How Quickly Can You Sell Your Business?
One of the questions we often get is “how quickly can you sell my business?” To answer this, it may help to put some context around the “typical” time it takes to sell a business.
Quickest Sale
Starting at one end of the timing continuum, if a credible buyer showed up on your doorstep tomorrow and offered you a price say, 20%, above market (we will discuss what is meant by “market”, below), the quickest you could likely sell your business is 45-60 days. In a sale of any magnitude above a $10 million purchase price, there are certain due diligence requirements that must be met by any buyer before they will be willing to write you a check. If a buyer is willing to consummate a transaction more quickly, it may be a red flag that you are selling your business well below market. An obvious example would be if you are willing to sell your business, which would be worth $25 million in a well run process for $10 million, a buyer may be willing to take some short cuts because of the inherent protection built in because they are buying the business so cheaply.
Expedited Sale Process
If a business owner desires to run a modified sale process and approach a limited number of buyers, a sale can be accomplished in 4-5 months. In order for this to happen, you need a seller that is very well organized, has a significant amount of data on the operation of the business, and has employees within its organization that can dedicate significant amounts of time to the sale process, potentially taking important time away from operating the business. This would require compiling sales materials within 2 weeks, getting materials in front of the limited buyer universe within 1-2 weeks, giving the buyers 3 weeks to review, then 1-2 weeks for management presentations, one week to select the winning buyer and negotiate final terms, and 4-6 weeks to close. While this is certainly manageable from a skilled investment banking group running the transaction, it may unduly stress the business during the process. This is critical, because far and away, the number one reason that business sale processes fail is poor performance during the sale process. A well run sale process must balance the needs of the business against the needs of the sale process. Pushing key management too hard may jeopardize the operation of the business and result in a failed process (and an under-performing business).
Typical Sale Process
A well run sale process, one that will ensure that the seller is receiving full market value for his or her business, typically takes around 7 months these days. Certainly circumstances can arise that will decrease/increase this timing by a month, but a seller should plan for about 7 months. This will allow the seller to compile information, answer questions, participate in management presentations, and complete final negotiations/documentation while still being able to operate his or her business without undue interference from the sale process.
Value vs. Speed
As mentioned above, the balance between speed to close is often offset by value. While an outrageous offer to buy your business may be easy to identify, not many buyers make a practice of making outrageous offers. More commonly, a seller will mistakenly “think” a buyer’s offer is outrageous based on ill-conceived valuation metrics or ideas and sell their business for below what they might obtain in a well run process (many times significantly (20-30%) below fair market value). In nearly every circumstance, the only way to determine the true value of a business is to run a thorough, or at least expedited process. Failure to do so often results in sellers leaving 20-30% of their value in the buyer’s pocket.
The best results are often generated by careful planning around the timing of taking a business to market, typically with the advice of an experienced investment banker. If this is not possible, it is still prudent to discuss your goals and situation with a skilled investment banker to determine your best course of action.