If you landed on this article, you have a business and are now looking to sell it.
The clock is ticking, but the question lingers – How long does it take to sell a business?!
Will it take months or several years to find the right buyer?!
Selling a business is not just a transaction; it’s a journey filled with complexities and unexpected twists, and it can be nerve-wracking and stressful till the sale is finalized. Selling a business takes a few strategies, and it starts way before the company is listed for sale.
In this article, we’ll dive into business sales and unveil the secrets behind the elusive timeline, exploring the factors that can turn a quick sale into a prolonged negotiation.
We’ll discuss all the common and not-so-common variables that affect the timeline of how long it takes to sell a business.
If you want to know more about this, keep on reading.
What is the average time to sell a business?
The straight answer to your question, ‘How long does it take to sell a business?’ is six to twelve months. This timeline is the average for selling a business but can also vary.
As you can see from the image, the selling process of a business is divided into four main stages:
- The preparation phase – when you prepare to sell your business (might take one to two months).
- The marketing phase – when your broker should start introducing your business to potential buyers (it might take up to three months).
- Closing the deal phase – when you and the buyer should be finalizing the details of the sale and confirm a due diligence period (it might take up to three months).
- The transition phase is still risky because there are slim chances the buyer won’t take your business but wants just to take over a lease. You should still keep your business solid and ready for overtake during this period. Be there to provide your buyer with any information and advice during this transition period, like on-the-job training, introduction to employees, customers, and suppliers, etc. (it might take from one to three months)
Since 2000, the average time on the market to sell a business has varied from 200 days to around 7,3 months. However, that has changed over the years, and now, to sell a business has become much more difficult. Now, the competition is tough and the Internet gives buyers too many options for business purchases, making them more selective.
Overall, those businesses priced high and complex will take longer to sell than those that are simpler and listed at a low price.
How long does it take to sell a business (10 common factors)
Now that you’ve put all your time and invested your money, energy, and patience into your business, you expect the sale to go as planned. You wish it to sell within your asking price point, to take less time, and for the financial transactions to go smoothly.
But, there are critical questions that you must consider before listing your business to sell.
Which factors influence the business value on the sale timeline?
Many factors influence the business’s selling process, and the answer to your question, ‘How long does it take to sell a business?’ is not straightforward, even though we know the average timeline.
Check out these other important factors to get the answer to this question.
Factor No.1: Your business type
We can start by giving you the first answer to your question, ‘How long does it take to sell a business?’ and that it depends on your business type. It is a factor because your business type depends on its industry and profitability.
For instance, industries like home services with recurring income highly appeal to potential buyers due to their consistent revenue generation.
Another aspect concerning this is obtaining the licenses and permits for it, as it can affect the timeline for selling that business. Individual buyers may need to invest time in getting the necessary permits before the sale can proceed.
This chart shows the average timeline for a business listed on the market, divided by the industry type.
Factor No.2 The value of the business deal (the selling price)
The second answer to your question ‘How long does it take to sell a business?’ is that it depends on the value of your business and the selling price of it.’
Those businesses that are priced high will take longer to sell, and the higher the price sale of your business, the less qualified buyers will be. This means that higher priced businesses are less likely to get more interested buyers because of the money they need to afford a business like that.
Remember that setting a good price for your business is crucial because it directly impacts the buyer’s decision once they are interested in such a purchase.
This graph shows the statistics on what’s the average time to sell a business, broken by sales price. The sales price is not the asking price but the price the company sold for.
As you can see, for those businesses with a selling price less than $100,000, the average time to be sold took around 199 days; for those with a selling price from $100,000 to $500,000, it took 218 days; for those with selling price $500,000 to $1,000,000, it took 243 days, for those with a selling price $1,000,000 to $5,000,000 it tool 291 and for those with selling price from $5,000,000 to $10,000,000 it took 329 days.
Factor No.3 The type of buyer that is interested in purchasing your business
The third answer to your question, ‘How long does it take to sell a business?’ is that it depends on the type of buyer.
There are several types of buyers, and you’ll need to know all of these types to recognize what kind of buyer you will have experience with because it will, too, impact your timeline to see your business.
You should be aware of these types of buyers:
- Private equity groups – these buyers know the business well and have a team full of analytics who will inspect every aspect of your business. Nevertheless, even though it might seem tiring to answer all of their questions concerning the company, the sale usually goes smoothly.
- Individual buyers – the most common type of buyers are individual buyers, and you are more likely to get across this type than anyone else. To be able to purchase your business, these buyers would first apply for an SBA 7(a) loan.
Remember that for them to be approved for this loan, it might take up to three months; however, that does not impact the selling point because after that gets authorized, the sale might be faster than you expected.
- Strategic buyers – These buyers are business owners and usually have a business in the same industry as yours. Strategic buyers are looking to find and purchase a business complementary to theirs because they want to grow it.
Remember that even though strategic buyers know a lot about the industry of your business, there will be lots of approvals (corporate and regulatory), influencing the sale time to be longer.
Quick Note: Usually, the goal of the strategic buyers when purchasing a complementary business like yours is for it to merge well with their existing business so
Factor No. 4 The asking price of the potential buyer
The fourth answer to your question, ‘How long does it take to sell a business?’ is that it depends on the asking price of the buyer.
Don’t get confused by the asking and the selling price because they are completely different variables. The selling price is the price set by a seller who wants to sell their business. On the other hand, the asking price is the price set by the potential buyer interested in purchasing that business.
Here is a graph with statistics showing what is the average time to sell a business, and it reflects the difference between the selling price and the asking price;
Factor No.5 The multiple of SDE (seller’s discretionary earnings)
SDE stands as a measure of the earnings of a business, and it is used to show the value of a small business. Therefore, this factor is the fifth answer to your question, ‘How long does it take to sell a business?’ because the multiple of SDE depicts whether a business is reasonably priced.
A good example of this is a business with, let’s say, an SDE of $1,000,000 that manages to sell their business for $3,000,000, and this, the multiple of SDE, is 3.0. For some, this data can be complex and misleading to grasp, so let me put it in simpler terms.
If a business is sold for a low price compared to its earnings, it might not be very appealing to buyers, and it could take a while to find a buyer. On the other hand, if a business is sold for a high price compared to its earnings, it’s likely to be more attractive to buyers.
This often happens with businesses in industries like manufacturing or technology.
Here is a chart with statistics showing the average number of months to sell a business based on the multiple of SDE;
Factor No.6 The financial options (down payment)
This factor answers your question, ‘How long does it take to sell a business.’ Suppose you ask yourself how it is because the financing options dictate the average time for a business to close.
Almost all businesses and M&A brokers believe that these numbers show how long it usually takes to sell a company based on how much money the owner is willing to put down as a down payment. Also, these numbers include deals where the bank is involved in providing capital.
If a deal with less than a 20% -30 % down payment likely means the bank is helping with financing, these deals can take longer, about 30 to 90 extra days, to finish.
On the other hand, when a deal is all cash, it tends to be quicker to close, and it often involves businesses that are priced lower, where the buyer can do their checks faster.
Here is a chart with statistics showing the average number of months to sell a business based on a down payment
As you can see from the image, the more financing options the seller gives, the bigger the chances the business will sell.
Factor No.7 The organization and promptness of the business seller
As a business seller, you should always aim to speed up the process of selling your business, so the seventh right answer to your question, ‘How long does it take to sell a business?’ is that it depends on the organization and promptness of you as a seller. This will require you to promptly provide the right information to your broker and the potential buyers.
This is crucial because the sooner these people review your business data, the faster the selling process will move along.
To be prepared, consider organizing your financial documents and lease agreements, revising your marketing plan and social media accounts, making a list of your business utilities, revising the standard operation procedures, etc.
Factor No.8 The experience of the buyer
Remember that experienced business owners are more likely to close a sale quicker than those new to the market.
The experience of the buyer is the eighth answer to the question ‘How long does it take to sell a business?’ because all business owners must analyze the market of potential buyers, find out what they are looking for, and look for ways to make their business more appealing to buyers.
Most buyers won’t settle for selling until they know all the details about the business, which may prolong due diligence to ensure they went through every aspect of the deal.
Factor No.9 The structure of your business
The structure of your business is also an answer to your question, ‘How long does it take to sell a business?’ because it also dictates the timeline of your business being sold.
If you ask yourself how that is relevant, remember that a business structure can speak volumes to potential buyers, making it much more attractive to purchase.
This concerns how your business’s daily operations are organized, what is the streamline of your business processes, whether you are keeping good track of your finances, etc.
Factor No.10: The business location
The location of your business is also a factor and an answer to your question, ‘How long does it take to sell a business?’ But why is the location of your business a factor, and how does it impact it?
This is because potential buyers are likely to move to the area where your business is located, which is a win-win situation. Besides purchasing a business, some buyers are looking to relocate for a different lifestyle or due to other financial aspects.
Some buyers are looking to purchase a business at a location with a high population, a solid economy, and all the resources close. These sub-factors would also influence their decision when buying your business.
On the other hand, if your business is located in an area that is still developing, it might look harder for buyers that there is a possibility for organic growth.
As a summary of some of the top factors we listed above, below is a chart that shows the average timeline it takes to sell a business.
Other factors impacting how long it takes to sell a business
- Marketing – Businesses with well-developed marketing strategies sell faster than those with little to no marketing.
- The Internet – The Internet is also a factor you should consider when asking the question, ‘How long does it take to sell a business?’ because it is a tool that provides buyers with information and options about the purchases they are interested in.
- Competition – This factor refers to the fact that in recent years, the number of businesses listed for sale has increased, meaning the competition has also increased. The bigger the number of competitors listed for sale, the larger the number of options for buyers.
- Financial trends – A business with positive economic trends, like increased revenues, is likelier to sell than those with negative financial margins.
- The required skills – Businesses that require specific skills or licenses and permits that must be obtained or renewed might take longer to sell.
How long does it take for a business close to happen?
Usually, the sale process is divided into two parts: the negotiations and closing of the deal, which can take one to four months.
Remember that there are still factors that might influence these processes, some that we know and others that we cannot predict.
Sometimes, due diligence might delay obtaining bank financing due to incorrect financial statements. There are other cases when third-party tools such as attorneys, accountants, or license-transfer approvals can delay the process.
However, the average time to close a negotiation and get an offer from a buyer is one month of due diligence to complete and one month to close the financial transactions.
Here is a chart representing the estimated timeline for these major sub-processes when selling a business.
What are other steps I should take to sell a business faster?
Now, you are probably thinking something like,
‘Okay, now that I know all of these factors, are there other steps I can take to speed up the selling process once my business is listed on the market?’
This question is just an extension to your other question, ‘How long does it take to sell a business?’ so we wanted to give you another insight with steps you can also do to speed up the sales process;
- Obtain a formal business valuation – Any seller who wants to sell their business most professionally must get a proper opinion about the value of their business. This step is important because it provides sellers with a realistic asking price for their business and prepares a list of actions the seller should take to improve the value of their business.
- Always have an exit option – This means that once the sale of your business starts, you must have an exit strategy plan; it is a plan that will examine all the possible factors and includes a checklist of documents you must prepare before you list your business on the market.
- Keep your business listed on the market even if you have accepted an offer – Even if you have received a request from a buyer, it doesn’t mean the purchase went through. Some buyers might back off at the last minute, so your business should always be listed until the final signing and closing of the deal happens.
- Be patient and prepare for due diligence – Selling your business might take a while, so be prepared by organizing your business documents and having all the data most buyers might request.
Wrapping up
Now that we have approached the final part of this article, you know there isn’t a straightforward answer to your question on ‘How long does it take to sell a business?’; there is just an average based on statistics, and several factors (variables) influence a business’s selling process.
Remember that whenever you decide to sell your business, aim to maintain a balanced viewpoint because in a process like this, two plus two is not four.
Yes, that is the average time for a business to be sold once listed; however, the average time can vary based on all the abovementioned variables.
Anyway, don’t despair that you won’t succeed in selling your business because you will once you’ve done your part, and that includes knowing all the factors we discussed.
Even though we cannot predict the exact time our business gets sold, we can act on many other things to increase the chances of selling your business.
FAQs
What is the average time for a business to sell?
The average time for a business to sell is 6 to 10 months, and this estimation is based on the most recent IBBA Market Pulse Report for 2021.
What is the selling process for a small business?
The steps for the selling process for small businesses are market research and prospecting, preparations and approach, presentation and handling objections, as well as closing and follow-up.
