing to accept. Our exit strategy includes a list of financing options for your business, along with specific suggestions.
• Keep Your Business on the Market: Even if you’ve accepted an offer, keep your business on the market unless you’ve agreed to exclusivity with the buyer. Make sure any exclusivity periods are as short as possible. 

Data regarding business sales is sparse and often inaccurate, but with our suggestions, you’ll hasten the process and increase the chance of a successful sale.

Value of the Business vs. Time to Sell 

Most of the factors that increase the value of your business will also have a direct, positive influence on the time it takes to sell. The following factors will increase the value of your business and, statistically, increase the speed at which it’s sold: 

• Reasonable price expectations
• Favourable geographic area
• Flexible terms
• Attractive industry 

Case Study: The Deal That Took Three Years

One transaction we worked on took nearly three years from start to finish. The business was located in the Pacific Northwest, a highly desirable region for buyers. It was a food manufacturer, an industry with a large pool of buyers and a highly favorable view of acquisitions, and the financial trends were positive. In other words, the seller had everything going for them, and the odds were weighted in their favor.

First Attempt

We expected to sell the business quickly. And we were on track to do just that. We located a buyer and accepted a letter of intent within four to five months, and we were scheduled to close around December 21st. All was on track, and the seller was planning some generous Christmas gifts. Then we received the dreaded call – the buyer let us know a few days before closing that they couldn’t obtain the financing. 

This came as a shock to us – the buyer had a net worth well into the hundreds of millions of dollars, and this was a small transaction for them. They weren’t willing to pay cash, and the deal was dead in the water, back to the starting line.

Second Attempt

The seller was understandably exhausted and took a couple of months off before going back to the market in late February. Again, we located a buyer within a few months and successfully completed due diligence within two. This year, it looked like a lucrative Christmas was back on the cards. Santa had found the right chimney this time. 

Christmas week again. We were preparing to close. The owner was in the process of selling the real estate that housed the business. They’d even negotiated an option to renew the lease that could be assigned to the buyer. Or so they thought. 

Landlords often try to raise rent if the market has improved since the lease was first signed. Franchisors can attempt to reduce the size of a territory.

In fact, the savvy and unscrupulous landlord tricked the seller and dropped the option to renew from the closing documents, which the seller and their attorneys failed to notice. The buyer’s lender was requiring the option to renew so that the lease term would meet or exceed the amortization term of the loan. The deal perished, and back to square one we went. It’s A Wonderful Life had nothing on us. 

Third Attempt

Luckily, the seller had the fortitude to attempt a third run after a much-needed two-month hiatus. At this point, we were almost two years into the process, and I commended the seller for their persistence in seeing the transaction through. 

We located a buyer in a few months, completed due diligence in approximately three, and were scheduled to complete the sale in the fall. There were multiple hiccups and obstacles along the way, but the seller persisted throughout the process. We finally inched the deal over the end zone. After nearly three years, a very happy Christmas was had by all. 

The Moral of the Story

Selling a business can be a breeze. Except when it isn’t. More often, it’s challenging, perhaps one of the most difficult and emotionally draining experiences in your professional life.

The bottom line is that you simply can’t predict how difficult or how long it will take to sell your business, and you must be prepared for the process to take significantly longer than expected.

The key to maintaining your motivation and persistence is not to have to sell but to want to. The more prepared you are, the greater your odds and the higher the chance you’ll sell quickly.

Lastly, steer clear of Christmas tear-jerkers. 

Most of the factors that increase the value of your business will also have a direct, positive influence on the time it takes to sell.

Conclusion

When planning to sell a business, you should maintain as balanced an outlook as you can. Remember that an average is just an average. The real lead time can vary from one day to more than three years. 

How long, on average, does it take for a man and woman to marry after their first date? The question seems absurdly pre-emptive, but many business owners apply this same logic when it comes to estimating time frames for selling their business.

Exiting is as stressful as it is exhilarating. It involves anticipating others’ moves and responses while the data is vague and the goalposts ever-shifting. 

Trust your business and your advisors, and keep going.