A business is like raising a child. Early on, you stay up late with your baby, worry about it all day, and read books to help you feel more prepared. Ecommerce exits can be a messy, emotional, and confusing process. It’s best to know what to expect before selling your business.
Most entrepreneurs call their company their “baby,” and they treat it with the same care and affection as a newborn child.
It’s like parenting. It’s rewarding, terrifying, and confusing. This is especially true if you’ve never sold an e-commerce business before. As a result, you will burn out and be underpaid.
While no one-size-fits-all selling experience exists, knowing what to expect does help. Sometimes, like good old-fashioned parenting, the best way to learn is to look at some examples. For selling advice, you should ask experienced entrepreneurs who have navigated exits before, just like you might ask grandma how to settle a crying baby.
Ecom Brokers have seen it all because we’ve been there and done it on all sides. We are eCommerce entrepreneurs, M&A experts and accountants. In this article, we discuss how sellers could prepare for the emotional and sometimes complex business process of selling their business.
Exiting e-commerce businesses can be lucrative, but only if you know how to do it right. Let’s get to it.
So. You turned a shaky start-up into a lean, mean sales machine. Congrats! Due to dissatisfaction or burnout, many successful entrepreneurs decide to sell.
Rather than staggering through the process of selling your business, learn from others. Follow these five tips to maximize the value of selling your e-commerce business while saving time, money, and sanity.
Most of us learned good manners in kindergarten. But, like any stressful event in your life, selling your e-commerce business can leave you stretched thin. As a result, sellers can be “difficult” during the sales process. That’s understandable. It’s your life, and giving it up isn’t easy. You’ve created a valuable asset and want to close the deal. You’re entitled to be a bit precious about it!
A good seller ensures a smooth and successful transaction. In fact, a good seller can get more money for their company! Being liked won’t make your $2 million company sell for $4 million, but it will encourage buyers to work with you.
That is, being unreasonably difficult to work with may mean you get nothing (i.e. you can’t sell the business). But, if you are kind and likeable (even under duress), you can get a lucrative exit = Bottom line A bad seller will scare a buyer to the point where they won’t close.
Embrace the stress. The exit process is both rewarding and stressful. You may not be aware that your actions are deterring buyers, nor be open to feedback. We recommend that you prepare for buyer feedback and learn from it.
Following the sale of your e-commerce business, the buyer will continue to work with you. Either because there’s an earn-out or because you’re in a transition period. They must know you are easy to work with and open to feedback. Sellers who refuse to listen to buyers’ feedback make it difficult to close.
Good sellers must be likeable. Better conversations lead to better deals, which leads to more money in your pocket. Being kinder than necessary can lead to better deal terms.
While likeability is essential when selling your company, it is not the most important quality. You must be honest and transparent.
It’s like parenting. When teaching your kids about birds and bees, honesty is sometimes the best policy (you don’t tell them about the stork anymore?).
Buyers assess your e-commerce business’ risk. Refusing to discuss certain aspects of your business raises a red flag. They’ll flee if you appear to be hiding something or are generally slimy. Depending on the situation, withholding information could cost you the sale.
So, how can you become a great seller? It comes down to three key aspects:
What if a buyer asks for top-secret data? “How can I sell my company without being slammed?” you may think. In the first phone call, don’t reveal your top-secret procedures. After all, didn’t your parents withhold some information from you? Like waiting until you were old enough to learn to watch a horror film?
Buyers will ask probing questions regardless, so be prepared to answer them. It will not only make you appear more trustworthy, but it will also reassure buyers. Follow these rules to avoid disclosing trade secrets.
A savvy buyer will ask probing questions about your e-commerce business. Client lists, for example, may surprise them.
Manage buyers’ expectations to avoid disappointment. Just say, “I won’t share my suppliers or proprietary information until we have an LOI to sell my business.” Simple and reasonable. No buyer can push back on that.
Buyers feel more at ease when you know what you’ll share and when. Not everyone wants to share their deepest secrets, so you can limit what you share and when you share it. Give a timeline of what you’ll provide, when, and how. You and the buyer will be able to share more freely as you gain trust.
Few things cannot be done over the phone. Consider meeting in person (or at least on a video call) to build trust and rapport with the buyer.
You can usually tell someone’s trustworthiness when you meet them in person, or see them on a video call. Remember, if you’re dealing with a reputable organisation, it’s safer to share information with them than with a competitor or a private individual who says they want to buy your business.
What information do your buyers need to get from you? It depends on your company, business model, industry, and defensibility. For example, a physical products brand should not share its manufacturing information early on.
To avoid exposing your e-commerce business, determine the buyer’s expectations early in the process.
For example, one of Ecom Broker’s clients was selling their supplement brand. A potential buyer wanted to understand the safety of the supply chain before buying the business. Ecom Brokers collaborated with the seller to give the buyer a high-level overview of the safety credentials of the manufacturers. The buyer obtained the information they needed without the seller disclosing their manufacturers until they signed the LOI.
Don’t worry about buyers stealing your secrets. Your potential buyer will need to sign an NDA before speaking with you. The NDA states that if you mention something confidential, the buyer cannot use that information to compete with you. You have every right to sue them.
First-time sellers often have a vision of how the process will work and what they will gain from it. But then things can end up being very different. Assuming you’ll get $1 million blinds you to the fact that you’ll have to negotiate a host of other issues (kind of like persuading a child to tidy their room).
When you sell an eCommerce business, you don’t just get a cheque. Before closing the deal, you must agree on a half-dozen points with the buyer. And yes, those items will affect your final bank balance.
Sellers frequently use consulting agreements as a bargaining chip. We all know you’re sick of running your e-commerce business and want to stop. Including a consulting agreement eases the buyer’s mind. Why not profit from it as well? It means a lot to your buyer because they know they can contact you after the sale.
Ecom Brokers can help you with this type of deal structure.
“I sold my business for $3 million!”
“Well, my company sold for 5X the price!”
You’ve probably heard other business owners brag. While it’s great that they got rich, these braggarts may cloud your judgment when it comes to your sale. Selling a business is difficult enough without adding the stress of pricing. Try not to get hung up on the multiple.
By focusing on the headline price and multiple, you unwittingly leave money on the table. Remember, an offer is more than the total price. For example, are you so fixated on a dollar amount that you take your eye off a great overall deal structure?
You shouldn’t worry about headline prices or multiples. Your e-commerce business is complex. You can’t just put a price on it and call it a day. The market sets your final price and multiple. If the market doesn’t support it, raising your multiple or price for bragging rights will backfire.
So, when it comes to selling, what matters? It boils down to deal structure.
There are lots of interesting ways to structure deals. With cash-only deals, earn-outs, partial buyouts, deal consulting and seller financing. Different structures suit different sellers. Ecom Brokers can help you get the right structure. Don’t just let the buyer dictate what you will get.
The sale price and multiples are amusing but unimportant. Instead, focus on the deal structure to maximize the final sale price.
Do you have unrealistic expectations as a first-time seller? Even if you’ve previously sold an e-commerce business, your expectations may not be in line with the market’s changes.
You expect a 4X multiple when you hear about other entrepreneurs selling their eCommerce businesses. It’s hard to judge a deal’s quality by its large multiples.
Was it all money? Was equity involved? Athletes sign $100 million contracts, for example. However, the athlete only received $20 million as a result of the contract’s terms.
Be realistic; a good broker will help you to understand the market.
So, a potential seller contacts a brokerage and requests a valuation. “Well, another brokerage said my brand was worth more,” they say when they get the valuation.
Here’s why it’s not worth what you think it is
Brokers don’t set your e-commerce business’s price. Negotiating the value of your business with a broker is pointless. Brokers set a value that they will take your business to market at. But ultimately, the market will decide what the business actually sells for.
Valuations are only an estimate of market value. Unless your broker is clairvoyant, they can’t tell you how much a buyer will pay. Don’t forget that when looking at a valuation, it is based on a range of factors. Don’t let competing valuations skew your judgment or derail your reality sense. If you work with a broker with experience on all sides – business owners, M&A experts and accountants, you’ll have the best sense of the reality of the market.
Building a company is like raising kids. It’s hard, thankless work, but when the time comes to leave, you can reap the rewards.
You’ll do well if you’re a good seller, negotiate, focus on the right things, and manage your expectations. Knowing what to expect when selling an e-commerce business will save you time and money. Ecom Brokers will help you every step of the way.
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