How Long Does It Take to Sell a Business?

It takes about six to 10 months to sell a business. Other times, it takes over a year. While the exact period is unpredictable, learning the factors that affect the duration can help manage your expectations. Adopting the best practices and working with experts can also expedite the process. This article highlights everything you need to know.

Factors That Affect the Selling Process

Generally, your business’s financial situation, industry, management structure and the experts you work with affect how long it takes to sell a business.

1. Business Profit and Revenue Type

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:

• Owner’s net cash flow: This includes the owner’s salary, perks and benefits.
• EBITDA: EBITDA or Earnings before interest, taxes, depreciation and amortization provides the company’s earnings from its core business operations.

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. Companies with larger net earnings can usually ask for a higher multiple. If your company has a net cash flow of $200,000, a reasonable price can be twice this amount. However, if your company earns $4 million, it may sell for four to eight times the EBITDA amount. 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.

2. Customers

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 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.

3. Industry

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.

4. Skilled Employees

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.

5. Buyer Qualifications

Having a good relationship with the buyer is essential. Working with a business broker can help you communicate your desired terms and avoid miscommunications.

Additionally, only working with prequalified buyers can lead to faster sales. The prequalification process determines if buyers have the funds readily available or if external financing is needed. If the latter is true, a business broker with banking connections can determine if a buyer is qualified.

While having multiple buyers can be good, it can also lengthen the process due to negotiations. Managing your expectations helps, as the bidding war can make room for better profits.

The Selling Process

Understanding the selling stages can help you manage your expectations. If you work with Synergy Business Brokers, here’s a summary of how our selling process works:

1. We gather information about your business through a confidential consultation.
2. We evaluate your business and recommend an asking price.
3. We create the marketing documents and advertise your business on your behalf.
4. We narrow down potential buyers and have them sign confidentiality agreements.
5. The buyer will perform their due diligence before negotiating the final terms.
6. The closing and transition period begins after the purchase agreement is signed.

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 10 months.

Find the Right Buyer With Synergy Business Brokers

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