How long does it take to buy a business?

According to the Stanford 2020 search fund study, the average time to acquisition is 23 months.

However…

Time spent searching is ultimately a function of several factors:

1. Time allocation

2. Appetite

3. Yield

4. Partners

5. Luck, of course

Time allocation

Full-time or part-time

A common question among prospective searchers is whether the search can be done part-time. Understandable question. Dedicating oneself full-time to the search generally means foregoing other income and concentrating risk.

We’ll cover this question in more depth in a separate post, but in short, yes the search can be done part-time, but you should be prepared to either search for much longer or change your criteria. Searching full-time brings huge benefits.

If we assume a full-time search takes 23 months, then perhaps we can assume that a half-time search would take 46 months, all else being equal.

In reality, I think a half-time search holding the same standards and criteria would take more than 2x the time required by a full-time search. Not being able to dedicate oneself fully can lead to missed opportunities and dead deals.

Efficiency

In a search fund, you have a finite number of years/days/hours within which to close on an acquisition. How wisely you spend that time will directly affect how long it takes you to close, or whether you can close within the allotted time.

If you’re an abnormally efficient and productive person, then your search will be shorter. 

If you’re a one-person shop doing everything yourself rather than effectively delegating and leveraging other people, your search will be longer.

We really internalize this concept at SMEVentures. As a reference point, our searchers are speaking to 30+ new business owners per week by week 2 of their search, because that’s where they should be spending their time. Our team supports other activities, especially during the heavy-prospecting phase. Our first Australian searcher closed on a fantastic deal in 10 months. While a speedy search is not necessarily our goal, this result was only possible because of a highly productive partnership.

Appetite

The definition of a good deal varies from searcher to searcher. Some are looking for a home run, while others are looking for a base hit. 

Home runs are clearly hard to come by, and if you only swing at a potential home run, you’re going to watch a lot of balls go by. The pickier/greedier you are the longer it’s going to take to find a deal that makes you happy.

At the other extreme, if your goal is simply to buy anything, that will be a fairly short endeavor. To achieve this goal, you need only throw your criteria out the window and make big offers on every deal that comes your way.

Most searchers’ appetites are more moderate than either of these extremes, but they nevertheless fall on a spectrum. Where they fall will affect how long it takes them to buy something.

Yield

Some searchers boast high response rates. Others tout the number of owners contacted. Both are important, but it’s impossible to maximize both variables.

What really affects the duration of your search is your sourcing yield, as an absolute number rather than as a percentage. How many qualified business owners are you speaking to per week as a result of your sourcing efforts?

If we had a standardized definition of what constitutes a “qualified business owner,” I would imagine that the ratio of conversations with qualified business owners to deals closed would not vary wildly from searcher to searcher. I would imagine (or dream) that there is a rough magic number; x% of searchers who speak to y qualified business owners will buy a company. If this is true, your goal is simply to get to y quickly.

Partners

Inexperience can be a real time-killer, often in the form of months wasted working on a deal that ultimately dies. Two buckets here:

1. Bad deals that the searcher didn’t know were bad for too long, and

2. Good deals that died because the searcher misstepped along the way.

Surrounding yourself with experienced partners can reduce time burned in either of these buckets by providing the right coaching, systems, and guidance. The more value the partner brings, the less likely you are to burn time, and the shorter your search will be.

Luck

I’ve seen good searchers take 3-4 years to close on a deal, primarily due to unlucky circumstances that led to a graveyard of lost deals.

I’ve also seen a mediocre search produce a good deal in just over a year.

Unfortunately, an unavoidable truth of searching is that some portion of the result is attributable to being in the right place at the right time, a variable somewhat out of our control.

A coincidence?

I can’t help but look at that 23-month average and think, really? Searchers typically raise enough capital for a 24-month search, and on average they close in 23 months? Either history has done a really good job of predicting that average when prescribing the 24-month search, or there’s something else at play here. (And as a side note, how many of those that ran out of runway and quit would have done a good deal if they had enough time and resources to press on?)

One of the risks a searcher faces when operating with a limited budget is the loss of objectivity, which can result in a panic buy - closing for the sake of closing, even if the deal falls below a reasonable quality threshold. Properly resourcing your search with capital and the right partners can reduce this risk of panic buying.

Common advice in the search fund community is that “No deal is better than a bad deal.” Very true, but difficult to internalize when the clock is ticking.