Recent studies indicate that it now takes, on average, about eight to ten months to sell a small business. This figure seems to increase yearly. Why does it take so long to sell a business?
Price and terms are the biggest reasons! It is very important not to overprice the business at the beginning of the sales process. A business will also sell more quickly if there is a reasonable down payment with the seller carrying the balance. Having all of the necessary information right from the beginning can also greatly reduce the time period. Finally, being prepared for the information a buyer may want to review – or having the answers available for the questions a buyer may want answered – is another important factor in reducing the time it takes to sell.
Here is the basic information a prospective buyer will want to review, and a seller should have prepared to help facilitate a quicker sale:
- Copies of the financials for the past three years.
- A copy of the lease and any assignments of the lease from previous sales.
- A list of the fixtures and equipment that will be included in the sale. Note: If something is not included in the sale, it is best to remove it from the premises prior to the sale or at least have a list that specifies which items are not included.
- A copy of the franchise agreement, if applicable, or any agreements with suppliers or vendors.
- Copies of any other documentation pertaining to the business.
- Supporting documents for patents, copyrights, trademarks, etc.
- Sales brochures, press releases, advertisements, menus, or other sales materials.
Is your business exit ready?
If you’re planning to exit your company in the near future, you may find EastWind’s Exit Strategy Playbook helpful in developing your own exit strategy, making your company more sellable.
In addition, listed below are some key questions buyers may likely ask. A prepared seller should have answers and support documents ready.
- Is the seller willing to train a new owner at no charge?
- Are there any zoning or local restrictions that would impact the business?
- Is there any pending litigation?
- Are any license issues involved?
- Are there any provincial and federal requirements, or environmental health and safety issues, that could affect the business?
- What about the employee situation? Are there key employees?
- Are there any copyrights, secret recipes, mailing lists, etc.?
- What about major suppliers or vendors?
A prepared seller is a willing seller and having the answers to the above questions can significantly reduce the time it takes to sell a business.
Using the services of a professional merger and acquisition advisor can also greatly reduce the sale time period. M&A advisors are knowledgeable about the current market, they understand how to market a business, and can advise a seller on price and terms. They can also recommend a variety of other professional advisors if a seller doesn’t have them already. Using advisors who are transaction experienced can also shorten the time it takes to close the business sale.