Selling Your eCommerce Business: Five Critical Mistakes To Avoid

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Selling Your eCommerce Business: Five Critical Mistakes To Avoid

This article will lay out the top five critical mistakes to avoid when selling your eCommerce business.

You’ve put in the time, money, and years of sweat equity to build a successful online business, and it’s finally time to sell. You only have one shot and the stakes are high. A single mistake can now cost you tens of thousands of dollars, but making the right choices can result in a large financial windfall and a smooth transition.

So, how do you maximise the effectiveness of your efforts?

1. Getting a wrong valuation

Many people are afraid of undervaluing their business and leaving money on the table. However, entrepreneurs who overvalue their business are more likely to make the same mistake. This is because they let their emotions get in the way of making good decisions, which makes it hard for them to come up with a more reasonable value based on things like financial performance, comparable sales, industry averages, and so on.

Unfortunately, listing a business for sale with a high asking price is a surefire way to lose credibility with investors, especially those who have already bought businesses. It’s hard to get back when you’ve lost the trust of buyers, even if you cut the price a lot.

Try to still get the best possible value for it. However, there’s no point in wasting time and money trying to sell and hoping for a miracle unless your value is based on the truth.

So, what does it mean to say that a valuation is based on the truth?

Most small- to medium-sized internet companies are valued at 1x – 4x annual net income. If you arrive at a valuation far above this range, one of two things is likely to be true:

(1) your business appeals to strategic buyers, or (2) your business has been overvalued.

What is a strategic buyer?

Strategic buyers are investors who buy companies to integrate them into an existing venture to gain a net benefit. Because the acquisition adds significantly more value to their existing venture, these buyers are known to value a business significantly higher than its intrinsic value. For example, consider the owner of a SaaS company who acquires their only viable competitor, gaining patented technology and an effective monopoly in the process.

Unfortunately, very few “unicorn businesses,” and most small to medium-sized web companies, cannot generate strategic buyer interest. Instead, unless your business is exceptional (high barriers to entry, proprietary technology that no one else has, etc.), it will generally fall within a standard valuation range.

So, how do you prevent your company from becoming overvalued?
  • Get a free professional online business valuation.
  • Educate yourself on legitimate online business valuation methods. 
  • Locate comparable sales.
  • Seek multiple professional opinions. 
  • View the business objectively, leaving your emotions at the door!
2. Selling after a performance drop

It may seem obvious, but selling your website or business after a significant decline in performance is a poor strategy. This is because you introduce risk and uncertainty into the eyes of potential acquirers.

Of course, it may make sense to pursue a sale for a company that has been steadily declining for many years but is otherwise relatively stable. The rationale is that things are unlikely to improve while you are in charge and investors can see a clear, stable trend and adjust their valuations to account for the diminishing returns.

However, it will be unwise to sell a declining business in a situation where the company experiences a significant downward swing in a short period and then is immediately listed for sale. Investors will be unable to adjust their valuations rationally in this scenario because many questions will remain unanswered, forcing them to drastically undervalue your company to account for the increased risk and uncertainty.

If your business experiences a significant unexpected decline, it is best to postpone a sale until you can stabilize performance and determine what has caused the significant drop.

What steps can you take to avoid a firesale?
  • Avoid any major changes to your business with six months of planning to sell.
  • Give the business time to stabilize after any major declines in performance. 
  • Find the root cause of a decline rather than running away from it.
  • Develop an exit plan to fully prepare you to sell.
3. Hiring the wrong person

Choosing the right representation for the sale of your business is a critical decision. The best website brokers and M&A advisors are patient and professional, with streamlined processes, transparent valuations, access to an extensive network of buyers, and a track record of successful sales.

On the other hand, if you hire an inexperienced website broker to represent the sale of your business, you could be in for a nightmare. Inflated valuations, shoddy listing materials, and a scarcity of qualified buyers are all signs of the industry’s shady side, which few want to admit.

Over the last few years, there appears to have been a significant increase in the number of these illegitimate brokers. How do they get customers? One common way to get in touch with business owners is to tell them that they have a buyer who is willing to pay well above market value. The buyer never materializes after the business owner signs an agreement with the broker. Still, the broker retains full exclusive rights to the sale of the business, effectively trapping the business owner.

What can you do to avoid hiring the wrong broker?
  • Read online reviews and get multiple opinions before entering into any agreements. 
  • Request references from previous clients and comparable sales. 
  • Request a full valuation and have them explain their method in detail.
4. Failure to plan an exit strategy

Exit planning is the systematic process of preparing a business for sale in order to get the best price when it is sold in the future. Sellers who don’t plan their exits well can end up with a lot of things that could go wrong. This is done by doing a lot of different things to improve your company’s auditability, transferability, and scalability, as well as to eliminate risks and maximise profits.

Finally, the goal is to help you sell your business for the best possible price and on the best terms possible so that you don’t lose money. A common part of exit planning is getting written agreements from all suppliers, employees, and other important people. To make it easier for a new owner to take over, detailed standard operating procedure documents may also be written.

Things like making sure the company uses the best accounting practices and keeps accurate financial records are also taken care of by exit planning. Another important part of exit planning is figuring out and putting into practice different ways to grow your business to make more money.

If you want to sell your business, you should start with a thorough valuation. This will give you an idea of how much your business is worth now. Then, you should set a target exit price and look into different ways to leave the business.

This is your chance to decide how much you want to sell your business for and which deal terms and acquisition structure you like the best. You may want to make a clean break with an all-cash offer, or you may want to keep a small amount of equity in the company and stay on as an advisor to the company. The most important thing is that you know what you want to do and how to get there.

How can you make the most of your exit strategy?
  • Get a free exit strategy consultation.
  • Establish simple and attainable exit goals.
  • Identify your company’s key value drivers.
  • Develop action items aimed at increasing business value over time.
  • Develop performance metrics to track your progress.
  • Hold yourself accountable by working with an advisor, mentor, or business partner.
5. Underestimating the amount of time and effort required

Many business owners underestimate the amount of time, effort, and resources required to sell an eCommerce business. The challenge for owners is to run their business while also selling it. When owners fail to account for the amount of time required for the sale, performance frequently suffers.

This presents a difficult challenge for owner-operators who are heavily involved in the day-to-day operations of their business. Juggling business operations with the demands of a sale can be a recipe for disaster for these entrepreneurs, resulting in a failed exit and a suffering business.

Many factors influence the lifespan of a business for sale on Ecom Brokers. These include your business model, your niche, your platform, the quality of your processes, your automation, your workload, and more. When we evaluate your business, we’ll let you know how long it might take. It can be less than a month or more.

In reality, a flawless sale is rare. Preparing a listing can be difficult if you haven’t kept accurate financial records. Enlistment requires hundreds of questions and availability for conference calls. Reviewing legal contracts and negotiating deal terms can take weeks.

This is yet another reason that planning your exit strategy is always a good idea. It’s also a reason to hire a qualified M&A advisor or broker to help you sell. M&A advisors will help you prepare your company for sale, market it to many qualified buyers, and handle most inquiries.

The result is less hassle, faster sales, and a higher success rate when working with an M&A advisor. Working with a qualified M&A advisor will not completely remove you from sales. But it will help you do a lot less work and stress so that your business doesn’t suffer.

How can you avoid underestimating the time and effort required when selling your eCommerce business?
  • Understand what you’re getting into before you begin the process.
  • Prepare for unexpected hiccups.
  • Hold off selling until you can fully commit to the process.
  • Consider hiring a professional M&A advisor to assist you with the sale.
Final Thoughts

Can you think of any other critical mistakes that online business sellers should avoid? Please share your thoughts in the comments section below!

Ready to sell your business for the best possible price? Start by clicking the link below! No obligation, no hard sell. Just solid, professional advice.

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