Over this past year, our firm is seeing an increase in owners who need to sell quickly but they have not put the necessary time and effort into preparing their business to sell. Though risky, some have decided to go at it on their own or have only had general conversations with their accountants or financial advisors without putting a real plan in place.
While the range can vary based on the industry and uniqueness of each business, the average is 9-10 months from when the business goes to market to the closing table. However, we’re seeing more exceptions in the past few years where well-prepared businesses we’ve represented who are selling in a much shorter timeframe. So what makes a business sell faster in this current market?
1) Clean Financials
With so many businesses on the market today trying to sell, this is one of the best ways to stand out from the competition. As a buyer, would you want to buy a business with many detailed owner discretionary adjustments that are questionable or a business with very few adjustments and a good healthy bottom-line? Moving a majority of discretionary expenses to bottom-line is one of the best ways to accelerate the time it takes to sell especially if traditional or private financing will be involved.
2) Fully Understanding Real Estate Options
Our firm works with many owners who own both the business and real estate. Because buyers may have more attractive financing options with the real estate included in the purchase, making the real estate available can help make the business even more attractive. However, having a good understanding of both the market lease and valuation of the real estate is critical before negotiations begin. If the business owner does not own the real estate, then fully understanding the available lease options and any assignment criteria is also very important. Since the pandemic hit and with existing labor shortages, we’ve seen more and more landlords and property managers cause unforeseen delays for weeks and even months in the sale process.
3) Being Prepared for Due Diligence
While knowing exactly what a buyer or lender will ask for in due diligence is never easy, there are some common requests we see with each transaction. These include monthly financial statements (bank statements, profit/loss and balance sheets) for up to 2 years, accounts receivable/payable aging reports, work in progress reports, payroll reporting, and revenue reports by client or by product/service. If you are not already generating these reports on a regular basis then getting these reports in order now will pay dividends down the road and help ensure the due diligence process is as efficient as possible.
It is never too early to start addressing these key areas to help accelerate the time it takes to successfully arrive at the closing table. The majority of our business comes from referrals, and we look forward to hearing from you soon.
Robert W. Amerine
President, Certified Business Intermediary (CBI)