Many business owners want to know how long it will take to sell their company. While no one can give you an exact amount of time, we’ll discuss some of the factors that go into the length of time it takes to sell a company.
Before we do that, though you may want to have a general idea of the typical time frame for selling a business. On average it’s about 6 to 10 months to sell a business. However, some businesses sell in a couple of months and some businesses can take over a year to sell depending on a variety of factors which you can read about below.
Companies that have a large net income are certainly more desirable than those with less income. It’s not only about the bottom line. Potential buyers will take into account the owner’s salary and perks and benefits. This is often referred to as Owner’s net cash flow. Other measures of net income are EBITDA (Earnings before interest, taxes, depreciation, and amortization).
Once you have decided on what type of earnings measure you will be using, for example, Net Cash flow or EBITDA, then you also need to take into account the price in relation to the income. So for example, if the annual net cash flow is $1Million and the price is $3Million then you would say they are asking for 3X the cash flow. Everything being equal a business priced at 3X cash flow will draw more attention than a business priced at 5X cash flow.
Companies that have larger Net Earnings can usually ask for a higher multiple. For example, a company with a net cash flow of $200,000 may only be able to get 2X their net cash flow while a company with $4Million in EBITDA may be able to sell for 4X to 8X the EBITDA. If you ask for too much relative to what potential buyers expect this will generally lead to a longer time to sell your company. Of course, it will also depend on other factors. The next factor we’ll cover is the Industry that the company is in.
Some industries have more potential buyers than others. For example, some of the hottest industries are manufacturing, technology, healthcare, and distribution. If your company has high net income in one of these industries and the company is priced reasonably you can expect multiple bids and a much faster sale process.
The important thing with all of the industries mentioned above is that you get a Business Broker that has experience selling companies in these industries. This will allow for a faster sales process for the following reasons:
- They will have Potential Buyers that are ready to buy more companies in this industry. This can lead to a quick sales process because the potential buyer already has experience acquiring companies in this industry and knows what to expect. Also, there is an established relationship with the broker which provides some comfort and easier communication. Different companies will be a different fit for different acquirers, so an experienced business broker in a given industry will have a number of potential buyers to draw from.
- Positioning the business. A Business Broker/M&A Advisor with industry experience will understand the language of that industry and will be able to communicate this effectively to potential buyers both verbally and through their written marketing documents.
Financial Trends of the business
Is your business going up or down? If going up then, of course, that’s a positive thing for prospective buyers. If the business is stable then they can count on a certain amount of predictability and a good M&A Advisor can bring out some potential areas of improvement for a new buyer.
When the business is on a decline we’ll also look for ways in which a new buyer could reverse the trend however you will normally need to price the business more aggressively in order to give you a better chance of successfully selling the business in a timely fashion.
Owners role in the company
To make the sales process smoother, it’s best if you have valuable skilled employees that can work independently rather than everything revolving an owner that will be leaving the company. If you have a management structure under you this gives buyers more confidence that the business will succeed with a new owner. Of course, there are exceptions to every rule and we have sold profitable companies where the owner only had one employee that was an administrative assistant, but having skilled employees is helpful in a business sales process.
It is helpful if you have a large customer base. It can take more time to sell if you have a couple of customers that make up the large majority of your revenue. In some of these cases, you may have to take part of the payment for the business in the form of variable payments dependant on how much revenue the company in the year or two after the sale is completed. This is sometimes referred to as an earn-out. Most sellers prefer not to do this, so the structure of the deal needs to be balanced versus the overall price that a seller may be able to get with an earn-out. An experienced M&A Business Broker can help in negotiating options.
It’s beneficial if your customers pay you regularly over time. For example, some software companies sell a one time license and others charge every month for a license. If your business has a large portion of revenue coming from customers that pay you regularly this gives buyers confidence that the revenue will continue. Especially if your customer retention rate is high.
Advisors can make a big difference in the speed of the sale of a business. You want advisors that are experienced in the business sales process. This includes attorneys, M&A Advisors, and accountants. You also want advisors that are proactive in the process of moving a deal forward and looking for common ground to negotiate things which can potentially stall a deal.
Unofficial “advisors” can also lengthen the time it takes to sell a company and can sometimes derail a deal altogether. It’s important to make up your own mind on the deal rather than be swayed by friends and family members that may not have all of the information and are giving advice that might not be based on much relevant experience.
Buyer & Seller relationship
It’s important to have a good relationship between buyer and seller. This makes the process much easier. You can work out differences more quickly and come to a resolution if both parties understand the importance of give and take in getting a deal done. Neither side can get everything they want all the time but if they work together they can usually get something that works out well for both of them.
It’s important that before you enter into discussions with a potential buyer that the buyer has the funds necessary to purchase your business. If external financing will be used, a business broker with banking contacts can work with the bank to make sure the buyer is qualified.
Getting the deal terms negotiated early in the process
Before getting too far in due diligence its important that both sides have an agreement on price, terms, and the general due diligence to be done. This is best to eliminate surprises which can lengthen or derail a deal. An experienced M&A Business Broker can help with drafting and negotiating a letter of intent to get the deal terms in writing.
Multiple Potential Buyers
Having multiple potential buyers can help to generate a sense of urgency for buyers to move things forward quickly before they get locked out of the deal from another potential buyer. An M&A Business Broker that has access to a large pool of buyers can be an asset in making this happen.
Synergy Business Brokers has been selling companies for over 16 years. We have a database of over 24,000 potential buyers in the industries that we serve. The potential buyers come from every state and overseas. We provide a comprehensive marketing program designed to sell your business confidentially in a timely fashion at the best possible price and terms. Our focus is selling businesses with annual net cash flow of $200,000 to $5Million.
There is no fee unless we sell your company so we are selective in taking on assignments in which we are confident that we will be successful. We only sell businesses in the industries mentioned above that we have been successful in previously and have potential buyers. We combine the best practices of M&A firms and Business Brokers.
Timeline for selling a business
To give you an overview of the timeline and the process first, we gather information on your business and develop a marketing document designed to attract potential buyers while maintaining your confidentiality. Before releasing the details we’ll get potential buyers to provide us with information on their qualifications and have them sign a confidentiality agreement.
We usually have to speak with a number of potential buyers before we introduce one to you. We normally introduce a qualified and interest buyer to you within 1-8 weeks from the start of the process. We’ll typically set up a phone call or meeting to answer questions. It’s normally 1 to 7 buyers that we introduce to sell a company and on average 6-10 months from start to finish depending on the factors outlined in this article. Keep in mind you also need to plan on spending some time to provide a transition period for the buyer after the sale.
Hopefully, we have answered a lot of your questions regarding how long it takes to sell a company. Every situation is unique. To discuss your specific company and goals please contact us at (888) 750-5950 or fill out our online contact form or email firstname.lastname@example.org. An experienced M&A Broker will follow up with you for a confidential consultation. We look forward to hearing from you.