How Long Does It Take To Sell A Business – Timeline For Selling Through A Full Auction Process

FAQ

What Factors Affect the Timeline of Selling a Business?

The main factors that affect the timeline of selling a business are the size and desirability of the business from the buyers perspective, and the type of process that the M&A advisor or business broker is going to run.

A full auction process will typically get the most bids and highest value for a business, but it takes 7+ months.

A typical business brokerage process is more common for small deals. These can get done in as little as a couple of months or can take much longer if it’s difficult to find a buyer for the business.

If your business is desirable enough for multiple buyers to want to submit bids, your advisor will likely recommend a full auction process.

An auction starts by building a comprehensive CIM, Data Room and Recast. Then, the advisor markets the deal to a targetted buyer list of strategic and financial buyers.

The buyers then submit bids for the company in multiple rounds of bidding. Finally, an LOI is negotiated with the winner followed by due diligence and a purchase agreement.

On average, it can take 6 to 10 months to sell your business through a full auction process. However, the exact time required to sell a business varies greatly from business to business mainly depending on the size of the business and the type of sales process the business advisor is running. 

A full-auction process, perfect for lower-middle market companies, tends to take more time because the advisor has to take the business to several investors and create thorough marketing materials to drive extensive bidding. 

The companies that we typically represent in selling their business earn between half a million – $10m in profit (adjusted EBITDA). They benefit from our full auction process which typically takes 10+ months but goes through a larger number of bids and a greater final sales price.

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Selling a business is more tricky than most business owners think. Learn more about selling a business through our detailed ‘how to sell a business guide.

The Nuances of Selling a Business

It’s not every day that a typical business owner looks to sell. Most business owners get so involved with the operation of their business that they don’t have time to focus on replacing themselves and developing an exit strategy. The full auction process (that’s where our expertise lies) of selling a business involves several demarcated stages (described in the next section along with the timeline involved) which tend to require a longer period but end up maximizing transaction value. 

Buyers are typically looking for strong businesses making consistent profits. Smaller businesses (making less than $500k in profits) find it harder to find suitable buyers as the universe of potential buyers is small and they face funding challenges. Local business brokers can have these businesses in the market in a short time (2 weeks or so) – some of these businesses can sell in about a year and others may not sell ever. For this reason, at Raincatcher we have built our team, process, and relationships towards working with larger companies.

In this post, we are going to talk about the time involved in each step of selling a typical lower-middle-market company through a full-auction process. This may interest you if you are looking forward to selling a family business or searching for guidance on how to sell a portion of business.

What is the Selling Process for a Small Business?

The sale of a lower-middle-market company typically goes through 5 stages.

Stage 1: Exit Preparation (1-2 months):

In this first stage, a business broker or M&A advisor like Raincather will help you gather all the information, put it into a marketing package called a Confidential Information Memorandum (CIM), and place it into a data room. A CIM typically outlines all aspects of a business including products and services, operational details, growth opportunities, and financial performance.  A persuasive CIM can facilitate connecting with the prospects. The idea is to make a business look more appealing to potential buyers who probably have a large number of options to choose from.


Moreover, in this phase, your broker/advisor will put together a target list of the most suitable investors (which can include strategic buyers and such as competitors and suppliers) based on their industry interests and budget. Moroever, they will help you recast the finances to project go-forward profitability.  Give or take, the preparation stage can take 1-2 months.

Stage 2: Marketing (2-3 months):

This is the stage where the M&A advisor solicits interest in the business from potential buyers including individual buyers, institutional buyers, family officers, or private equity players. 

An M&A advisor like Raincatcher can help businesses connect with prospective buyers from suitable industries while maintaining confidentiality through “blind profile” teasers. 

After the prospective buyer shows interest in the business, they complete an NDA and are interviewed by the Raincatcher team before being granted access to the data room.

Once in the data room, it is common for the buyers to have some questions about the deal and desired outcome before being ready to submit a bid. Raincatcher does much of the heavy lifting in answering these questions, but will also make some additional data requests from the company to satisfy potential buyer needs.

The stage typically requires 2-3 months.

Stage 3: Select Finalists(1-2 months):

Once potential buyers are identified and selected, the next step is to receive indications of interest (IOIs) which outline the broad terms of the offer including the range of offer price, sources of financing, closing timeline and transition requirements. Upon receiving IOIs, the list of finalists can be further narrowed down to include only the most suitable buyers who are capable of running the company and offer the most compelling price and terms. 

 

What follows is a series of management meetings with the shortlisted buyers and an exchange of additional information to take the deal forward and receive letters of intent (LOIs). 

 

During these meetings, potential buyers try to learn more about the business and gauge its market potential. Clear and persuasive communication is crucial at the negotiation stage. Also, there is a need to maintain a balance between maintaining confidentiality and providing sufficient information to the interested parties. A typical LOI includes everything an IOI mentions – plus, more specific terms such as a final price and payment terms. The post-IOI marketing stage typically takes 1-2 months. Once an LOI is signed by both the buyer and seller, the deal moves into the due diligence phase.

Stage 4: Closing the Deal (2-3 months):

Now is the time for the buyer, and their legal and accounting advisors to conduct thorough due diligence of the business ahead of preparing a purchase agreement. t. Once the LOI is issued, businesses can expect buyers to spend 8-12 weeks on due diligence to verify all information provided in the negotiation stage. The more accurate and organized the business’s materials are, the smoother the due diligence stage is expected to be.

Once the due diligence has been completed, the buyer and their legal team will submit a purchase agreement to the sellers for review. Both an M&A attorney and your M&A advisor will assist the business owner at this stage to assure that the final terms are fair. Once the documentation is complete, the deal gets closed. Closing a typical deal can take up to 2 to 3 months.

Stage 5: Handover and Transition Period (1 month+):

Smooth transition is often part of the deal. Once the transaction gets closed, the new owner of the business would like to keep the ball rolling by taking over the business as smoothly as possible. The transition period typically involves general advice, on-the-job training, and orientation with employees, key customers, suppliers, and other stakeholders. 

Occasionally the buyer will ask that the business owner stay on for a longer period of time as the CEO post-close. In these cases, it should be addressed and agreed upon in both the LOI, and purchase agreement, and an employment agreement should also be created. The translation period can take about 2 to 4 weeks.

Stage 5: Handover and Transition Period (1 month+):

Smooth transition is often part of the deal. Once the transaction gets closed, the new owner of the business would like to keep the ball rolling by taking over the business as smoothly as possible. The transition period typically involves general advice, on-the-job training, and orientation with employees, key customers, suppliers, and other stakeholders. 

Occasionally the buyer will ask that the business owner stay on for a longer period of time as the CEO post-close. In these cases, it should be addressed and agreed upon in both the LOI, and purchase agreement, and an employment agreement should also be created. The translation period can take about 2 to 4 weeks.

What Factors Affect the Timeline of Selling a Business?

The most important factor affecting the timeline for selling a business is the type of process the advisor is running. The process followed by local business brokers can take a company to the market faster but that’s not a guarantee for sale. Some small companies don’t sell at all. A full-auction process (which we typically do) for stronger companies to spend adequate time in each stage (see the timeline above) to close the sale systematically and help owners derive maximum value. Moreover, the size of the business greatly affects the timeline. Smaller companies find it harder to sell as institutional buyers are not interested in them and individual buyers may find it challenging to secure finance. 

 

The other factors that affect the timeline of selling your business the most include the type of your industry, financial health and profitability, geographical location, information readiness, valuation, asking price, ease of due diligence, state of the economy, and the type of buyer you are targeting. Depending on the specific type of business, there can be some additional factors such as licensing requirements and regulatory environment. 

How to Prepare for Selling a Business?

The preparation stage is crucial as this is when you are putting your house in order (smoothening operational bottlenecks), getting all documentation ready, and working on the attractiveness of your business. The better the preparation, the smoother the negotiation and due diligence. Therefore, stay prepared with all relevant documents and information (taxation, financial reports, operational data, customer and supplier contracts, and employee agreements), get the valuation done, bridge operational loopholes like an inefficient business process, and prepare a growth report to highlight future potential.