Phase 2:

The Timing

How long will it take to sell your business?

Selling your business is definitely not something that happens overnight. The good news is that you can reduce the time it takes to sell your business by following a few straightforward guidelines.

The length of time it takes to sell your business and the kind of deal you structure are in direct relation to how well you’ve prepared your business for sale and the degree to which you’ve made the buying process easy for the buyers. Put another way, if you make your business attractive to the right buyers and “smooth the path” to buying by removing obstacles, then you’re far more likely to sell for agreeable terms (or at all) and close the sale quickly.

First… Understand the Sales Process

There are five main phases of selling a business:

  1. Kick-off Meeting: KO meets with you to discuss your business and your plans, and we begin to develop out a strategy for selling your business.
  2. Research, Plan, Build Value. This next phase can take a few weeks or several years.
    It’s the time we use to research and analyze your business, look at the market, and advise you on ways you can build more value into your business. This may include the launch of new products or services or it may be market driven by competition or the need for transformation. You decide when you’re ready to sell.
  3. Marketing. Once you are ready, the next phase is a well-structured approach to minimize the amount of time it takes and improve the results. We’ll prepare the marketing materials, create and vet a list of potential buyers, actively market your business to this pre-vetted list, meet with potential buyers, then conduct a date-driven “auction” to pit buyer against buyer and drive the process quickly.
  4. Due Diligence. This is the phase in which most deals fall apart, and is what makes the selling process take as long as it does. Buyers are scrutinizing businesses like never before, causing the due diligence process to sometimes drag on and on.
  5. Final Negotiations, Deal Structuring, and Final Paperwork. To expedite the process, we do most of the negotiations, deal structuring and paperwork concurrent with Phase 4,

Due Diligence.

Understand that there is a clear and well-defined process through which your sale will progress, even though the selling process itself is fraught with complexity and inconsistency. No two business sales are ever alike, but the selling process remains consistent.

The actual time from the start of Phase 1 to the completion of Phase 5 and the celebration can be as little as six months, or as long as eight to ten years. This time frame depends considerably on these factors:

  • The length of time you take to complete the research, plan and build value phase, where you build value into your business and decide when you’re actually ready to sell.
  • The degree to which we make the process transparent – more transparency usually results in shorter Due Diligence and faster time to close.
  • The degree to which your business and the buyer are a good fit for one another.
  • The Macro-Economic climate: We’d be remiss if we didn’t point out that when the economy is hot, deals get done faster and at better valuations. When the economy is struggling deals are harder to close and terms often push more risk on the seller’s plate.

In a best-case scenario, you can expect all five phases (to close) to take between six and nine months. It can last longer but we try to avoid as there is what is known as “dealfatigue” that we look to minimize as this can result in deals falling apart.

You can pave the way to a faster, more amenable sale by understanding that buyers, and the buyer’s professional advisors, are looking for reasons to argue for a lower the value of your company. Your goal is to make it easy for them to want your company, which can be done through an effective and well-organized process.

Second… Bring Transparency to the Engagement

We’ve found that the best way to remove the obstacles to selling and make a business more attractive to buyers is by infusing the process with what we call “Transparency.” By transparency we mean putting everything out on the table, both up front and during the sales process. Selling a middle market business is inherently an opaque process, where information is often hidden or obscured, and the process itself isn’t well understood.

The idea behind transparency is to reduce “surprises” to a minimum. That includes surprises to you as the seller, such as the value of your business as defined by the buyers and market, and surprises to the seller like undisclosed intellectual property, lawsuits, misaligned shareholders, employee problems, and competitive pressures. Every new surprise makes the buyer look for more potential hidden issues, reduces the value of your business, and increases their risk. They are buying your business for your people, customers, technology, and the ability of the business to deliver a return on investment from the purchase price. If they see anything that might reduce the value or increase the risk, they’re likely to question the deal.

Third…Ease the Transition

You’re now facing greater competition in selling your business. Buyers are more diligent, and although still minuscule compared to “Main Street” (under $2M), the number of middle market businesses for sale will increase in the coming years. It’s in your best interest to do all you can to make your business highly attractive to prospective buyers.

Consider the following facts:

  • Family Businesses comprise 80–90% of all business enterprises (Family Business Review);
  • The majority of baby boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 5 to 10 years (Robert Avery, Cornell University).

One way to make your business more attractive to a buyer is to facilitate an easy transition from your ownership to theirs. This could mean staying on for a longer transition time, or bringing in and training top-level management and staff before you put your business on the market. While there are no hard and fast rules, it is typical for the buyer to ask the owner to stay on to manage the business for a period of time. Sometimes this period is far longer than the owner expects so you need to calculate thin into the overall exit timing.

Fourth… Optimize Your Systems

…and buyers want to know that the change in ownership will not adversely affect employees continuing to perform, vendors continued willingness to supply, and customers continuing to buy. They need to see that there is an organization and a system in place which will continue to profitably sell and produce products and services after the closing.

Fifth… Emphasize Future Profit and Potential

Understand the inherent value of your business to prospective buyers – from their perspective. For example, a buyer may be interested in your customers and expertise, but be uninterested in your equipment or facilities. One company with whom we worked on the buy side wanted the Seller to relocate to their hometown. Another company with whom we worked on the sell side found that their greatest asset was the relationships they had with their customers.

The point is that you may have a significant “hidden” value that doesn’t necessarily appear in the balance sheet. Your buyer wants to know that his or her future is secure, either by way of the potential driven by your human and non-human assets, or by way of a well-defined growth in profit. By finding and emphasizing the benefits a buyer will receive through the transfer of ownership, you can create a bidding war, drive up the sale price, and close the deal more quickly.