Blake Taylor
What Is the Best Way to Sell a Profitable Business?
Selling a profitable business is one of the most significant financial decisions you can make as a business owner. A …
7 MIN READ
Read More
If you are considering selling your business, we understand how nice it would be to know exactly how long the process will take. For some business owners, the selling process can be completed from start to finish within a matter of weeks. For others, it can take over a year.
While it may be hard to predict exactly how long it will take to sell your business, understanding the intricacies of the process and factors affecting your timeline can help you manage your expectations.
Although brokers and online resources can give you an estimate for how long it will take to sell your company, every situation is unique, and there is no guaranteed timeline. Variables that affect the time it takes to sell a business include:
Companies with a large net income are usually more desirable. And the more desirable your business is, the faster you can sell it. Buyers consider the following types of earnings:
Suppose your income is $1 million annually, and your asking price is $3 million. Buyers will consider that you’re charging three times the cash flow, which can be more attractive than businesses that charge five times. But this does vary depending on many other details including industry, trends, owner involvement and more. But everything else being equal, companies with larger net earnings can usually ask for a higher multiple. If your company has a net cash flow of $250,000, a reasonable price can be two to three times that amount. However, if your company earns $4 million, it may sell for four to eight times the EBITDA amount. So the higher the EBITDA, the higher the multiple, on average. Pricing unreasonably drags the selling period.
Additionally, a positive financial trend shortens the selling timeline. If your business is declining, an M&A advisor can help buyers identify areas for improvement to reverse this trend. A negative trend affects your pricing, and you will face more pressure to sell the business right away to avoid having its value continuously decline.
Another variable is whether your company sells a one-time license or a monthly fee. Businesses with large portions of their revenue coming from regular payments are less risky for buyers. Your business also looks more favorable if your customer retention rate is high.
Speaking of customers, having a large customer base is helpful compared to having a few customers who make up most of your revenue. Buyers see having fewer customers as a considerable risk. If you only have four clients, each making up 25% of your revenue, and two of them leave after the sale, the business could get in trouble.
A business broker can help you negotiate a price that makes both parties happy. If the buyer deems it risky to pay the full price upfront, you may have to agree to some payments over time or in particularly challenging cases, an earn-out. This lets you get partially paid upfront, while the rest of your earnings depend on how much revenue the company generates after the sale. You might get a higher overall price with an earn-out, but if you prefer to get paid right away, you may be offered a lower asking price.
The bigger or more complex your business is, the more due diligence and administration are required before it can be sold, and the longer the process may take. Throughout the business selling and acquisition process, it is imperative that all federal and state-specific are adhered to. These regulations depend on the type and location of your business, and some regulatory processes can take longer than others.
Some industries have more potential buyers than others, and if your business is in such an industry, you’re more likely to receive multiple bids and a faster selling process. These include the manufacturing, technology, healthcare and distribution industries. However, this doesn’t mean that other industries don’t have buyers at all. Working with an experienced business broker can expedite the process by giving you access to the buyers in their network.
The time it takes to sell your business is also directly impacted by how in demand your type of business is as well as the current economic climate.
Skilled employees who function even without the owner make the sales process smoother. An effective management structure gives buyers more confidence that the business will continue to succeed under their supervision.
Having a good relationship with the buyer is essential. Working with a business broker can help you communicate your desired terms and avoid miscommunications.
Realistic business asking prices are based on comparable sales in the same market, industry and location as the business you are trying to sell. The more competitive your asking price is, the more likely you are to attract buyers quickly. You can streamline the selling process by ensuring your financial records, business projections, buyer research, valuations, operational procedures and documented growth are comprehensive and up to date.
The business brokerage you choose to assist you in selling your business can impact your sale timeline. Different brokerages offer distinct buyer networks, market expertise, sales processes and marketing techniques, and it is crucial to find a broker whose approach aligns with your business.
To develop an idea of how long it might take to sell your business, it can be helpful to understand the different steps involved and how long each stage may take.
The importance of preparing your business for sale cannot be understated. The preparation process alone can take anywhere from one to nine months, depending on the scale of your business and the state of your affairs prior to beginning preparation.
During this stage, you will need to:
This stage involves gearing up to market your business and ensuring your sales approach is robust. Having a clear understanding of what you want to achieve from the sale of your business is an important starting point.
Your chosen brokerage should help you develop a robust selling strategy that incorporates your marketing approach and package, confidential information memorandum (CIM), ideal buyer criteria, nonnegotiables, unique value proposition and more. Deciding how to price your business involves conducting extensive market research to determine a realistic and fair valuation that aligns with your expectations.
The time it takes to market your business and screen potential buyers is hard to predict. This part of the process involves:
Preliminary negotiations outline and determine the key concepts of the deal, which include:
Following the preliminary stage, it is time for the buyer to conduct due diligence, a process that commonly involves investigating all provided documentation related to the business. This includes financial statements, growth projections, legal documents and employee contracts. If the buyer notices any discrepancies or unexpected risks, they can use the due diligence period to reassess the terms of the deal in light of the new information.
Once any necessary adjustments have been requested and the buyer is happy with their investigations, it is time for the final negotiations and deal structuring to take place. During this stage, the parties discuss:
Once the purchase agreement is signed, it is time to transfer ownership of your business to the buyer. How long the transfer process takes depends on many factors, including:
If you work with Synergy Business Brokers, here’s a summary of how our selling process works:
Gathering qualified buyers usually takes one to eight weeks, and businesses typically get offers from one to seven buyers. The entire process usually takes six to 12 months.
At Synergy Business Brokers, we are so confident in our services that we do not charge a fee until we sell your business.
Having been ranked as one of the country’s best business brokers by over seven organizations, we specialize in businesses across the distribution, construction, manufacturing, healthcare, services, technology and transportation industries. If you are ready to sell your business, complete our seller registration form today.
