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It’s Going to Take HOW LONG To Sell My Business?

It’s Going to Take HOW LONG To Sell My Business?

Business owners often have a mistaken idea of how long it will take to sell their company.  Depending on the type of process used to sell the company, it typically takes at least 3 months, and could be 12 months or longer.  According to a study completed by Pepperdine University, and reported in the 2017 Private Capital Markets Project report, only 22% of transactions closed in 6 months or less.

 

Source: Pepperdine Private Capital Markets Project, 2017

Why does it take so long?  A quick review of the steps to sell your company can be informative:

Step 1 – Prepare Marketing Materials and Develop Buyer List

There are two primary marketing documents that must be prepared – a confidential information memorandum (often called a “CIM” or “the book”) and the one-page executive summary.  It can take 4 to 6 weeks to prepare these two documents, but timing is highly dependent upon how prepared you are for the volume of information that is required to prepare them.  Occasionally, while reviewing the information that has been provided, we may unearth some issues with your financial reporting or operational issues that need to be fixed before we can present the company to buyers.  It also takes time to develop the optimal list of potential buyers for your business, which may include competitors, companies who want to enter your market, or private equity firms.

Step 2 – Buyer Outreach

During this stage, while you focus on running your business, we are using email and phone calls to reach out to the list of potential buyers we identified in Step 1.  Depending on the time of year and the number of buyers, it can take from 1 to 3 months to reach everyone and get their feedback.  During the summer and the holiday season, it takes much longer to reach the decision maker.  And unfortunately, we can’t force buyers to respond to us in a timely manner!

Step 3 – Buyer Meetings and pre-LOI Due Diligence

These activities can take from 4 to 8 weeks, as buyers review the CIM and preliminary due diligence information.  Once they’ve submitted an Indication of Interest (your first insight into how they look at valuing your business), a select number will be invited to meet with you and your management team.  Coordinating the schedule of half a dozen or more busy people can be a challenge, so it can sometimes take longer than expected to get these meetings on the calendar.

Step 4 – Receive and Negotiate Letters of Intent

By this point, you are at least 3 to 4 months into the process of selling your business.  Depending upon how many buyers have submitted Letters of Intent, it can take several weeks to negotiate these Letters of Intent.  If we’re successful in getting multiple interested buyers to the table at the same time, we will be negotiating purchase price and deal structure with multiple buyers at once, ultimately leading to a set of offers for you to consider, and hopefully one that is attractive and exciting.

Step 5 – Buyer’s Final Due Diligence and Lawyers Haggling

You decided which buyer to sell your company to and signed that Letter of Intent.  So the deal is done, right?  Not so fast…  Once the LOI has been signed, the buyer will follow up with an unbelievably long list of information requests for their confirmatory due diligence.  Your ability to provide the information they need on a timely basis has a huge impact on how long it takes to get to a closing, so you may need to bring additional employees under the tent to help you.  At the same time as the due diligence is being completed, the buyer’s attorney and your attorney will be haggling over the legal terms in the purchase agreement.  (Most of the business issues will have been ironed out in the Letter of Intent, but there are an unbelievable number of legal issues that the attorneys will argue over to decide how to allocate risk.)

Step 6 – The Deal Closes!

Today, the cash paid at closing hits your bank account.  It’s been 6 months or more since you started this process, but now the heavy weight of business ownership is off your shoulders.  Congratulations, and welcome to the rest of your life!

I hope this article has provided insightful information about why it can take longer than you anticipate to sell your company, but if you have any questions, feel free to contact me http://seedtoharvestllc.com/index.php/contact-us/.  And if you’d like to learn what you can do now to reduce the time it takes to sell your company down the road, watch this space for next month’s blog post “Top 5 Things to Do Now to Prepare Your Business For Sale”.

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