The process of selling a business starts well before it’s listed for sale. With enough lead time, business owners can modify their operations to make the business more appealing to buyers and investors. This process typically involves switching from tax minimizing to profit maximizing financial strategies, hiring or promoting employees to run daily operations with minimal owner involvement, and organizing (or creating) financial and operating documentation so that would-be buyers can reliably evaluate the acquisition opportunity.
The above exit planning process can take two to three years, but how long will it take to sell a business once the owner lists it for sale?
We take a look at median time on market data of different types of businesses to understand what drives the timeline of typical business sales.
Average Time to Sell a Business After Listing
The general rule is it takes six to twelve months to sell a business, but there are a lot of variables between individual businesses. Higher priced businesses will take longer to sell than lower priced businesses. Simple business models will sell faster than complex operations. Employee-managed companies will sell more quickly than their owner-managed equivalents. Some businesses will sell in as little as 30 days, while others may never sell at all.
Median Time on Market for Common Businesses
To get a better idea of how long your business will take to sell, it can be helpful to look to market data. We can derive median days on market (MDOM) from BizBuySell’s Quarterly Insight Report data, which gives us an overall MDOM of around 200 days, or a little over six months. That number begins to vary when we look at different types of businesses.
For example, within automotive services, gas stations tend to sell much faster than car dealerships. That makes sense intuitively, since car dealerships are much more complex, higher priced, and labor intensive. Gas stations are relatively simple businesses where the customers serve themselves.
Similarly, comparing time on market of coin-operated laundromats to dry-cleaning businesses shows that the former sells at a median of just 145 days, while the latter takes closer to 190 days. Laundromats are the quintessential “passive income” business that buyers are quick to purchase. Owners of these businesses spend very little time managing them, only dropping in to check up on conditions, perform routine maintenance, and pick up their cash. Dry cleaners, while offering a very similar service, require employees on site to interact with customers and operate the business.
Effect of Business Value on Sale Timeline
Not surprisingly, higher valued businesses tend to take longer to sell. The relationship between median days on market and asking price is not perfect, but generally higher prices correlate to a longer sales process.
The greater the amount of money involved, the greater the risk for buyers, so naturally they will spend more time during the initial evaluation, and especially during due diligence. More sophisticated buyers like private equity groups and strategic buyers will be especially cautious, and spend extra time digging through the financials, market analysis, and operating history of the businesses they are buying.
Variables Impacting Duration of a Business Sale
While every business is unique, and each transaction has its own hurdles and circumstances, there are a few recurring themes that will impact how long it will take to market, find a suitable buyer, and close the sale of a business:
Type of Business – From the data above, certain types of businesses will generally sell more quickly than others.
Deal Value – Higher priced businesses necessitate a longer evaluation, due diligence, negotiation period, and have a smaller pool of buyers who can afford higher priced businesses.
Nature of Revenue Stream – Businesses that have recession resistant recurring revenue streams are more appealing and will sell more readily.
Owner Involvement – Buyers are on the lookout for businesses that are efficiently run and don’t require the owners full-time involvement.
Financing Availability – Business owners that offer some form of financing alleviate some risk and help close financing gaps that can derail the sale.
Seller Responsiveness & Organization – Much of the process of selling a business involves getting paperwork and information into the right hands. Seller who are quick to provide necessary documentation can speed things along.
Buyer Experience – The buyer ultimately must sign on the dotted line. Experienced business owners will close deals more quickly than newcomers to the market. One caveat to that is that some sophisticated buyers may prolong due diligence to ensure they’ve uncovered every potential deal-breaker and pitfall.
Location – Finally, the market in which the business is being sold will dictate the activity, and therefore the likelihood of a quick sale. Business sellers in large markets with a lot of buying and selling activity will generally find qualified buyers more readily than those in less populated areas.
How Long Will YOUR Business Take to Sell?
The above trends are a great way to understand the drivers of sale duration, but they can’t predict the time it will take to sell your own business. Every business sale is unique, and the time it takes to close is driven by both the buyer’s conduct and your own.
Finding and screening serious buyers, expedient about organizing and providing documentation necessary for qualified buyers to evaluate your offering, and you’ve priced your business based on a fair market valuation, you’ve done your part to keep sale momentum going. If the buyer is acting in good faith, then it’s a matter of negotiating price and terms that meet your goals and get the buyer over the finish line.
Footnotes from Jeannie
This article was taken from BizBuySell. I felt it was a great article showing the importance of planning your exit strategy. Selling your business is not an overnight process. Too often I get the frantic call from a seller who needs to sell in a very short time period or they'll need to close their business. Unfortunately, it's very difficult to make that happen.
Keep in mind, getting the defensible business valuation completed can take 2-4 weeks depending on how quickly a seller can provide all of the needed documentation. And in New Mexico, it typically takes 12-18 months to get a business sold. Taking inquiries, vetting buyers for the right background and financial ability, as well as negotiating and closing all take time. Selling is a marathon, not a sprint. So knowing upfront how long it might take will put a seller in the right mindset and makes for a much easier process along the way.