Neal had earned his MBA, holds CBI and ABI designations and serves on the boards of the Carolina Virginia Business Brokers Association (CVBBA) and the Better Business Bureau of Eastern NC.
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As a business broker serving business owners who want to explore their options for exit, I get this question at almost every listing appointment:
“How long will it take to sell my business?”
The research indicates the answer is as follows:
For businesses that sell for under two million dollars, the IBBA’s research indicates it’s going to take 7-9 months…
Essentially you could have a baby in the time it takes to sell a business.
Many owners aren’t excited about this answer, but there are a few things you can do to expedite the sale of your small business. Let’s explore how to sell a business quickly.
Adjust the sales price
The value of having an appraisal or Broker’s Opinion of Value done on a small business can’t be overstated. It gives an owner a reasonable expectation of what the market will bear. Only when an owner has this information can he or she determine whether to go to market above or below that price.
An owner can adjust the sales price to move a business faster. Business buyers tend to scroll through business opportunities and compare Price to Earning multiples, so pricing a business at an aggressive PE ratio will attract more buyers and create a competitive environment for the opportunity.
Put together a Due Diligence Package
Once buyers are attracted and screened, offers are expected and, if accepted, the deal stage moves to due diligence. At this stage, a buyer typically asks for information about the business to assess whether it performs as advertised, that ownership is authentic, and more.
Buyers may ask for a lot of items in due diligence, and sometimes owners aren’t ready to share these documents. Not only does slow document sharing raise concerns for business buyers, it can also lengthen the time it takes to close a deal. A buyer could ask for more time in due diligence if a seller isn’t expeditious in providing due diligence items.
Proactive owners who put together a due diligence package including tax returns, updated Profit & Loss Statements, year end and current balance sheets, secretary of state filings, and more can expedite the sale of a business, and send a clear message that the seller is ready to do business. Quality business intermediaries are skilled in due diligence and will know exactly what a buyer is requesting, or know what questions to ask an owner’s advisor to get the proper reports needed.
Offer Seller Financing
When it comes to seller financing, often the rule is that buyers love it and sellers hate it. But one thing that seller’s typically like about seller financing is the fact that it can remove two to three months from a deal. If financing includes SBA, conventional financing, home equity refinancing, or similar options; both the buyer and the seller have a third party in the mix which they may not be able to control.
Traditional financing takes about a month, and SBA financing can take up to three months. As a general rule, any time the government is involved in a process things are going to take longer.
SBA financing can be a very powerful tool for goodwill driven transactions, but it’s not the quickest way to get a deal done; seller financing is.
Pre-Arrange Financing
If SBA financing is the plan to sell the business, getting the business pre qualified with a Preferred Lender can cut down the time it takes to finance the transaction. While the bank will always need updated financials, many quality SBA loan professionals will do a lot of the work up front so that when a buyer is found, the deal can be closed as soon as that buyer is also qualified and all documents are provided. SBA “Pre-Quals” also create credibility in a sale situation because a third party has looked at the business, possibly giving a buyer the confidence to move forward faster.
Helping the Buyer Deal with 3rd Party Stakeholders
Another thing that can slow down a deal are the third party stakeholders needed to get the deal done. Business deals involve multiple and simultaneous transactions within the larger transaction. Here again an intermediary can add value by helping the various third parties get the documentation they want. The bank may want a lien subordination agreement from the landlord, or the landlord may want a tenant application from the buyer. Often a business owner with a long term relationship with a landlord can advocate for the business buyer to help win the lease agreement and check the box for access to the space needed to do business.
From dealing with the landlord, to the franchisor, to the key supplier, it takes a team approach between the seller, the buyer, and the intermediary to get to the finish line. Owner’s can help buyers secure the critical agreements and relationships once a deal is on the table and due diligence has started.
Go to Market at the Right Time
Care should be taken to take the business to market at the right time. For many businesses, it’s the first of the year when business buyers tend to look for new businesses, for tax reasons and for the sense of new beginnings.
Depending on the business, there may be a specific “best time” to go to market. For a florist, buyers will want to buy before February, for retail businesses, it’s the holiday shopping season.
Knowing that it takes several weeks to put together the proper marketing and answers to the questions buyers will ask, owners who plan ahead and take a business to market at the perfect time can expedite a sale.
Screen Buyers Properly
Time is often wasted on unqualified buyers. Many a business has stayed on the market too long due to getting “wrapped up” in a contract with a buyer who couldn’t consummate the sale.
The opportunity cost of missing out on quality buyers when working with a non-qualified buyer can never be recovered, and it could hurt the value of the business if the business stagnates due to deal fatigue.
Properly screening buyers through proof of funds procedures, proper NDA obstacles, gated access to information, and the proper use of commitment documents will help screen buyers and avoid wasted time on those who can’t get to the finish line.
Conclusion
Selling a business can take a long time, but proactive planning, understanding the process, and finding the right buyer can expedite any potential sale. The great thing about a business is that if it’s worth selling it’s probably cash flowing, so unlike a car or a boat, at least it’s making money while it’s for sale instead of losing value. And always remember, good things come to those who are patient.
I have a small business with three locations listed as a C-corp. I have been approached about selling one of the locations and am now aware of the dreaded double taxation. The purchase is $100,000 in inventory and $250,000 in goodwill. Of course I would like to sell stock. Is there any tax efficient way to approach this (spin off or otherwise)
Hello, Geoff:
This is not a simple situation and what you described—selling off a portion of a company—does not have a simple quick answer.
Selling stock is not a solution if all 3 locations are operating as a single corporation. If you did that, then the buyer would own a percentage of the whole thing which probably isn’t your intent.
Your likely option will be an asset sale if you want the simplest solution, but at a cost of high taxation.
The next option would be to split your business into separate entities and then sell only one. But that will have costs for legal and accounting as well.
There are other legal considerations as well, such as does the buyer acquire your name or does he need a new one and does that reduce the value of the sale?
I would suggest that before you enter into any definitive sale agreement that you engage both an attorney as well as a tax specialist to discuss various options.
Greetings Joey,
When you say you’re looking to expand a franchise, I’m assuming you mean that you are a franchisor; but this could be read in different ways. If you are discussing selling franchises, consider that it’s a totally different business than selling an established business, as there are no histories of sales at each location.
The leads are where the buyers are searching for businesses; the major listing sites and the job boards where the baby boomers have aged out of corporate jobs and are considering ownership. Also, SEO and SEM are huge for selling franchises. Many franchisors hire marketing agencies to accomplish this.
I hope this is they type of answer you are looking for! As a business broker I focus on reselling established businesses with cash flow, which is different than selling new franchises.
Hello, we are looking to expand our franchise internationally, but we don’t get a lot of leads. Where would we find good leads for this?