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7 Things to Consider When Selling an Online Business
By Ian Drogin
You wouldn’t sell your house without thinking through the process first, and the same should apply to your business. In order to prepare for a successful exit, it’s critical that you understand what things to consider when selling an online business.
Without a clear exit strategy, it’s difficult to make smart decisions that align with your goals. Unfortunately, such an approach can slow down the process or even cause deals to fall apart altogether. To avoid the pitfalls of poor planning, it’s important to take a few proactive steps before going to market.
In this article, we address seven key elements that every owner should consider when selling an online business. By thinking about these variables before you list your business for sale, you’ll have a much better chance of attracting the right buyer, negotiating favorable deal terms, and receiving maximum value at closing.
Things to Consider When Preparing to Sell Your Online Business
If you’re like a lot of business owners, you spend a lot more time focusing on operating your business than you do crafting an effective exit strategy. If you’re seriously thinking about selling your business, however, it’s essential to ask yourself some key questions to help you make smart decisions.
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Why do you want to sell your online business?
First and foremost, what factors are driving your motivation to sell? Of course, there are numerous possible reasons that owners decide to exit, and each carries its own implications.
Some owners decide to sell because there’s another opportunity they want to pursue. Perhaps you’re being recruited by a start-up where you’ll have the chance to work on an exciting new project. Or maybe there’s another business idea that you want to invest in that you can’t stop thinking about. Whatever it is that is pulling you could be a good reason to sell your business.
“Without a clear exit strategy, it’s difficult to make smart decisions that align with your goals.”
Other common reasons to sell include personal finances, a change in interests, negative growth trends, or other personal circumstances.
There are no “right” or “wrong” reasons to sell since each person’s values and priorities are different. However, it is important to be honest with yourself (and later, the buyer) about what your reasons are.
Once you’ve identified what’s prompting your interest in selling, the next step is to consider whether or not selling your business will actually solve the problem. For example, if you don’t feel fulfilled, is the business the true culprit, or is something else off in your life? If you want to pursue another opportunity, do you actually need to sell the business, or is it possible to hire staff in order to reduce your workload?
All of these questions must be answered on an individual basis. Only by asking yourself whether you want to sell and answering honestly can you come to a clear decision about whether or not it’s the right course of action. Of course, oftentimes, you may need to speak with an advisor to get a valuation to understand the full implications of the decision.
What are the trends within your business?
Every business owner should consider their business’s trends when approaching the selling process. After all, your trends play a significant role in determining your business’s value in the online marketplace.
All else being equal, if your business has consistent, positive growth trends, it will be more valuable. Therefore, if you’re thinking about selling and your financial statements show twelve months of solid growth, you’re in a good position. On the other hand, if your business has reached a plateau or is declining, it might be worth holding off on selling until you’ve turned things around.
In many cases, owners with negative trends decide to double down on high-growth activities. If you go this route, it’s best to get at least six months of positive growth under your belt before going to market. Doing so should lead to increased seller’s discretionary earnings and a higher multiple. Of course, both of these will drive up your business’s total value.
“All else being equal, if your business has consistent, positive growth trends, your business will be more valuable.”
Having said that, there are certainly situations in which a seller may choose to sell a business that is declining. Perhaps they don’t have the skills or financial resources to turn things around. Or maybe personal matters require that they exit the business as soon as possible, even if it means receiving less value.
How much is your business worth?
This question is obvious, but we’d be remiss to not include it here. Every owner wants to know how much their business is worth when deciding whether or not they want to sell. Fortunately, at Quiet Light, we provide free valuations so you can gain a clear understanding of your business’s true value.
If you find out that you’re in a position to meet your exit goals, it might make sense to move forward with selling. On the other hand, if your online business value is less than you would like, it might make sense to hold off on selling. This is especially true if you feel confident that you can significantly increase its value in a short period of time.
“The valuation process provides you with a road map for increasing your business’s value.”
One of the great things about the valuation process is that it doesn’t just provide you with a number. Rather, when you work with a Quiet Light Advisor, they’ll also help you gain a clear understanding of your business’s strengths and weaknesses. In other words, the valuation process provides you with a road map for increasing your business’s value.
What is your preferred deal structure?
When you sell your online business, it’s not just about the purchase price. In addition to negotiating the total value of your business, you also need to consider the terms of the deal that you and the buyer agree to.
A lot of sellers prefer to receive 100 percent of the purchase price at closing. As a seller, this means that you’re able to receive the full value of your business up front, allowing you to make a clean break. If you need (or want) all of that cash right away in order to invest in another opportunity, such a deal structure might make a lot of sense. Not to mention, there’s some peace of mind that comes from completely wrapping up all loose ends with your business.
In other cases, a seller may prefer to maintain some equity in the business in order to enjoy the upside potential. This may be especially true if the seller has a lot of confidence that the new owner will successfully grow the business. But other sellers may prefer to forgo that opportunity, either to minimize risk or maximize the cash they receive at closing. There are a variety of other deal structures, each of which has its pros and cons for each party.
“In addition to negotiating the total value of your business, you also need to consider the terms of the deal that you and the buyer agree to.”
While it’s a wise idea to think about what deal structure you prefer, it’s important to note that you won’t necessarily get everything you want in a deal. If you have a strong business and find the right buyer, you certainly might. However, if your business is struggling, you’ll probably have less leverage to negotiate with. In such a situation, you may have to accept seller financing terms in order to come to an agreement with a buyer.
Who should buy your business?
Each buyer is different, so it’s important to think about what kind of person you want to take over your business.
For starters, most owners want to sell to someone who is honest and respectful. In addition, you should also think about other criteria that buyers should have. A few skills and areas of focus you should consider, include:
- Affiliate marketing
- Google analytics
- Email marketing
- Customer service
- Search engine optimization
- Google ads (including Adwords)
- Online course or digital product creation
- Social media marketing
- Social media platform management
- Market research
- Google shopping
- Facebook ads
- Skills for selling products through an online store or the Facebook marketplace
- Amazon FBA
Make sure you know what skills the buyer should be able to bring to the table. Not only is this important for the marketing package, but it will also help guide your questions when speaking with a potential buyer.
Additionally, for some sellers, it’s deeply important to sell to someone who is genuinely passionate about the small business. After all, if your business is a significant part of your life’s work, you probably want to see it in good hands after you exit.
How will selling impact your personal financial strategy?
If you’re like most owners, your business is a significant element in your personal financial situation. Not only is it a valuable asset, but you might rely on it for personal income.
Selling your business can provide you with a life-changing sum of money that can open up a variety of new possibilities. Perhaps exiting your business will allow you to invest in a new venture, purchase a family home outright, or even retire. Depending on your personal situation, the value you receive at exit can have a significant impact on your availability of liquid capital.
While selling your business has obvious financial benefits, it isn’t without its potential drawbacks. Remember, once you sell your business, you’ll lose the income that it generates each month. Therefore, it’s important to consider how you’ll cover your expenses after your exit.
How transferable is your business?
Some businesses are more transferable than others. Therefore, before going to market, it’s important for you to consider whether or not there are any barriers that might make it difficult to sell.
If your Ecommerce store has clear operating procedures and skilled employees or contractors carrying out most of the responsibilities, it might be relatively straightforward to transfer ownership. This is especially true if the new small business owner doesn’t need to be highly skilled in several different areas.
On the other hand, if your business is disorganized and you’re the only person who knows how it operates, you might encounter challenges. In such a situation, it might make sense to take a couple of months to clean up your operating procedures. Also, offloading some of your responsibilities by hiring staff can be another great decision.
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Additionally, if your personal identity is intrinsically tied to your business, that could pose another issue. After all, if the business can’t succeed without you, who would want to buy it? Before going to market, it’s important to disentangle yourself as much as possible. Doing so will instill confidence in potential buyers that your business doesn’t require your presence to succeed.
Things to Expect When Selling an Online Business
Like anything in life, it’s easier to successfully sell your online business when you have a clear road map. Although no two deals are ever the same, there are a few elements that most of them have in common.
Selling your business can be an emotional experience
No amount of research and preparation can quite prepare you for the emotions you’ll feel throughout the selling process. After all, you’ve spent years building your online store into something you’re proud of, so it’s only natural that it could be hard to let go.
To get a sense of what selling feels like, try to think back to a significant life transition. Perhaps, recall an important graduation, leaving a job, or selling a longtime family home. When such transitions occur, it’s normal to feel confused or uncertain about what the future holds. Even if you’re completely ready and excited to move on, there’s still some inevitable weight to the exit process.
“No amount of research and preparation can quite prepare you for the emotions you’ll feel throughout the selling process.”
Expect to work hard when selling your business
Selling online businesses takes hard work. In the months leading up to selling, you’ll likely be spending significant time ensuring that your documentation is in order and your systems are dialed in. If your Ecommerce business is already well organized, this step might not be too strenuous. If, however, you have sloppy recordkeeping and incomplete financials, you likely have your work cut out for you.
Once you start speaking with potential buyers, you’ll likely need to engage in back-and-forth communication. If you work with a qualified business broker, they can significantly streamline the process. In addition to handling much of the communications, they’ll also vet each prospective buyer.
Negotiation and contracts require more time and energy—and then there’s due diligence. During due diligence, you’ll need to provide any and all third-party documentation to validate the information you’ve provided about your Ecommerce business. To prepare for the process, it’s best to compile a folder of all key information. This may include:
- All bank statements
- Sales and marketing reports
- Ecommerce platform reports
- Other key information
Selling your business will change your life
There’s a lot involved in selling online businesses, but one thing is certain: if you complete the process, it will change your life.
On the other side of purchase agreements and due-diligence checklists lies a new world of opportunity and excitement. Not only does selling your business provide you with significant funds, but it also offers you a blank slate to pursue something new. Whether you’re going to dive into a new project or travel with your family around the world, you can be certain that the next twelve months will look much different than the previous year.
“Not only does selling your business provide you with significant funds, but it also offers you a blank slate to pursue something new.”
There’s also a “rite of passage” feeling that most owners experience once they’ve sold their business. You’ve built something you’re proud of, and now it will live on into the future, even as you move on to other ventures. Pat yourself on the back and take a moment to feel proud. You’ve followed the right selling tips and succeeded in selling your online business.
How to Determine the Right Time to Sell an Online Business
The timing of your exit can make a significant difference in both your experience as well as the value you receive. In regard to timing, there are a few key considerations you should keep in mind.
Sell when your growth trends are positive
We mentioned this earlier, but it’s worth restating. All else being equal, you’ll receive more value if you can sell when your growth trends are positive. This applies to all business models.
The most important growth metric is SDE growth. If your business is consistently earning more profit each month, buyers will view your business favorably. In addition, smart buyers also pay attention to revenue growth, especially for larger SaaS companies. Ideally, buyers should be able to see a consistent relationship between your SDE and revenue. This indicates that you’re growing in a sustainable way. If your SDE is growing but your revenue is decreasing, smart buyers will be very concerned. A decrease in revenue has clear implications for the future of your SDE trends.
If your growth trends are down, it might be worth it to hold onto your business until you address the problems and turn your trends around. Of course, some sellers don’t want to invest the time and energy to do that, but it can really pay off when you go to market.
Sell before your peak sales season
If your business is highly seasonal, the time of year you sell will have a substantial impact on its desirability among potential buyers.
For example, let’s say that you own an e-commerce business that sells holiday decorations. 80 percent of your SDE is earned between November 1 and December 31. If you sell in early January, the buyer will need to wait nearly ten months before they start seeing substantial revenue in your business. This will be especially challenging if the buyer is financing the purchase with an SBA loan and needs to start making repayments in February.
If your business is seasonal, it’s best to sell right before going into your peak sales period. Although you might miss out on the upcoming sales peak, your buyer will not. Instead of needing to wait ten months, they’ll get to experience significant sales right out of the gate. In some cases, this can make or break a deal.
“If your business is seasonal, it’s best to sell right before going into your peak sales period.”
Personal timing considerations
In addition to external factors such as trends or seasons, it’s also important to think about what’s the best timing for you.
Often, personal matters can play a significant role in determining the timing of the sale. Sometimes, these personal matters are positive, such as an exciting opportunity to pursue another venture. At other times, they are things one might prefer to avoid, such as an illness or the death of a family member. Each business owner must decide for themselves how their personal situation impacts their desire to sell.
Steps for Valuing an Online Business You Are Planning to Sell
There are a few different ways to go about valuing a business you’re planning to sell. One is to use a valuation calculator that will take into account a few key metrics such as your business’s earnings, age, category, and number of SKUs. While calculators offer a quick and easy valuation, they don’t account for numerous important variables that impact your business’s true value. Therefore, their accuracy is limited.
On the other hand, when you get a free valuation from a qualified business Advisor, they can provide a much more thorough and complete examination of your business. Not only does that lead to a more accurate valuation, but it also provides you with insight into your business’s strengths and weaknesses. This empowers you to make high-leverage improvements to increase your business’s value prior to selling.
During the valuation process, your Advisor will identify all of your addbacks. This ensures that you’re not leaving money on the table when calculating the seller’s discretionary earnings and cash flow. Then, they’ll evaluate your business based on the Four Pillars of Value, which include:
“During the valuation process, your Advisor will identify all of your addbacks to ensure that you’re not leaving money on the table.”
Based on how your business stacks up in regard to these Four Pillars of Value, your business is given a multiple. Essentially, the multiple determines how valuable your business is relative to its earnings.
For example, if your business is steadily growing, has minimal risks, has clear financial documentation, and can easily be transferred to a new owner, it will be valued at a high multiple. On the other hand, if your business sells just one product and has declining revenue, it will be valued at a significantly lower multiple.
Business ownership requires using the right information to make smart business decisions. Regardless of whether you intend to sell in one month or one year, a business valuation can provide you with invaluable insight to help you grow your business with greater confidence and clarity.
Thinking of Selling Your Business?
Get a free, individually-tailored valuation and business-readiness assessment. Sell when you're ready. Not a minute before.