How Long Does it Take to Sell a Business?
Curious about the time it takes to sell your business? It’s a common inquiry that reaches our ears quite often.
And, you know what? We understand. Once you’ve made the bold decision to put your blood, sweat, and tears on full display, the virtue of patience suddenly becomes precious.
However, pondering over this question is just one of the many vital considerations when embarking on a journey to sell your business. Numerous factors come into play, influencing the timeframe.
For all transactions since 2000, the average duration on the market stands at 200 days, approximately 7.3 months. Yet, over the years, the average time required to sell a business has witnessed an increase, transitioning from six months in the early 2000s to a more recent ten months.
The process of selling a business has grown more arduous and protracted compared to a decade ago. This shift can be attributed to the expansive nature of the internet, which has bestowed buyers with abundant options, making them more discerning in their choices.
This article aims to address the following queries:
- How long does it truly take to sell a business?
- Is there an opportune time to sell a business?
Furthermore, we delve into six essential variables that can sway the duration it takes to sell your business:
- The selling price
- The asking price
- The multiple of SDE or EBITDA
- The geographical region where your business is situated
- The availability of financing options for your business
- The industry in which your business operates
Additionally, we examine the prevailing factors that impact the timeline for selling a business in recent times, encompassing economic conditions and technological advancements. Finally, we furnish you with invaluable advice on actions you can take to expedite the sale of your business. So, what’s holding you back? Dive into the wealth of information right away!
The Impact of Selling Price on the Time to Sell a Business
When it comes to selling a business, understanding the average time it takes to close a deal is crucial. In the United States, BIZCOMPS serves as a comprehensive database that offers valuable insights into business-for-sale transactions, including the duration the businesses remained on the market.
With a vast collection of over 13,000 transactions dating back to 1996, BIZCOMPS has emerged as a reliable resource in the industry. It’s important to note that most of the transactions within the database involve smaller businesses with a price tag below $1 million.
Moreover, the majority of these transactions were facilitated by professional advisors, predominantly business brokers.
Over the years, there has been a noticeable shift in the average time it takes to sell a business. Analyzing data from 2000 onwards, the average duration stood at 200 days, roughly equivalent to 7.3 months. However, recent years have witnessed an increase in the time required to finalize a sale, extending it to around ten months.
Selling a business today has undoubtedly become more challenging and time-consuming compared to a decade ago. Let’s delve into the factors behind this shift.
Variable #1: The Selling Price
One of the key variables that significantly impact the time it takes to sell a business is the selling price. Based on extensive analysis, we have compiled statistics showcasing the average duration it takes to complete a sale across different price ranges, excluding the asking price:
- For businesses valued at less than $100,000, the average time on the market spans 199 days or approximately 6.3 months.
- In the $100,000 to $500,000 price range, businesses typically require around 218 days or 7.2 months to find a suitable buyer.
- Moving up the ladder to the $500,000 to $1,000,000 range, the average duration extends to 243 days or 8.1 months.
- Businesses falling within the $1,000,000 to $5,000,000 range generally take around 291 days or 9.7 months to complete a successful sale.
- Lastly, businesses with a price tag of $5,000,000 to $10,000,000 typically need approximately 329 days or 10 months to finalize a transaction.
The Impact of Business Size
Drawing insights from our experience at CasinosBroker, we observe that larger businesses tend to require a more extended period to sell. Historically, smaller businesses enjoyed a faster sales process, but we believe this trend is now reversing.
As the market dynamics evolve, it becomes evident that selling a business necessitates meticulous planning, strategic positioning, and the guidance of seasoned professionals.
By understanding the variables influencing the time it takes to sell a business, entrepreneurs can navigate the challenges more effectively and work towards achieving their desired outcomes.
Variable #2: The Asking Price
When it comes to selling a business, one of the crucial factors that significantly influences the selling process is the asking price. The initial price you set for your business can have a substantial impact on how quickly it gets sold.
We will delve into the relationship between the asking price and the time it takes to sell a business. By examining various statistics and variables, we aim to provide you with valuable insights that can help you make informed decisions and optimize the sale of your business.
The Role of Asking Price and Selling Time
To understand the correlation between the asking price and selling time, let’s analyze the following statistics:
0%: Full Asking Price
- Average Selling Time: 203 days (6.7 months)
1%-5%: Below Asking Price
- Average Selling Time: 214 days (7.1 months)
6%-10%: Below Asking Price
- Average Selling Time: 213 days (7.1 months)
11%-20%: Below Asking Price
- Average Selling Time: 221 days (7.3 months)
21%-30%: Below Asking Price
- Average Selling Time: 226 days (7.5 months)
31%-40%: Below Asking Price
- Average Selling Time: 225 days (7.5 months)
41%-50%: Below Asking Price
- Average Selling Time: 242 days (8 months)
51%-75%: Below Asking Price
- Average Selling Time: 240 days (8 months)
76%-100%: Below Asking Price
- Average Selling Time: 285 days (9.5 months)
Conclusion: Pricing it Right
Based on the above statistics, it becomes evident that setting a reasonable initial asking price plays a pivotal role in expediting the sale of your business. Notably, businesses priced above 76% of the ultimate selling price take 40% longer to sell than those priced at the asking price. Therefore, it is crucial to ensure that the asking price is realistic and aligned with the market value of your business.
Variable #3: Multiple of SDE or EBITDA
Another critical variable to consider when evaluating the pricing of a business is the multiple of Seller’s Discretionary Earnings (SDE) or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
This factor provides insights into the pricing structure and attractiveness of the business. Let’s explore this variable in more detail.
Understanding the Multiple
The multiple represents the relationship between the SDE or EBITDA and the selling price of the business. For instance, if a business has an SDE of $1,000,000 and eventually sells for $3,000,000, the multiple would be 3.0.
Unveiling the Complexity
It’s important to note that the correlation between the multiple at which a business is sold and its attractiveness might not be directly proportional. However, an indirect correlation might exist, suggesting that higher multiples could indicate more appealing businesses, such as manufacturing or technology companies.
Considerations and Skewed Data
While examining multiples, it’s essential to be aware of certain considerations and potential data skewing, especially for lower-priced businesses. For example, a business with an SDE of only $20,000 that sells for $80,000 can distort the data.
Additionally, it’s important to understand that these data solely focus on the selling price and do not account for the initial asking price.
Analyzing Multiple and Selling Time
Now, let’s take a closer look at how different multiples can impact the time it takes to sell a business:
Less than 1.0 Multiple:
- Average Selling Time: 207 days (6.9 months)
- Average Selling Time: 210 days (7 months)
- Average Selling Time: 226 days (7.5 months)
- Average Selling Time: 236 days (7.8 months)
- Average Selling Time: 232 days (7.7 months)
- Average Selling Time: 256 days (8.5 months)
By analyzing the relationship between multiples and selling time, we gain valuable insights into the dynamics of business sales. While the data provides important trends, it’s essential to remember that each business is unique, and additional factors can influence the selling process.
However, it is evident that multiples can play a significant role in attracting potential buyers and expediting the sale of your business.
As you navigate the process of selling your business, understanding the impact of variables such as the asking price and multiples is crucial. By setting a reasonable asking price and considering multiples, you can optimize your chances of selling your business efficiently.
Remember, each business is distinct, and it’s essential to tailor your approach to align with your specific circumstances. With the right strategy and a comprehensive understanding of these variables, you can maximize the potential of your business sale and achieve your desired outcomes.
Variable #4: The Region
Average Days on the Market by Region
When it comes to selling a business, the region plays a significant role. Let’s take a look at the average number of days businesses stayed on the market in different regions:
- Canada: 245 days (8.1 months)
- Midwest: 240 days (8 months)
- South: 219 days (7.3 months)
- Northeast: 217 days (7.2 months)
- West: 215 days (7.1 months)
Selling Faster in Desirable Regions
The statistics clearly demonstrate that businesses located in desirable regions with high population growth tend to sell at a faster pace. For instance, selling a business in Orange County, California takes approximately 19% less time compared to selling a business in Iowa.
In Orange County, the average duration for a business to be on the market is 211 days, while in Iowa, it extends to 252 days. This data emphasizes the importance of location when it comes to selling a business.
Relocation as a Factor
It’s worth noting that many potential buyers looking to purchase a business are willing to consider relocating. This opens up a broader pool of potential buyers for your business and accelerates the selling process.
Particularly in the Southwest and Southeast regions, a significant portion of businesses is sold to individuals who are moving to those areas. The willingness of buyers to relocate not only increases the number of interested parties but also expedites the overall selling process.
With a larger pool of buyers, the chances of selling your business faster are significantly higher.
Variable #5: Financing and Down Payment
Average Days on the Market by Down Payment
The down payment and financing options also influence the duration a business stays on the market. Here are the average number of days based on different down payment percentages:
- 0-10% down payment: 215 days (7.1 months)
- 11%-20% down payment: 241 days (8 months)
- 21%-30% down payment: 255 days (8.5 months)
- 31%-40% down payment: 221 days (7.3 months)
- 41%-50% down payment: 209 days (6.9 months)
- 51%-60% down payment: 195 days (6.5 months)
- 61%-70% down payment: 216 days (7.2 months)
- 71%-80% down payment: 230 days (7.6 months)
- 81%-90% down payment: 237 days (7.9 months)
- 91%-99% down payment: 240 days (8 months)
- 100% down payment: 215 days (all cash, no financing) (7.1 months)
The Impact of Financing
It is a widely acknowledged belief among business and M&A brokers that offering financing options significantly enhances the chances of selling a business.
The statistics also consider transactions involving bank financing. However, it is important to note that deals with bank financing tend to take an additional 30 to 90 days to close, which might cause some statistical errors.
On the other hand, all-cash deals generally have a quicker closing process. These deals are often associated with lower-priced businesses where due diligence can be expedited.
Choose the Right Financing Approach
The data suggests that the more financing the seller is willing to offer, the faster the business is likely to sell. For deals with less than a 30% down payment, it is highly probable that bank financing was involved, leading to a longer closing time.
By carefully considering your financing options, you can optimize the selling process and potentially sell your business more quickly.
In conclusion, when selling a business, the region and financing options play a crucial role. Being located in a desirable region with high population growth increases the chances of a faster sale.
Additionally, offering financing options can attract more buyers and expedite the selling process. By leveraging these factors effectively, you can enhance your business’s marketability and ensure a smoother transition to the new ownership.
Sources of Data on How Long It Takes to Sell a Business and Their Accuracy
Business Brokerage Press conducts an annual survey among its members, comprising primarily full-time business brokers. The survey is open to both members and non-members, including middle-market intermediaries and other advisors.
The survey consists of several dozen questions, including an inquiry about the average period between listing and sale. Recent survey results have shown a range of six to 11 months, indicating a gradual increase over time. These findings align with data obtained from BIZCOMPS.
Assessing the Accuracy of the Statistics
The business of selling businesses is characterized by limited resources and inefficiency, particularly for those dealing with smaller businesses. The majority of surveys are not validated, and participants are often enticed to complete the survey with promises of free results. This incentive-driven approach can lead to data inaccuracies.
For example, when advertising a business for sale, we utilize various web portals where we are obliged to provide transactional data. However, our back-end administrative team, who enters the data, is not privy to transactional details. Consequently, they may input inaccurate data. Consequently, the survey results we receive are based on transaction data we know to be unreliable, reducing our motivation to provide accurate information. Moreover, many other brokers are too preoccupied to allocate time for data input into databases.
While the data can still be valuable, considering its occasional accuracy, it is important to acknowledge its limitations. It should serve as a guide supplemented by common sense and professional advice.
Other Sources of Statistics
The IBA Market Database, housing over 37,000 transactions, is another valuable source of transactional data. However, it does not specifically indicate the time taken to sell a business. Unfortunately, we are unaware of any other reliable sources that provide comprehensive information regarding the duration of business sales.
General Factors Affecting the Time It Takes to Sell a Business
Outlined below are general factors that influence the duration of a business sale. These factors have evolved over the years, and we believe the following have had the most significant impact on prolonging the sales process over the past decade.
The internet has revolutionized the buying and selling of goods and services, offering buyers an abundance of options. In the past, businesses were predominantly sold through newspapers, resulting in an inefficient market where comparing alternatives was challenging. Ironically, this inefficient market facilitated quicker sales due to limited available alternatives and businesses for sale.
The internet has also bestowed buyers with a wealth of information on buying or selling a business. Consequently, today’s buyers are more knowledgeable and consider multiple options before making a decision.
Increased Availability of Businesses for Sale
In recent years, the number of businesses available for sale has steadily increased. This surplus of options has expanded the choices for buyers while potentially leading to prolonged sales processes and declining prices.
Economic conditions inevitably impact the pace of small business sales. Various economic factors, such as unemployment and interest rates, can influence the market. As the workforce diminishes, more potential buyers become available to purchase businesses. Some believe that small business sales correlate with the unemployment rate.
Specific Factors That Affect How Long It Takes to Sell a Business
When it comes to selling a business, several specific factors can influence the duration of the process. Understanding these factors is crucial for business owners looking to sell their ventures efficiently. Let’s explore these factors in detail:
Asking Price: A Key Determinant
The asking price plays a significant role in the speed of selling a business. A reasonable asking price tends to attract more potential buyers, thereby expediting the sale process. It’s worth noting that businesses valued at over $5 million often have higher demand from professional buyers, making them easier to sell. These larger businesses are frequently acquired by financial or corporate buyers as a means of achieving growth, leading to increased demand. Additionally, the method of sale, whether it’s a negotiated process or an auction, can also impact the timeframe.
Geographic Area: Location Matters
The geographic area in which your business is located can have an influence on the speed of its sale. High-growth areas tend to attract more buyers, increasing the likelihood of a faster transaction. Conversely, businesses in low-growth areas may experience a longer selling process due to limited buyer interest. Understanding the dynamics of your local market is crucial for setting realistic expectations.
Financing: Facilitating a Swift Sale
Offering reasonable seller financing terms can expedite the sale of your business. Buyers often find it easier to invest in a business when attractive financing options are available. By providing favorable terms, you create a more appealing opportunity, potentially leading to a quicker transaction.
Industry: The Impact of Market Appeal
The industry your business operates in can significantly affect its selling timeframe. Businesses in attractive and high-growth industries, such as technology, tend to generate greater buyer interest and sell more quickly. Conversely, businesses in low-growth industries may encounter challenges when it comes to finding suitable buyers. Evaluating the market appeal of your industry is crucial for managing your expectations and devising effective selling strategies.
Marketing: Promoting Your Business Effectively
Aggressive marketing efforts play a vital role in expediting the sale of your business. By employing the appropriate channels to promote your business to potential buyers, you increase its visibility and attract more inquiries. Leveraging various marketing techniques, such as online listings, industry-specific platforms, and professional networks, can help you reach a wider audience and potentially shorten the selling process.
Financial Trends: Positive Indicators Matter
The financial trends of your business can significantly influence its marketability and sale timeframe. A business experiencing positive financial indicators, such as increased revenues or margins, is more attractive to buyers. Positive trends showcase the potential for future growth and success, making the business easier to sell. By focusing on strengthening your financial performance before listing your business, you enhance its appeal and accelerate the selling process.
Skills Required: Navigating Complexity
Businesses that require highly specific skills or licensing, such as professional or healthcare practices, often face a more complex selling process. Finding the right buyer with the necessary qualifications can take longer due to the specialized nature of these businesses. Business owners in such industries should be prepared for a potentially lengthier timeframe and engage in targeted marketing to reach qualified prospects.
A Timeline for Selling a Business
Selling a business involves multiple steps, each with its own timeframe. Understanding this timeline can help sellers manage their expectations and navigate the process more effectively. Let’s take a closer look at the typical stages involved:
How long does it take to prepare a business for sale?
Preparing a business for sale involves various tasks, such as business valuation, creating a Confidential Information Memorandum (CIM), and compiling essential documents. While this step is often controlled and predictable, the duration can vary from one to eight weeks.
One common bottleneck during this stage is obtaining updated financial information, which may cause delays. Sellers should ensure they have the necessary documents ready to expedite this process.
How long does it take to find a buyer?
The duration of finding a buyer can be unpredictable, often requiring little active effort from the seller apart from meeting with potential buyers. This period can be frustrating as it may seem like progress is slow. However, maintaining consistent revenues or growth during this phase is crucial. While the timeframe for finding a buyer can vary, sellers should remain focused on running their business effectively.
How long does a business closing take?
Negotiating and closing a deal typically takes between one and four months. However, several factors during this stage can introduce uncertainty. Delays in due diligence may occur due to issues like challenges in obtaining bank financing or discrepancies in financial information.
Additionally, third-party delays from attorneys, accountants, franchisors, banks, or license-transfer approvals can prolong the closing process.
On average, negotiating an offer with a buyer takes approximately one month, completing due diligence takes one month, and closing the transaction takes one month. However, it’s essential to be prepared for the possibility of a longer timeline.
Understanding the specific factors that influence the duration of selling a business and the timeline involved in the process can help business owners set realistic expectations and plan accordingly. By optimizing these factors and implementing effective strategies, sellers can increase the chances of a timely and successful business sale.
Steps for Accelerating the Sale of Your Business
Outlined below are a series of concrete measures you can adopt to expedite the sale of your business:
Business Evaluation: If you are genuinely committed to selling your business, we recommend obtaining either an expert opinion on its value or a comprehensive business valuation report.
Additionally, acquire a list of specific actionable steps you can take to enhance the worth of your enterprise. These steps can be implemented shortly before listing your business on the market or several years in advance.
The ideal time to prepare is whenever you decide to undertake this process. Determine a realistic asking price for your business based on the valuation.
Financing: Either secure pre-approval for bank financing or provide the option of seller financing. Our exit strategy encompasses an array of financing alternatives for your business, accompanied by precise recommendations.
Exit Strategy: Thoroughly plan the sale of your business, as it holds utmost significance. We can devise a formal exit strategy for you, which meticulously examines numerous variables and encompasses a tailor-made plan spanning 20-30 pages.
This plan will include checklists of essential documents you need to compile and specific steps you can take before listing your business on the market.
Maintain Market Presence: Keep your business listed on the market even if you have already accepted an offer, unless you have agreed to exclusivity with the buyer. Refrain from withdrawing your business from the market until you have a signed purchase agreement and received a nonrefundable earnest money deposit.
Prepare for Due Diligence: Prepare for the due diligence phase by organizing a comprehensive list of documents that most potential buyers are likely to request. By doing so, you can expedite the sale process and enhance the likelihood of a successful transaction.
Data pertaining to business sales is scarce and often unreliable. However, by implementing our recommendations, you can not only expedite the entire process but also significantly enhance the prospects of a successful sale.