When selling a business, what is the expected timeframe to complete the deal? While every transaction is particular, most businesses will sell within 6 to 12 months. It’s worth noting however, that the average time it takes to sell a business is dependent on a number of factors such as the selling price, whether the business is a franchise or not, and the type of industry the business operates in. If selling your business is your exit plan you might want to time things properly. Waiting too long to sell may have unfavorable consequences.
Defining the ideal time to sell
Perhaps you’re asking, “So, when is the best time to sell my business?” Is there such a thing as the right time to sell a business? As brokers who have facilitated scores of mergers and acquisitions, we attest to the notion that some moments are decidedly better than others.
For example, when the economy is enjoying a growth spurt investors are more inclined to consider buying a business. Additionally, when interest rates and capital gains taxes are low and financing is readily available selling your business might happen faster than when the economy isn’t doing as well.
In a nutshell, the right time to sell is when your business has enjoyed at least three great years, the economy is growing and your business is financially sound. However if selling is your intended exit plan don’t wait for the business to get into financial difficulties to try selling. And avoid attempting to sell during a recession. Here are more problems you may face if you wait too long to sell.
1. The business might sell for less than the asking price
How much your business is worth depends on a lot of variable factors which means that business valuation is not set in stone. The amount you believe your business is worth may fluctuate a great deal from month-to-month and year-to-year.
Business valuations are dynamic almost like the stock market – never stationary or static. The main force that dictates a business’s valuation is the Sellers’ Discretionary Earnings (SDE) which is a figure that is also never fixed but changes every year.
Additionally, your asking price isn’t always the one you end up settling for. Using data extracted from Bizcomps to illustrate this point, here is a comparison of the average time it takes for a seller to sell a business based on the final offer (and not the initial asking price):
Less than $100,000 – 6.3 months
$100,000 – $500,000 – 7.2 months
$500,000 – $1,000,000 – 8.1 months
$1,000,000 – $5,000,000 – 9.7 months
$5,000,000 – $10,000,000 – 10 months
2. Economic climates are unpredictable
The 2008 recession caught a lot of people off-guard. 43,500 businesses filed for bankruptcy while millions of people lost their jobs. Economists have a way of making economic recessions appear as if they are short-term events and yet in reality it often takes several years for an economy to properly get back on track.
In fact, if we study history we’ll discover that since 1900, the average recession has lasted 15 months. The economic downturn of 2008 spanned 18 months and became the longest economic decline in the United States since World War II. However, this may very well change since the onset of the COVID-19 pandemic that is wreaking havoc on the global economy.
Once again, millions of people and businesses were caught off-guard by the Coronavirus epidemic. Already more than 30 million people have been furloughed across the country and in the first six months of 2020, over 3,600 businesses have filed for bankruptcy including major firms like Neiman Marcus, Hertz, J. Crew, and CMX Cinemas.
Timing is everything when selling a business. You don’t want to be left holding onto a business you’re no longer interested in while you wait for the economy to gain traction again. So, if you plan on selling your business at any time, it’s worth it to keep an eye on the market conditions and what’s happening in the economy in order to find a suitable moment to sell.
3. Business valuation may continue to decrease
If you’re trying to sell the business because it’s taking a toll on your health and you’re burnt out then the faster you sell it the better. You see, the moment a business starts faltering and the results become evident in the company’s financials, the business’ valuation immediately declines.
This is a very difficult place to be in as it generally takes another three years of steady, positive results for the business to be valued favorably again. Before attempting to revive the business, it’s fair to put it out there that most businesses never recover – particularly if the business owner is already suffering from burn-out.
When you find yourself in this state, don’t make the timing mistake of thinking that you can turn things around before you sell. Remember, you probably need to make an additional investment of three more years or more to bring your business valuation up. This isn’t a task to be undertaken lightly. It can be very stressful and trigger mental health issues such as depression. Furthermore, you may actually cause the business to lose more value than it has already lost.
Get the help you need from an expert business broker
Sun Acquisitions is an experienced M&A business broker that can help you define the right time to sell based on your individual preferences and prevailing market conditions. We offer a range of business advisory services including preparation for divestiture, conducting due diligence reviews, analysis of target opportunities, and development of acquisition strategies. Contact us to learn more about how Sun Acquisitions can help you during the buying and selling of a business.
Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.