How long does it take to sell and close on a business sale?

The average number of months to sell a small business is 5 to 8 months. Larger Businesses can take longer to sell and close. In my years of experience, the more preparation time on the offering, the shorter the market and closing time.  Some Businesses in Hot segments can get multiple offers in a a few week, but that is the exception and not the rule.

“Luck is what happens when preparation meets opportunity”

Eighty Percent of all Business that are for sale, never Sell

There are business for sale websites with 50,000+ active business for sale listings and report less than 10,000 Businesses sold per year. That means that less than 20% of the listings per year have actually sold, that also means that 80% of the Businesses advertised for sale did not sell! Recent articles by Forbes, NY Times, Inc. magazine also confirm that 4 out of 5 businesses for sale never ever sell or change hands. Most wind up being liquidated, closed down while Billions of dollars in sweat equity vanishes. Most of the businesses in these studies had <$500k in SDE (Seller's Discretionary Earnings) Those with >$750k of SDE have a 60 in 10 chance of selling and Businesses with > $1mm+ in EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) are in demand and have an 80% to 90% chance of selling.

Why do so few Businesses for sale actually sell?

There can be dozens of reasons why a business never sells; below are some of the most common:

1. Priced too high, no justification for the price (no basis for asking price) Businesses for sale with a 3rd party valuation are 5 times more likely to sell.

2. Business acquisition cannot be financed. (Buyers want leverage, Sellers want to cash out)

3. Poor record keeping (tax returns, sellers do a good job of burying income, buyers cant find it and are unwilling to pay for income that cannot be proven).

4. Not packaged correctly. Need to explain full value of the company in writing.

5. Sellers won’t sell for what they make in a 1 to 2 years. (what is the seller's motivation?)

6. Business and accounts are too dependent on the seller. (the business owner does everything).

7. Desirability - owners responsibility and hours required to operate successfully are too burdensome for most buyers that want to maintain a quality of life).

8. Management and employees not staying after the sale (mostly family owned, family run).

9. Outdated or changing service and/or product (i.e., Uber, Amazon infiltration into segments).

10. Too much working capital required. (not enough cash on cash return to justify the risk for buyer)

What do we do to get your business sold faster for more money?

The first step for Businesses owner with less than $1mm in Seller's Discretionary Earning (SDE) and is thinking about selling is to look at the Direct Market Data Method (DMDM). This assumes an “Arm’s Length” transaction. Direct Market Data Method (DMDM) relies on the principle of substitution. A buyer will not pay more than the price at which they can obtain an equally desirable substitute. The DMDM uses parameters of comparison in the form of income multipliers, which can be either Gross Net or Seller’s Discretionary Earnings SDE.

This is not the end all for valuation but rather a starting point to gauge the market. If you don’t have a buyer for your business and you want to sell, you will be going to the market to sell your business. One of the main principles in market pricing is the “Principle of Substitution”. This principle says that the maximum value of a business or property usually is established by the cost of acquiring an equivalent substitute business or property that has the same use, design, and income. In other words, “why would a buyer pay Y for what you are selling when they can buy a similar X for less? It is important to have market data if you are going to the market to sell. Privately held Business sales are not in the Public Record, your Business Broker needs to have access to and or subscribe to private databases of sold business in order to take the market approach into consideration.

How can we help you Sell your Business?

Simple Steps we use to bring your odds of a successful transaction from only 20% up to over 80%

1. Justify the Business asking price for both Buyer and Seller. Prepare a comprehensive Business Valuation using several methods of Valuation. We have access to thousands of comparable sold businesses. Not being able to justify the price is the number 1 reason why most businesses never sell.

2. Set up financing to buy a business, pre-qualify the Business for SBA Guaranteed 3rd party financing. Buyers want to leverage their money. Sellers want to cash out, any third party funds make the deal a win win for both buyers and sellers. We work with many SBA Banks and we know which Banks will finance certain types of Businesses. This is the Number 2 reasons why most businesses never sell.

3. Use a qualified experienced Business Intermediary to market on a confidential basis and negotiate. Once you have the Price justified, financing in place, a ready willing and able buyer and a meeting of the minds are all that is needed. Have an experienced Business Broker on your side, many deals fall apart several times going from Contract to closing. You need a Broker that has to anticipate the issues and has the knowledge and negotiating skills to “revive” the deal and take it to closing.