Here's a bell curve of the average transaction length from our past clients:
You'll see that on average, most business owners can anticipate the sale taking between 6 to nine months (that's measured from deciding to enter the sales process to sitting at the Closing table). Covid has bumped that average up…and average deal time in 2020 and early 2021 is now stretching out to nine to twelve months.
So what's the difference between the companies making up the bars on the left vs the bars on the right? Below are the five main components that impact the length of time it takes a business to sell - and tips to help streamline your time to Close.
1. Organization of the business (and the owner)
This is a whole subject in and of itself- but in short - a business with (at least) three to five years of verifiable financials, recorded processes (so they don't rely on the institutional knowledge of the owner), and the ability for the owner to produce client, supplier and vendor lists all streamline the process.
Tip: If you aren't tracking these processes, start today. Organization and proof points drive a higher asking price.
2. Knowledge of Valuation and Deal Structure
It is imperative that an owner has received a valuation or broker's opinion of value and understands the different ways deals can be structured. If an owner understands some of the different ways deals can be structured and is open to some amount of Seller Financing- they can get larger payouts, minimize taxes and hedge their risks against future-payments. Deals often get stuck if a seller only has one structure in mind (think: all cash only, upfront!) - and can ultimately cause lower net proceeds for the sale.
Tip: Understand how value and structure can both impact an offer on your business--this will best prepare you to compare offers and help you use different levers to achieve your exit goals.
3. The Overall State of the Market
I think in the time of Covid, this needs less explanation than in years past. Ultimately, you'll have to gauge if your business is healthy enough to sell now- or if you need to hold on to your business and grow it a bit longer.
Tip: Get a valuation done on your business so you know if it's time to sell, or if you need grow (and by how much) to reach your exit goal.
4. Marketing
Actively marketing your business can shave time off your timeline. You can imagine it's not too effective to have your company passively listed and hope the right buyer will come along.
Tip: Ask when vetting a business broker about their marketing plans - for our clients we spend at least 5-10 hours a week actively marketing ourselves.
5. Communication
Selling your business is personal and emotional. It is a process with many moving parts and people. Often deals can fall apart or become stagnant without someone actively managing the process. This is where an organized, diligent broker can be worth their weight in gold!
Tip: Work with an experienced business broker so they can drive the process, navigate the deal and advocate for you at each step of the process.
In my initial meeting with clients, we look at all the different value drivers that will increase or decrease their value, and ultimately define the business's time on the market. Reach out and let's confidentially start planning your exit path today, to keep you on the left side of the bar graph!
Comments