Selling a business typically takes about six months to two years—and in some cases even more. The exact time can vary greatly from situation to situation, but in almost all situations, it can take frustratingly long for the eager owner or impatient entrepreneur who wants to move on to the next stage in their life.
The Exit Timeline in Four Key Stages
Let’s look at the exit timeline in four key stages: exit planning, marketing, negotiations, and closing.
Stage 1: Planning Your Exit
You can realistically get your business ready to sell in a few short months. You need to collect the necessary documentation and organize financials. Speed at this stage depends on your commitment to the process, as well as any other stakeholders who will help prepare financial statements. There’s a lot you can control, fortunately.
However, in many cases, it is at least a year-long process, and could take multiple years. This happens when either a business owner is uncertain of whether they want to exit or what exit approach to take: sell to a competitor, list on the market, pass to family members, shift to an ESOP, or otherwise.
Many business owners become certain that they want to sell to an eager buyer who will take the business with pride and continue its legacy, while providing them with a windfall to enjoy in retirement. We can always determine the current value of the business – which is what we provide with our valuation service – but it may not be the number you’re hoping for. Beyond this valuation figure, you need to consider taxes and broker fees. After reviewing that, you may decide you’d like to improve some key value levers to improve the overall valuation of your business before exiting – which is another part of our focus in valuations. Sometimes an extra year of investing in the business can provide both short-term return-on-investment and a much greater value at exit.
If your exit plan is to sell to family members or a staff member, you’re on a different trajectory altogether. This can be simpler in some ways, but not quite easy. Depending on how strict or lenient you choose to be, the intended timing of the transition, and your post-close involvement, you can see this as the fastest path or the longest transition.
Approximate stage duration: three months to three years
Stage 2: Marketing Your Business
The truth is that business brokers are typically not marketers or copywriters, and yet so much of getting in front of a high volume of quality buyers is properly positioning, communicating, and selling your business through online listings and emails.
In fact, a study by M&A network Axial found that brokers rarely spend most of their time on the marketing of the business, with only 16% reporting this is where most of their time is invested:
Source: Maximizing Your Business Sale: The Overlooked Value of an M&A Advisor (https://www.axial.net/forum/maximizing-your-business-sale-the-overlooked-value-of-an-ma-advisor/)
This stage should involve a few key deliverables:
- A Confidential Information Memorandum (CIM), also known as a variety of other terms such as an Offering Memorandum (OM), Confidential Business Brief (CBB), or whatever other terms a specific broker invents. This is the sales deck where you provide key information for a prospective buyer, only provided after an NDA is signed. Some brokers will vet buyers before sharing the document, but most send once a signature is received.
- A marketing listing. This is used on business buying websites like BizBuySell, the broker’s website, or Loopnet when real estate is involved. Copywriting and positioning are key skills to help the listing be attractive to the right buyers, while displaying why the business is valued at the asking price.
- A Frequently Asked Questions document. Few brokers seem to do this, but collecting FAQs, whether within the CIM or separate, can greatly reduce the back-and-forth on details that can slow down the process or eat up broker and seller time in repetitive discussions. Created properly, it helps to enhance the value of the business as well, showing the comprehensive approach to packaging the sale and the thoughtfulness in the approach to your business.
The development timeline depends on how personalized the branding of documentation is, how detailed you get in the CIM, and the seller’s willingness and ability to provide information. If all information was available, this stage could be properly prepared in a month. Marketing materials do not have to be static. For example, you can update the listing if you find buyers have a repeated concern from what they read that may dissuade others from even reaching out in the first place. This testing and optimizing approach is the epitome of the marketing mind that a broker should embrace.
Approximate stage duration: one month to three months
Stage 3: Negotiating with Buyers
This stage comes after buyers start reaching out and before entering due diligence and closing the deal. At this time, the broker would field calls from prospective buyers, answer questions, verify they are a fit buyer, and set up calls between the buyers and seller to facilitate discussions. The goal at this stage is to receive a letter of intent (LOI) with terms that the seller finds favorable enough to agree to a sale. If accepted, you would enter a period of exclusivity and work towards the exit with this single buying party, so you want to be sure to negotiate a proper deal at this time.
Realistically, it will take weeks or months before the right buyer finds you. If your business is extremely unique, in a fairly remote location, has specific requirements of the owner, or another characteristic that decreases your pool of potential buyers, it can take a year or longer. It’s a matter of properly positioning and marketing the business, but also of enough potential buyers existing and searching at this specific time.
If you do find a buyer who is a good fit, you’ll review their LOI and negotiate key areas of concern. There are a number of factors to review, but typically the most significant are purchase price and how it is determined, adjustments based on working capital and inventory, payment structure, and due diligence timeline. You may review and have no or little edits before accepting, or you may find yourself in a back-and-forth spanning a few weeks. It is uncommon for the LOI negotiation to span months because if a deal has enough potential buyers, there’s someone who will push the pace and get the right deal structure on paper sooner than others.
Approximate stage duration: one week to twelve months
Stage 4: Closing the Deal
After accepting an LOI, you enter the exclusivity period, often around 90 days, when due diligence occurs with this potential buyer and no other buyers can be engaged with. This is a period written into the agreement so it should be a standard three month period, though it can be safe to anticipate a month extension.
The reason for an extension in this period could be because of findings in due diligence that require deeper examination. If things are not as they seemed pre-LOI, a buyer might ask for more information, which can take time for you to gather and for them to review.
Lenders often require around 10-12 weeks to get an SBA 7A loan prepared for the purchase, which is the most common type of loan for a small business acquisition. Some lenders will work faster or slower than others, and that can be based on the information they receive, the time of year, and their appetite for these types of loans. SBA 7A Express loans are alternatives that can take half as long, but have a cap of funding at $500,000, so they are reserved for smaller acquisitions.
Finally, the asset purchase agreement (APA) or purchase & sale agreement is where final terms are written out and agreed on. With a properly written LOI, a lawyer should have all information ready to input. Nonetheless, negotiations can open up again, particularly if any significant changes occurred since the LOI was signed or if due diligence revealed a material change in the business. This is again where the deal can extend, though you would hope it can stay on track overall.
We’ve seen this stage extend the overall closing period up to twelve months with slow moving brokers and lawyers and indecisive sellers. Worse, of course, a deal can die at the finish line; but that should never be an expectation in the process if everything up to this point was handled properly and with integrity.
Approximate stage duration: three to four months typically
Selling can take a few months or years.
Ultimately, there is a great deal of power you have in your control regarding when you sell – based on how committed you are, how organized you are, how much you will contribute to the process, and what your expectations are in a sale. Push the pace and be reasonable and you can exit within the year. There is also a lot for you to consider such as how much you may want to invest in the business prior to exiting to maximize the value.
A large part is out of your control as well. You need to get in front of the right potential buyers, have a listing that is alluring enough to get their attention and motivate them to reach out for more information, you need the right buyer to then send a reasonable letter of intent that can be negotiated to a proper place for you, and then you need to work through due diligence where lenders, lawyers, brokers, buyers, and other parties are involved.
Nonetheless, if you’re thinking about exiting within the next five years, the best time to start exit planning is now. That provides you with ample time for exit maximization, consideration of different approaches, and perfecting the positioning of your business. If within the next two or three years, as is often common when people become serious about wanting to exit, you still have time to handle all that you need to for a transaction with a little less time for exit maximization. If you want to exit within a year, then exit maximization could only cover the basics as you need to focus exclusively on getting ready for the sale.
Overall duration: seven months to several years
Interested in finding the value of your business at exit? Reach out to us to discuss our one-week valuation service where you find the valuation, key measures that influence the value, market comparables, and recommendations on where to focus attention to increase value, as well as what that increase could substantiate for your exit.
About the Author
David is Bbg, Inc.’s managing director. He focuses on driving strategic growth and operational effectiveness. Passionate about helping others be at their best and fostering collaboration, he ensures excellence is seen in the clients we serve and the businesses we operate. Follow David on LinkedIn