Are you thinking of selling a business that you own? More specifically selling your eCommerce business? If you feel that it’s time to sell, you will need to prepare your online business for the whole selling process, get a realistic valuation of your business, and find the right buyers for it.
How do you sell your online business? These are the things you should know.
How to know when it's time to consider selling a business in the eCommerce space
There are a lot of reasons why online business owners may want out. It may be because your digital venture is losing money. If this is the case, then you might want to sell to just cut your losses. But the best time to sell is not when you're pushed to the wall. It should be when selling is the next logical step or one of the best options for you moving forward.
For instance, selling your business might be one of the strategies you can take if your business or website has grown so much that you cannot keep up with the daily operations. It's either you hire more people or sell the business entirely.
Another good time to sell is when you can get a windfall from letting go of your business. Take the profit and run away with it. Some people even start online businesses with the sole goal of earning a profit from it when they walk away.
Still others want to explore other opportunities. They might have outgrown their online businesses and are raring to explore other avenues. For example, you might have started an online baby clothing store because you like your own kid wearing fashionable and unique get-ups.
After a few years, your baby is now a teenager and your baby clothes are selling like crazy, but your heart isn't in it anymore. What's more, you couldn't go into another venture because your online business is taking up all your time and resources. At this point, selling is a good idea.
How to Sell a Business
If you are looking to sell your e-commerce business, here is how you should go about it.
1. Get Your Site Ready
First things first, you have to make an honest assessment of whether you have an online business that other people will be interested in buying. You'd want prospective buyers to see that your site will be profitable and that it has a consistent influx of visitors and new customers.
It also helps to make your eCommerce business as valuable as possible by tweaking the design and improving the user experience. This would include making sure that the marketing copy and messaging are very clear. If you haven't taken the time to make your site mobile-friendly, now is the time to do so.
Further, you will want to make sure that you make it easier for prospective buyers to do their due diligence. Prepare all the necessary information such as your website traffic data, analytics, proof of earnings, profit and loss statements for the past two years, and other relevant information. You will be needing these financial data when you make a prospectus of your online business.
When you have all of these on hand, you can now get a more realistic valuation on your e-Commerce business.
2. Find out How Much Your Business Is Worth
There will always be a disconnect between what you think your business is worth and what buyers are willing to pay for it. For this reason, it's best to come up with an honest and accurate valuation of your business. The evaluation is based on several factors, including:
- Sales and profits
- Growth trends
- The scalability of your business
- How you're getting new customers
- Your customer acquisition channels
- How your business is doing compared to the market
- How much time you're spending in the business
- The processes and systems that are used to run the business
Potential buyers will be looking at these factors to determine how much they're willing to pay for your online business. Of course, the biggest consideration here is the sales, profits, and the prospects for growth.
Seller Discretionary Earnings
If you still don't have an idea of how much your business is worth, the seller discretionary earnings is a good place to start. Using this valuation method, you are taking into consideration the annual earnings and your salary into the mix.
In short, you are taking into consideration how much you are getting from the business as the owner. But this is just the starting point. You will need to find a multiple of your Discretionary Earnings that takes into consideration the different factors outlined above. For the most part, the multiple is anywhere from 1.5 times to three times your SDE.
For instance, if you have a strong brand in a growing market and you worked to put inventory, sales, and marketing systems in place, then you can get a multiple that's double or triple your SDE. On the other extreme, a business that has posted losses for the past eight quarters and poorly organized financials can expect to fetch around 1.2 or 1.3 times the SDE.
Getting a Better Idea of Your Business' Value
While the SDE gives you a solid idea of how much the business is worth to you, it might not be an accurate indicator of a fair selling price. After all, you can only get as much as the buyer is willing to pay.
You can get a real-world valuation of your business by researching similar businesses and how much they were sold for by looking at listings on different marketplaces. You can also talk to a broker and other professionals to help you with pricing.
Valuing Your Business Assets
On top of the SDE, you should also put a valuation on your business assets. This would include tangible assets that are important in the business such as the inventory, equipment, real estate, and others. There are also intangible assets that might be more difficult to put a number on, such as your brand and goodwill.
3. Who Are the Potential Buyers and Where Do You Find Them?
When it comes to buyers, there are times when you do not need to look far. Some online business owners have successfully sold their interests to family members or employees. Others have sold their businesses to competitors.
But if these are not options for you, there are a lot of people who might be interested, including:
- Internet entrepreneurs who have been investing in digital businesses.
- Private equity companies that look for established online businesses that they can invest in while keeping the current management to run the day-to-day operations while they share in the profits.
- Brick-and-mortar entrepreneurs that are looking for an online business for a variety of reasons such as augmenting their physical stores with an online presence or looking for another business in another industry.
- Individual buyers who are looking to get into their first digital business. These are usually those who have disposable cash or can take out a loan easily, so selling a business to them is ideal.
Where Do You Find These Buyers?
It will be difficult to find buyers for your online business if you don't know where they are. There are services that you can rely on to help you find the right buyer for your business.
For business owners like Lynda Weinman, investment banks are typically necessary if they need to sell their online business. Investment banks typically work with businesses that are worth at least $20 million or those that register at least $5 million a year in net income.
If you have an online business that has been profitable and is currently valued anywhere between $250,000 to $20 million, then you might want to work with a broker.
Brokers can often find you an investor or buyer fast when selling a business because of their established networks. If anything, they will be able to help you with everything from coming up with the right valuation for your business, negotiating with buyers, to structuring the deal, and right down to finalizing the sale.
If you are familiar with Craigslist, then you know what a marketplace offers. You are basically putting out a classified ad for your business. These services are often good for smaller to medium-sized websites and online businesses, usually falling under the less-than-$100,000 category.
With auction sites, potential buyers can come in and place bids on your online business. As such, you can get the best price from several interested parties. Auction sites can be ideal for smaller web sites that are valued at less than $20,000 or startups.
Sites and Services You Can Consider when Selling a Business
Not sure where to look? Here are some websites where you can list your business for sale:
1. FE International
FE International is a website broker that has been helping business owners find buyers since 2010. With that kind of experience, they have strict vetting progress where sellers need to certify that their sales figures are accurate. The company claims that 94.1 percent of business owners they work with can close the deal within 60 days.
2. Shopify Exchange Marketplace
The Exchange Marketplace is a brainchild of Shopify. It allows Shopify users can sell their own stores. If your business is on Shopify, you can take advantage of this new service to sell.
If you're looking for an auction service, then you can go to Flippa. You have more than 200,000 buyers who can potentially take your website off your hands. I personally sold two different websites through Flippa with great success.
Freemarket is a service launched by Freelancer.com. You can find a wide assortment of online businesses and websites for sale on this platform. Listing your website is free and the service charges a small commission when you've sold it. Handovers are also secured because Freemarket holds the payment until you transfer the ownership of your website over to the buyer.
5. Empire Flippers
If you have an established website, then you can rely on Empire Flippers to sell your website. As of June 2020, the company has chalked up $137 million of overall sales with a 92 percent success rate.
Startups and smaller online businesses with a valuation that is less than $100,000 will be perfect for BizBuySell. The service claims that they helped with more than 100,000 sales and has more than 45,000 active sellers, as well as around 10 million to 11 million page views per month.
7. Digital Exits
Digital Exits is a broker service that has helped sell more than 100 businesses with an average deal price of $3.1 million. As you can guess, they work with more successful business making upwards $100,000 annually.
8. Founders Advisors
Bigger businesses can work with Founders Advisors to get the best terms when selling. If you have a business that earns around $5 million or more, give them a try.
4. Closing the Deal
Once you put your online business on the market, you can expect to get offers from several potential buyers. If you're doing this privately, then you should take time to field the offers and negotiate to get the best deal possible.
Then the prospective buyers will want to do their due diligence. If they like what they see, you should work with a lawyer to prepare the handover documents, including contracts, letters of intent, purchase agreements, and confidentiality clauses.
If you are working with brokers or investment banks, this part of the sale is pretty much handled by the professionals.
Selling a Business
You may have realized that selling your e-Commerce business is a lot like selling other products. You make the product more attractive and you put it in front of people who might be interested in it. The good news is that you can do everything on your own, but there are always services and tools if you need help.