How Rushing a Business Sale Can Hurt the Results

Selling a business quickly limits options and may involve difficult compromises

Whatever your reason for selling a business, one thing is clear: timing is your friend. In an ideal world, you would have everything planned out years in advance, the perfect buyer would slide into place, and you would be done with the whole process before you knew it.

Of course, things don’t usually work out that way. Many business owners underestimate how long the sales process will take. The immediate preparation phase alone can take months, not to mention marketing, finding a buyer, and closing—and real planning should begin many years ahead of a sale.

Doing everything proactively and correctly, however, still can’t account for the timing of every buyer. An internal buyer is a situation that you can most proactively plan for—with some plans being in place for a decade or more. But although there are far less onboarding and solicitation needed, selling to an employee still requires time to vet them financially and finalize an agreement.

Selling to an external buyer is far more of a wildcard, and requires finding a business broker, marketing, negotiations, more negotiations, and the processes of acclimating buyers to the business—and often staying on for a performance trial period that’s part of the sales contract.

It’s important to understand the typical length of the business selling process, what’s involved, and what factors can impact the timing of a sale.

How long does selling a business typically take?

Accurately estimating the time necessary to sell a business is critical to success. Let’s review a typical business sale timeframe, with a focus on selling to an external buyer:

Find a broker: 2–3 weeks

If necessary, sellers may want to use the services of a broker or M&A (mergers and acquisitions) firm to assist in the process. Finding a broker with experience in the industry—selling the same type of business—is critical. A qualified broker knows exactly the information needed during a sale. They can also speed up the process by finding potential buyers more strategically.

Paperwork: 3–4 weeks

Potential buyers will want a detailed history of the business to verify its worth and potential. It’s recommended that sellers have three years of financial statements available. This includes income statements, cash flow statements, tax returns, and more. If not readily available, gathering and verifying this data will take weeks. Working with a broker can help facilitate this process—they know what to look for and how to compile it. But ideally, this data should be on hand well before even contemplating a sale.

Evaluate the business: 2–3 weeks

The broker can spend this time researching the business, the industry, and the market to create a valuation and the desired sale price. This is where expectations are discussed, and advice is given on how to improve the business if a potential sale price is lower than anticipated. There are a variety of online tools to help guide independent sellers through this process.

Prepare for listing: 4–6 weeks

During this period, sellers and/or brokers should be compiling a list of potential buyers and pertinent sales data such as public-listing information. Again, brokers can speed up this part of the process because they may already have buyer connections or at least know how to identify buyers more quickly.

Marketing: 1–6 months

How long this phase takes largely depends on the status of the current market. If it’s taking longer than anticipated to attract potential buyers, adjustments may be needed in strategy, budget, and timing.

Negotiations: 4–8 weeks(+)

Depending on how many potential buyers there are—or individual interests within a single buying entity—negotiations could drag out for months or be over very quickly. There will be a lot of questions, meetings, and tours of the operations during this time. Sellers and employees need to be attentive and on point to increase the odds of a sale.

Closing: 1–3 months

Closing is a lengthy process, as there are a vast number of I’s that must be dotted, and T’s crossed. Although a definitive intent to buy has been expressed by the purchaser, sellers may run into some snags in this phase. There could be previously unforeseen issues that come up with operations, personnel, financials, or the buyer’s situation. Nothing is official until all of the paperwork is complete, so it’s important to remain cautious, attentive, and patient.

What if you don’t have that much time?

Even in an ideal world, it could still take over a year to sell a business. So, what happens in a non-ideal situation where a seller has to make a deal quickly? Compromises need to be made. And the options will change and narrow.

Finding a broker or business advisor

If a seller wants to work with a broker, trying to find one in a hurry will impact the entire process. Rushing this decision could result in a low-quality broker with limited experience who may end up lengthening the sale process rather than expediting it.

Vetting potential buyers

The marketing and negotiation phases usually take the longest. Sellers need to attract and filter through potential buyers, which should be a detailed process. The need for this due diligence is compounded when business owners want to leave their legacy in the hands of someone they trust—and ensure that their employees have a job after the transition.

Finding buyers with the proper business experience, mentality, and financial qualifications to fit the style of sale is a methodical process. Buyers also need time to do their investigations to make sure the business is a good fit for them. Selling a business quickly narrows this due diligence period, forcing sellers to move forward with a subpar buyer or scaring off buyers who need more time.

Training new owners

If sellers want the business to continue and are selling to external buyers, there is a significant amount of training and onboarding that needs to take place before, during, and after the sale.

This process allows the sellers to see how the buyers intend to run the business, what decisions they will make, and what their priorities are. It also allows the buyers to look into the business operations, find flaws, and ask questions. Selling a business too quickly could leave some major holes in training that puts the buyers at a disadvantage and the business in jeopardy.

And since many sales contracts are contingent on the successful performance of the organization after the sale—with many requiring sellers to stay on for a time—getting this transition right is essential.

Low selling price

Sellers may get lucky, enter into a great market, and sell a hot business at or above the projected sale price. But if the organization is listed in a bad market—and it needs to sell now—the seller will need to accept the best offer that comes around. It probably won’t be favorable. And in many cases, business owners are surprised when they can’t get a viable offer at all.

Plan ahead of time and prepare your business for the right sale

Whether you are starting the process of selling your business or it’s somewhere on your radar soon, you can take steps to prepare yourself now. Become familiar with the selling process and some of the hurdles you may run into along the way. The best course is to define an exit strategy that gives you multiple options well ahead of when it’s time to walk away.

Karp HR Solutions can help you create an exit strategy to sell your business with your priorities in mind—and design back-up options should a preferred approach fail. Contact us for a free consultation.