One of the most frequently asked questions I hear from business owners in our initial meeting is, "How long do you believe it will take for my business to sell?
My answer is always the same and comes in three parts:
1. I am not very good at making predictions.
I've had businesses I thought would sell very quickly take 3 or 4 years to sell. And, I have had businesses I thought may never sell, sell in 4 to 6 weeks. I just cannot predict the market. If I could, my job would be so much easier.
2. There is an average time to sell a business.
Most internet listings sites will tell you the average time from listing to transaction date varies between 9 and 12 months for listings that sell. What they don't tell you is that many listings do not sell.
3. Therefore, the most important activity we can undertake is to properly prepare your business for sale and hope the market recognizes and rewards us for our efforts.
So, now I have changed the question. The better question is, "What can I do to properly prepare my business for sale and have the market recognize and reward me with a quick sale?"
There are three key factors the market will recognize and reward you for:
1. A fair price.
A business that is priced to high as compared to similar businesses on the market won't draw interest. The "dumb" money left the market with the last recession. Buyers are very knowledgeable about business valuation principles and will look right past a business that is over priced.
A business can be under priced as well. Pricing a business too low breeds skepticism in buyers. If you give them reason to believe you are desperate to sell, their mindset is there is something wrong with the business, a game-changer entering the industry, or the revenue and owner benefit numbers are overstated.
Buyers are looking for a good deal, but most expect to pay a fair price. I recommend pricing within 10% of the average selling price of similar business that have recently sold. If you want to sell fast, I would recommend pricing at or up to 10% below this valuation.
Remember also that a business sale is usually a negotiation. Buyers almost always ask for a discount. Your flexibility on price may have a significant impact on how quickly you sell your business. It is surprising how often the first offer is often the best offer.
2. A professional business review.
It is shocking how many brokers do the bare minimum for their clients. They attach the seller's tax returns or P&L's and a few photos to a confidentiality notice and call it a business review. All this does is attract curious buyers who pepper the seller with a long list of questions.
The sales process is long enough. The last thing you need while running your business is to be burdened with an endless string of tire-kickers and lengthy meetings explaining over and over again the basic details of your business.
A professional business review answers all of the frequently asked questions related to your business such as your history, basic operating principles, employee compensation breakdown, lease terms and conditions, required licenses, growth opportunities, etc.. It also clearly explains three years worth of financial statements including your profit and loss statements and latest balance sheet. All owner benefits should be highlighted and explained so the buyer understands the return on their investment.
A professional business review gives the buyer enough information to decide if their interest is genuine or if the business is not a good fit. This saves us both a lot of time as we are not meeting with buyers who are not a good fit and we are not answering the same basic questions over and over again with each buyer. Time wasted with inappropriate and under educated buyers helps nobody.
A professional business review builds confidence and trust in me (the broker) and allows me to transfer that confidence and trust to you (the seller) before you ever meet. It shows a buyer you understand your business and you are running a clean and organized operation. Their time with you will be spent talking about filling your shoes as an owner. If they believe they can fill those shoes, they are usually sold.
3. Have your due diligence materials ready
To ensure a quick sale, work with your broker to make sure all relevant due diligence materials are ready to be shared with a buyer in due diligence. These items will include tax returns; financial statements including profit & loss, balance sheets, cash flow worksheets and general ledgers; bank statements, leases, asset list, maintenance schedules, licenses, organization charts, payroll history, benefits, employee manuals, operating manuals, marketing materials, customer concentration, contracts, insurance policies, and any other relevant items.
In conclusion, if you want to be rewarded with a quick sale, be honest and flexible with price, prepare a professional business review and be ready for due diligence.
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