Once one decides to sell a business, there is often great urgency to close a deal sooner rather than later. However, selling a business is an invariably slow process. Indeed, it generally takes between six months and one year to close a deal. Moreover, the perception that one can accelerate the process is false. While luck and good timing—for example, finding an available buyer quickly and not running into any additional obstacles along the way—will result in a faster closing, intentionally skipping critical steps along the way is never advised. For this reason, it is important for sellers to be prepared, from the onset, for a lengthy process. This post outlines what to expect during the six key stages of any business sale.
In most cases, sellers were once buyers, and as a result, they may already feel well educated about the process. No matter how much experienced one may already have buying and selling businesses, however, it is always advisable to bring an experienced M&A advisor on board early on in the process. A trusted advisor with expertise working with buyers and sellers in one’s specific sector will not only help ease the burden of attending to all the details of the sale but also speed up the process. After all, an M&A advisor with sector-specific experience will also be able to help court prospective buyers.
During this stage, sellers work with their M&A firm to discuss expectations (e.g., desired sale prices) and the current market (e.g., realistic sale price expectations). An experienced M&A advisor will spend this time researching the business being put on sale in order to arrive at a realistic valuation. If an advisor’s estimated sale price is much lower than a seller’s current desired sale price, postponing the sale is usually advised. At this point, an advisor can also offer advice on how to raise the value of the business in the event of a future sale.
For buyers, Stage 3 represents the calm before the storm, so to speak. While sellers will need to be on hand to provide vital information to their M&A advisor during this period (both through interviews and the sharing of vital documents), this period is generally a more intensive period for advisors than sellers. During this time, the advisor compiles a confidential information memorandum and develops a potential buyers list. Again, working with an experienced advisor and one with established networks in one’s sector is critical at this stage, since it will ensure the potential buyers list is as extensive as possible.
While difficult to predict, marketing generally takes anywhere from one month to four months. The length of time depends a great deal on the current market. If a business goes on sale during a recession, marketing will obviously take much longer. Likewise, if a business goes on sale after a drastic market fluctuation (e.g., one attempts to sell an aviation business after a series of commercial jet crashes), they can expect the process to be subject to additional lag. As prospective buyers appear, the seller’s M&A advisor will discuss the opportunity in general terms and acquire confidentiality agreements to release more specific data on the company.
Once a seller has garnered the interest of one or more buyers, negotiations begin. If there’s only one buyer and the impetus to sell is high, negotiations will naturally take less time. If there is widespread interest, however, one should expect this stage to take at least four weeks and in some cases, much longer. During this stage, sellers—and their employees—need to be at their most alert. Sellers will be meeting with prospective buyers, but buyers will also be touring the business’s facilities. In short, negotiations are an “all hands on deck” moment during any sale.
By the time one reaches this stage, they have a letter of intent in hand, but this is not the end of the process. While it may take only one to two months to close a small business deal, larger business deals typically take up to three months to close. Bear in mind that no deal is complete until all the final paperwork has been signed. Common obstacles seen during this stage include buyers finding previously hidden problems (e.g., during due diligence, discovering accounting errors, labor violations or compliance issues) or simply failing to come up with the required financing needed to close the deal.
When it comes to selling, being psychological prepared for a long process is important, then, but not simply for one’s mental health. All too often sellers, who are eager to move on, drift away from their businesses long before the closing date. The risk, of course, is that as a seller divests emotionally, the day-to-day operations of their business are neglected, and the value of their operation declines at the most critical moment possible. The best way to prepare for the long and at times stressful process of selling a business is to understand up front that the decision to sell is only the beginning.