How long does it take to sell a business?
If they survive long enough and are successful, most businesses end up being bought. So, how long should you as the owner or a founder expect the sales process to take?
What are some of the most impactful factors in the length of time that it takes to sell a business? What can you do to speed up this process, and avoid it being drawn out or collapsing on you?
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
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Why Understanding This Timeframe Is So Important
Understanding the length of time it takes to sell a business is very important. Often it will take a lot longer than you think. Just like most fundraising rounds.
Here are some of the reasons that grasping this timeline is so vital.
Timing Your Process & Exit
If you knew it was going to take 16 months to sell your business instead of 6 weeks, you would probably start actively preparing to sell and market your company far earlier, right?
Ensuring That You Have The Resources To Get Through It
Being able to sell your company by the end of the month is a whole lot different than needing the runway to survive another year keeping in mind the burn rate.
You are going to need extra capital for everything from maintaining your overhead, to special teams and additional labor, to prepping for the sale, lawyers, and probably investing even harder in sales, customer service, growth, and staying ahead in innovation.
A long process may require you to go out and raise another round of funding, get a top-up of capital from current investors, or find new sources of credit.
Pricing & Other Changes During That Period
Business valuations, the value of different technologies, assets, and metrics can all change a lot in a relatively short period of time. As can the multiples companies are selling for, the interest rates buyers would have to borrow at in order to acquire you, the cost of your own operations, and your growth rate.
A long process could mean that your company is worth substantially more, or much, much less by the time you approach closing. Your business could even be completely redundant in a year.
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Prepping Your Team & Investors
You will also need to prepare your team and your investors for this change. Perhaps your vendors, customers, and other business partners as well. They will need some warning to adjust. Your acquirer may be contacting them throughout the process as well. You need to make sure everyone is on board to power through, make the sale possible, and get it signed.
Your Own Mental Strength
This is bound to be the most testing and tiring part of the business journey. Mentally preparing yourself for how long it may take is important. If you thought it would be done in 2 months, and it takes 20, you are going to be stressed, not operating at your best, tempted to make poor decisions, and more. Be sure you have the stamina for this part of the race.
Throttling Information Throughout This Period
Your acquirer will want to know all of the details about your business. If it is going to be a long process, you may not want to share everything immediately. Just in case it doesn’t work.
Your team and others need to be told enough at the right times to facilitate the transition, but not enough to derail the transaction.
The public and customers may also be fed appropriate information along this timeline. Not too much too soon, or too late.
How Long It Takes To Sell Your Business
The truth is that there can be a dramatic difference in the time it takes to sell a business.
Some acquisitions can take just a couple of weeks. Others can take as much as two years.
Note that there can be two distinct time frames here. For a small business, you may have an active marketing period, when you are actively offering the business for sale. This alone can take as much as 6-10 months to secure a good buyer.
For true startups, this is more of an inbound process. You are not going to be posting your business for sale on a business broker’s website.
In either case, even once you have found a buyer, and have an LOI in hand, it can still take another 6-10 months to close the deal. It can be much shorter, or much longer.
What Impacts The Time It Takes To Sell Your Business?
With such great disparity in these timeframes, it pays to understand the factors that influence it, as well as what you can do to speed up the process, and avoid slowing it down.
Factors that can impact these time frames can include the following.
Is this a very standardized franchise? Or a complicated biotech startup? Is it worth a few millions or billions? Is this a local business, or one with an international presence in multiple countries? What types of assets are involved that may need to be evaluated? For example, commercial real estate assets may require multiple appraisals and environmental reports which can take weeks or months to process on their own.
Is this business, or the transaction between your two specific parties subject to specific regulations or regulatory approval? If so, how long will that take?
These timeframes can also be impacted by the M&A and capital markets. How fast are they moving? Are lawyers and bankers busy and backed up? What does this look like in your particular industry?
Preparing Your Materials
Even with initial inbound offers, you will want to create pitch books and supporting materials to maximize the value in a sale. This may take you a few days to a few months if you are not organized.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
You may spend months in negotiations. First dancing around the idea through multiple meetings and presenting it. Then negotiate the initial LOI, before nailing down the details in the final sales agreement.
The due diligence phase can vary greatly depending on how experienced they are at this, your organization, and the complexity of the transaction, and your business.
Both your shareholders and theirs will have to approve the sale. How aligned they are, and easy it is to get them to vote and the sign can play a role too.
The Buyer’s Time Frame
Your acquirer may be ready to go with cash on hand and need to acquire your metrics for the next quarter. Or they may be happy pushing this off to the end of the year and need to go find the funding to finance the deal.
Crazy things can happen. From hurricanes to earthquakes and pandemics, crises can stall the process too.
What Can Slow You Down
These are some of the factors which can create a drag on the process and slow you down.
Unorganized, sloppy, or flawed accounting can dramatically slow down the sale of your business. Be sure everything is polished and in order in advance.
Acquirers are going to want to see every possible legal document. Everything from your articles of incorporation to board meeting minutes to employee contracts, leases, and proof of ownership of IP and assets. Have these organized and compiled in advance as well.
If you have misrepresented your metrics and performance, or it starts to fall apart during the transaction, this can stall things, and require renegotiations.
Deciding What You Want
If you haven’t given enough thought to it in advance, then simply nailing down what you want and the specifics you need in the transaction can create a drag on things. Well, ahead of time you should have some clarity on the number you need to make it worth selling. As well as how much your investors need, provisions for taking care of your team, your freedom to move onto something new, etc.
Learning The Documents & Process
If you only start to try and decipher and learn all of the documents and steps in the process of selling your business once you begin, it will substantially slow you down. You’ll be bogged down at every stage, instead of streamlining through an efficient process.
What Can You Do To Speed Up The Sale Of Your Business?
There are many things that you can do to streamline this process and to sell your business faster.
Invest Time In Learning The Process
It is never too early to start learning the details of exiting your business. In fact, it is well worth understanding this phase before you even begin. It will go a long way to curating and structuring a business that is ready to sell, and swiftly.
There are many ways to build your knowledge of this part of the business. Even if that is just starting with books and podcasts in your spare time.
An M&A advisor can do a lot to help you hack learning the process and art of the sale. As well as to take a lot of the work off of your shoulders, help maximize the results, and ensure you aren’t being taken advantage of.
Hiring Pros For All Relevant Areas
A big part of maximizing this opportunity and being prepared is to make sure you have the right talent in place. Even if this is temporary freelance experts to help out.
This may include accountants, lawyers, marketing pros, copywriters, and graphic designers. Don’t forget to set aside a budget for this.
Financial modeling can both help you pinpoint the optimal time to sell your business and to convey the maximum value to potential buyers. Using financial modeling software to fast-track this forecasting and to be efficient in casting multiple scenarios can be very valuable to you.
Identifying The Right Buyers
Don’t waste time with buyers that aren’t a good fit. The best buyer will also lead to a smoother and faster process, in addition to a better ultimate outcome. Know who you should be approaching, as well as who you may not want to waste time engaging with.
Some buyers will certainly be far more experienced in acquisitions, have more success with integrations and much more efficient processes. For some, it will be their first rodeo, where they are using your company as an experiment in the M&A space. Others may be doing this every month.
Find Alignment In Advance
Securing alignment with various stakeholders in advance can go a long way to both speeding things up and ensuring the deal goes the distance to closing.
Having alignment among your own shareholders and decision-makers will remove roadblocks on your end.
Having a good meeting of the minds with your buyers, and solid existing relationships can keep things moving when there are bumps in the road.
Incentivize Your Buyer
You can also heavily incentivize your buyer to close on this transaction sooner rather than later. Perhaps by setting a sliding scale price based on the timeline. Or by bonusing your professional advisors for closing by a certain deadline.
It is never too early to start planning to sell your business. Even if it is not your primary goal yet, knowing how to curate and structure your business for sale from the start is smart. If you do plan to build to sell, then you should be planning a timeline from before day one.
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