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Why do Business Brokers and M&A advisors require a minimum of 6-12 months in their engagement agreements?

In real estate, your broker might ask for a three-month timeframe to sell your home or commercial property. So why do Business Brokers and M&A Advisors insist upon at least a six-month agreement?

First, you may or may not know that in California, there is no effective MLS or Multiple Listing Service for businesses. Sure, there is a commercial and business opportunity section of the MLS system that is accessible to basically anyone with a real estate license. But in the past 25 years, we have only listed a business for sale on that site once. The reason why experienced Business Brokers or M&A Advisors don’t list businesses there is confidentiality! Almost all business sales are confidential. You don’t want your employees, your vendors, your landlords, or even your customers to find out you are selling. The traditional MLS works great for Real Property because the buyer’s brokers can tell their clients to drive by and look. You really don’t want buyers driving by your business and even poking their heads in. And you certainly don’t want the approximately 500,000 people with a California Real Estate license to see you are for sale and mention it, even casually, to their friends at dinner. So that means that your broker needs to create the market for your opportunity using blind ads, discrete advertising, screening buyers, requiring the signing of a Non-Disclosure Agreement, etc. And all this takes time, which is why experienced advisors, especially those Certified Business Brokers and Certified Business Intermediaries, understand that they need more time to market and close your transaction.

Second, and maybe this supports the first point, according to the latest survey from the International Business Brokers Association and the Merger and Acquisition Source, the average time it takes to close is between 6.5 months and 8 months. The bigger the deal size, the longer it typically takes. See the chart below to see how the average time on the market has changed over the years.

time to close

But don’t let the averages scare you. Depending upon the size and type of business, your sale could happen quicker. But also, remember that with small businesses, where the owner “is” the business, oftentimes those businesses take much longer, and some simply cannot be sold.

The sale of your business will probably be one of the most important events of your life. So, choose the right advisor and give them enough time to get it sold.

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