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Questions to Ask When Selling an Online Business
By Quiet Light
The details involved to sell your eCommerce business can be as daunting as—if not more than—the process of buying one. When I sold my site, I didn’t understand the process, and I didn’t realize that preparing a business for sale is hard work.
If you’re anything like me, you could definitely benefit from a more in-depth look at exactly what happens in the process, from the initial valuation call through to the actual transition of ownership and staff and management training. The sales process is both complex and surprisingly swift (if everything is done properly).
It’s been my experience here at Quiet Light Brokerage that 80% of listings are sold within 90 days. I’ve also had some go under LOI and close in as little as a week – but that’s the exception, not the rule. During a sale, you have a lot to accomplish, and not much time in which to do so. If you’re looking to sell your online business, a smart way to start is by answering eight simple—but critical—questions.
How Much Is My Business Worth?
Reaching the correct valuation involves a number of factors. By putting these factors into a “mixing bowl,” and combining their values, you can establish a range. This range isn’t a dollar amount, but rather a multiple of a dollar amount.
The most important factor going into the bowl is the value of the owner’s benefit (also known as seller’s discretionary earnings (SDE)) for the preceding 12 months. We establish this value by determining the amount remaining after the fixed costs of the business are paid.
It’s important to note that we don’t use the value for the calendar year, but the 12 months preceding the valuation. Once we have an SDE, we multiply it by the multiple range to establish the listing price (usually between 2 and 4 times the SDE). Where the listing price falls within this range depends on all other factors.
The other factors involved vary, but usually include:
- The owner’s total benefit.
- Traffic trends.
- Revenue trends.
- The age of the business.
- Does the business have a clear path to growth?
- Does the business have only a single revenue stream, or several?
- For example: a site might receive traffic and sales from three sources: 33% organic traffic, 33% Amazon referrals, and 33% recurring revenue.
Beyond hard numbers, it’s worth noting that B2B companies, in general, require less direct client interaction, and afford greater opportunities for growth. Conversely, a business that requires more work and direct involvement from the owner will likely be less attractive to potential buyers, and may take a hit in perceived value.
You can always get a free valuation from Quiet Light Brokerage.
How Long Will It Take to Sell?
When both parties are sufficiently motivated and thorough, selling a business can be accomplished more quickly than you might imagine. In my own experience, I’ve seen a business sell in as little as 14 days, although 90 days is the rule of thumb for the vast majority of business sales.
The first, and most important, part is making sure you are actually ready to sell—financially, emotionally, and physically. The process varies greatly from business to business and from seller to seller, but in general, the process of selling your business is fairly straightforward:
- Engagement Letter: This written agreement is the first step in establishing the relationship between you and Quiet Light Brokerage.
- Client Interview: We draft a written interview that’s unique to your business. We ask, and try to have you answer, 99% of the questions a buyer would ask. We then put it all in the Marketing Package.
- Marketing Package: This will include the Client Interview, your P&L and Google Analytics screen shots (if available), and many other details.
- Public Listing: The “teaser” listing and email blast to our buyer database that summarizes the details of the business you are selling for prospective buyers
- Conference Calls: During this period, you will talk with the potential buyer(s) so they get a feel for the person behind the business.
- Letter Of Intent: This letter comes from the buyer (draft provided by QLB), and lists in detail the price, timeframe, and assorted terms and limitations established during negotiation; it also states the buyer’s intent to purchase your business
- Due Diligence: This evaluation period is required to protect both you and the buyer; during due diligence, all of the details of the business (including financials, licensing, etc.) are verified in order to ensure the terms of the LOI are being met
- Asset Purchase Agreement: The formal agreement to purchase the business (draft provided by QLB)
- Closing: The final process of transferring ownership of the business from you to the buyer – the QLB Escrow account is most often used to protect the transfer of the assets and the purchase price funds in the process.
While the onus is on you, the seller, to invest the time and work necessary to prepare your business (and address any issues that might throw a monkey wrench into the proceedings), Quiet Light Brokerage can assist you in this process.
A firm understanding of your financials, marketing, and assets goes a long way in establishing the proper value for your business and gives us a solid place to start during the client interview. All of us have built, bought, and sold our own Web-based businesses…and understand the financial and emotional process from all angles.
Financing Or Cash?
When it comes to selling Internet-based businesses, the majority (more than 90%) are cash transactions. In the time Quiet Light Brokerage has been in existence, only two transactions have involved Small Business Administration (SBA) loans. Most sales will involve hold-backs and owner financing requests, but as a rule, we see all-cash sales.
Note that I do see this changing and evolving. And I do expect more well established, Internet-based businesses being approved by the SBA in the future.
Are There Any Incidental Fees & Charges Along The Way?
Absolutely not. Quiet Light Brokerage doesn’t make any money until a transaction closes, and that money normally comes directly from escrow. Neither you nor the buyer will incur any direct costs from us. When the deal closes, you’ll receive 90% of the escrow funds; the remaining 10% goes to the brokerage.
What Do I Need To Get To The Next Step?
Establishing the value of your business is as much an art as it is a science. No one should be able to tell you the value of your business after a 15-minute call. They should be able to give you a range in that time if you have a firm grasp on your financials and the trends of the business. But in order to get the most accurate value for your business, you must start with the profit/loss statements for your business, going as far back as possible with a monthly view (24 to 36 months is ideal).
This information shows trends in performance and profitability, and helps establish a valid value range (for example, if your business is trending down year over year, the value will be set at the lower end of the multiple—and vice versa). The financial information exported from your accounting software is essential in firming up the value range for your business. If you don’t use software, a P&L (profit and loss) in Excel format may have to be created; we can provide samples to work from.
You’ll also need to catalog your add-backs, such as your car, phone, salary, office supplies, travel, etc. in the P&L. We do this as part of the valuation, but cannot do it without a seller’s help. You know your business, and personal expenses run through it, better than anyone.
You won’t need your tax returns for the past few years right away (unless we want to pre-qualify for a SBA loan), but they will become relevant during due diligence, so it’s a smart move to have them handy as soon as possible.
Will Everyone Know Everything About My Business Sale?
No, not everyone will know the full details of your business or the sale. The information available in the listings on the Quiet Light Brokerage website is simply a “teaser”—interested buyers must have an NDA on file with us before they receive the full marketing package.
What Happens At Closing?
This is the biggie—the final step. How does the buyer take control of your business, and how is it safe for you and them? Once an asset purchase agreement is in place, Quiet Light Brokerage provides escrow services (actually for the LOI too).
The buyer wires money into escrow, you transfer control of the business assets to them, and—upon notification from the buyer that they have full asset control—the money is released from escrow to you. It’s all fairly simple and clean.
Why Should I Go With Quiet Light Brokerage?
Our knowledge, practical experience, and dedication sets Quiet Light Brokerage apart from other firms. From day one, we ask 95% of the questions we think buyers will ask you. We get your information – and your answers – up front and in writing, to form the core of a professional marketing package, that also includes full performance and financial information.
Our database has been growing since 2007. We keep in touch with an ever-expanding list of past buyers, as well as folks who’ve subscribed to new listings alerts. Subscribers get notifications of new listings, meaning your listing is sent to interested, qualified parties from the get-go. We are committed to your success, and we don’t publish your listing on multiple listing sites (MLS) for the first 10 days. In fact, only about 25% of our closings come from MLS; the balance come from our database.
Every member of our firm has bought and sold their own e-commerce business. We’ve been, at different times, entrepreneurs, buyers, and sellers. We understand how complicated and emotionally challenging it can be to sell a business you built from scratch. We’ve walked in your shoes. We know the emotions that go with this process. As advisors, we’ve all been involved in dozens of transactions that entail all aspects of the buying and selling processes.
None of us are salespeople, but we are professionals who love applying our extensive experience to helping others with buying and selling businesses. We’ve enjoyed substantial entrepreneurial success ourselves, and we look forward to helping you find that success as well.