Many entrepreneurs get really excited at the prospect of starting their own business.
But you know what gets them even more excited?
Selling their business at a profit.
It’s a huge career milestone that a) yields cash b) satisfies another learning curve and c) demonstrates that they’ve got the ability to run a successful business.
Naturally, selling an eCommerce business isn’t as simple as 1,2,3. There is a lot involved, and it’s a time-consuming process.
This article is going to take a look at exactly how to prepare your eCommerce business for sale. We’ll be taking a look at why you should sell, what you need to do to prepare for the sale, as well as whether or not you should sell yourself or hire a broker.
Ready? Let’s make a start.
Why You Should Sell Your Online Store
We get it – your online store is your “baby,” who you’ve raised since conception. You’ve nurtured it, fed it … and now it’s time you hand the keys over to someone else.
It’s a daunting prospect but here’s another spanner in the works: What if your online store is running at a really good profit? Why on earth would you sell it?
Actually, there are a few reasons why it may be time to sell an eCommerce business, even if you’re running it at a profit:
You Want To Explore New Opportunities
Entrepreneurs are energetic, creative people who literally never stop. They start one project and go “all-in,” before realising that they also want to try their hand at something else. And something else. And something else.
If you’ve gotten to the point where, yeah, you enjoyed running an online store but want to try something different, now’s the time to sell.
You Want To Grow
All entrepreneurs should be interested in growth and self-improvement. Otherwise, are you really an entrepreneur?
Running an online store is, of course, a great skill and anyone who does it successfully should be commended for it.
But there needs to come to a point when an ambitious entrepreneur adds more strings to their bow in order to achieve personal and professional growth.
To Understand What An Exit Is Like
Investors look at an entrepreneur’s credentials before doing business with them. If you’ve already got an exit in the bag, it just adds another feather to your cap and gives you more credibility.
You’ve Burnt Out
Mental (and physical) burnout is real. If you’ve gone all-in with your online store but feel only apathy towards it these days, it’s probably time to get out.
How To Value Your Business
Now for the hard bit: Understanding how to value your business so that you can advertise it for a price that suits all parties.
If your store has less than a million dollars in earnings, you might want to start by implementing Seller’s Discretionary Earnings (SDE).
You can discover yours via the following formula:
For example, let’s say your store made $200,000 in profit last year. You paid yourself a salary of $80,000, which means your store’s SDE is $280,000. This equates to $23,333 of monthly SDE.
It’s simply a proxy for how much cash your eCommerce business is generating for you.
To discover its value, you need to decipher the multiple of SDE, which is based on things like historical performance and growth, the size of the market, future prospects, how organised your business is, the economic cycle and the size of your business.
Now, if your store has been on the decline over the last year or two, and if you’ve neglected it, its value could be as low as a 1.3 multiple on an annual basis or 16 on a monthly basis (as is more common for e-commerce businesses).
If, on the other hand, business is booming and your store is on the higher end of the multiple spectrum, it might have a 36x multiple or higher
When it comes to actually pricing up your eCommerce business, you’ve got two options:
You could, of course, do both (highly recommended).
We always recommend talking to a broker because they’ll give you a rough estimate without forcing you to commit to working with them.
Researching the market has its advantages, too. For one thing, it gives you an idea of how similar-sized businesses are priced and what they’re selling for. The last thing you want to do is go against the market by either selling yourself short or pricing your store way too high.
Prepping Your eCommerce Business For Sale
Run Your Store Leanly
When you first launch your eCommerce store, you’ll want to make long-term investments. If you’re preparing to sell it, you won’t want to do that.
Mostly because your store’s selling price will be based on how much it earned over the last twelve months. Thus, any money you can save can add something to the transaction.
Naturally, you also don’t want to compromise your business by taking shortcuts. But you do need to get the balance right.
Sort Your Accounts Out
Let’s face it, few entrepreneurs can say with confidence that their books are super clean and neatly organised. Accounting just isn’t our number one priority.
However, as you prepare your eCommerce business for sale, you will need to get your accounting in order.
To do this, you can work with a reputable accountant who specialises in e-commerce clients. This will boost your store’s credentials, and it will also help you find a buyer faster.
See, if your books aren’t in order – if they’re messy and hard to figure out – it’s going to create a hassle for any prospective buyer. Moreover, they might not trust the numbers you give them. This can waste a lot of time, and it can also mean that the price they offer is way below your value. An eCommerce seller who’s sorted their books out demonstrates that they’re also able to get a deal over the line without too much hassle.
Go here to learn more about how to find an accountant that’s right for you.
Decide Whether To Sell Now … Or Wait 12 Months
Depending on your circumstances, you might decide that you want to sell now.
Or, you might decide that you want to spend the next 12 months preparing your business in order to bump the value up.
What should YOU do?
Well, let’s consider something.
Let’s imagine that your business made $100,000 in pure profit over the last twelve months. However, you’ve spent quite a bit of cash on it (you haven’t run it leanly), and you’ve barely done anything on the marketing side of things.
Worse still, sales are down 20%.
Because of all these factors, you reckon you could sell your store for an 18x multiple. That means you’d get around $150,000 if you sold it right now.
On the other hand, how much could you get if you spent the next twelve months preparing it for sale? This means spending more on marketing, improving its SEO, slashing unnecessary spending and boosting sales and profits.
After all that’s done, you could probably sell your store for a 24x multiple.
The big question now is whether or not it’s really worth you waiting twelve months and putting in more effort for that extra $50,000, or whether you should cut your losses and sell now.
It’s not up to me to tell you what to do in this instance. It’s up to you, but you should at least perform the above exercise to work out how much you’d be leaving on the table if you sold now.
Fix Your Store’s Link Profile
What is a link profile?
It’s a key part of SEO that determines how highly or lowly your site ranks on Google.
A quality link profile = a higher ranking.
An average link profile = a lower ranking.
Why is this important?
Because the higher you rank on Google, the more organic traffic you will draw in. This is, of course, great for selling products – and great for advertising your online store as something lucrative to prospective buyers.
Before you sell, then, it’s really important that you go over your link profile to make sure there are no spammy links that are dragging its ranking down. This is important because you will need to show data like your site’s analysis and conversion rates to prospective buyers. If bad links are skewing your data, it’s going to make you look bad.
How can you check your store’s link profile?
Work On Your Overall SEO
As well as a good link profile, an overall solid SEO strategy is key to the success of any eCommerce store.
And it will hugely benefit you when it comes to selling your business if your store is ranking highly on Google.
As such, cleaning up your SEO is a key part of the process as you prepare to sell up.
Of course, SEO is super complex and discussing it in-depth is way beyond the purpose of this article. If your SEO strategy is flagging, you can read more about how to improve SEO for online stores here.
However, here are some quick tips:
Check your site speed on all devices. If your site takes too long to load, check out this guide to help you improve site speed
Tweak Your Supplier Contract
A supplier contract is really important when it comes to selling your eCommerce business because it can make the difference between you getting a decent deal – and a great deal.
Look at it like this: If you’ve got an awesome relationship with your existing supplier, and if – moreover – you’ve tweaked the contract so that it’s transferable to a buyer, your business will look so much more attractive.
If, on the other hand, you’ve not got a good relationship with your supplier and they give you a poor margin, it’s not going to help you broker a great deal.
Automate Your Business
Another thing that makes an online store more attractive to potential buyers (and thus can help to raise its value) is an online store that’s automated.
For instance, let’s imagine that you do everything yourself. You source the products, maintain the inventory, look after the books, and you’re even responsible for customer support and web design.
It’s a lot of work, and any prospective buyer is going to baulk at the idea of taking all that on. What they’ll want to do straight away is outsource a lot of those tasks.
Wouldn’t it then be better if you outsource those tasks now, thus generating a better price for your store?
Naturally, hiring more staff = more costs. But by automating your store, you’ll be preparing your eCommerce business for sale the right way. It will be more attractive to potential buyers who aren’t interested in running everything themselves.
Plus, if you automate your store twelve months before you sell it, you’ve got twelve months in which to scale and boost your revenue. As such, you can make up for whatever you lose by hiring more staff.
Hire a 3PL
Fulfilment is, of course, key to a successful eCommerce business.
But let’s say you handle your fulfilment operations yourself in one location.
This immediately limits the number of prospective buyers.
Because if a buyer in – say – Thailand is interested in your store but is planning to operate it remotely, they won’t be able to buy your store if your fulfilment operations are entirely based in one physical location. It’s a complete dead-end which could mean you miss out on lots of potential lucrative sales.
This is why it’s a good idea to work with a 3PL (third-party logistics provider).
A 3PL customizes your fulfilment solutions (warehousing, packaging, shipping etc) and fills the gaps. It helps to make your eCommerce business more attractive to buyers, and can even add some extra numbers on top of the price.
When it comes to choosing a 3PL to work with, there are some more things to consider:
Should You Work With a Broker or Sell Yourself?
Sellers can either sell their eCommerce business themselves, or they can work with a broker.
Why would you work with a broker? Here are some advantages:
Brokers are especially useful for first-time sellers who have no experience selling their business.
However, there are also some disadvantages of working with a broker:
Whilst brokers are especially useful for first-time sellers, those who want to gain experience selling a business may want to do it all themselves. Moreover, if you already have a few leads and buyers in mind, and if you have a financial background, you may want to go it alone.
If you end up working with a broker, just make sure to do your research first. Ask for references, too.
Pitfalls Of Selling Yourself
Going it alone will definitely save you money, and it will also prevent you from getting burned by a disreputable broker.
However, going down this route isn’t easy. You’ll be in charge of everything, from finding buyers to carrying out the negotiations (more on this later).
Here are some reasons why you might not want to sell your eCommerce business by yourself:
Create a Sales Prospectus
When you’re ready to put your business on the market, it’s time to write a sales prospectus.
What’s a sales prospectus?
In many ways, it’s a detailed sales brochure for your store, and it’s usually the first thing a prospective buyer will see.
How much time and effort you want to put into yours is entirely up to you, but a comprehensive sales prospect can help to sway the mind of a hesitant buyer, pushing them closer to the sale.
On the flip side, a sparse, shoddy sales prospectus can actually hinder your chances of clinching a sale, no matter how tip-top your eCommerce business is.
As such, I highly recommend that you put some time aside to create your sales prospectus. Just that bit of extra time and care can increase not only your chances of sealing a great deal, it can also put a little bit of extra on top of the asking price.
What should go into your sales prospectus?
You must also make sure to add a non-disclosure agreement to your prospectus (NDA) so that anyone who reads it agrees not to share it.
Why would you do this?
Because you don’t really want your secrets being used as “intelligence” by people for rival firms.
List Your Business For Sale
Now that you’ve got over the tricky hurdle of creating a sales prospectus, the next step is to put your business on the market.
If you’ve chosen to work with a brokerage, the good news is that they will take care of everything at this point.
If, on the other hand, you’re going it alone, it’s all on you to prepare your eCommerce business for sale in terms of how you generate interest – marketing etcetera. You’ll need to advertise it on sites such as BizBuySell or Shopify’s Exchange Marketplace. If you go down the route of selling it on Shopify’s Exchange Marketplace, make sure to read their guide that walks you through the whole process.
Wherever you list your store, it’s a smart idea to ask prospective buyers to sign an NDA if they ask to see your sales prospectus. You should also read about listing eligibility to make sure that you’ve fulfilled all the criteria, and it’s certainly not a given that your listing will be accepted.
If you work with a broker, you will need to …
Submit Your Store For Vetting
At this point in the process, you need to hand over to your broker the relevant documentation they ask for. This will allow them to vet your business.
What documentation do you need to supply?
Here are the ones you’ll most likely be asked for:
Once you’ve submitted the necessary documentation, your broker will go through it all. There is a chance that they will ask for more information as they comb through your analysis and finances, and the whole process can take a few weeks. Exactly how long it takes depends on how big your eCommerce business is.
It’s an important step in the process before you …
Set a Minimum Sale Price
One of the final things you need to do before you sell your store is set a minimum sale price. We’ve already covered how to price your store up earlier in the article, and it’s now up to you to decide on a price you refuse to go below.
Why should you do this?
Because you may find yourself drawn into some tough negotiations. Due to their exhaustive nature, these negotiations can cause us to lower our price. By setting a minimum price beforehand, you at least know a number you should not go below at any cost.
Enter The Negotiation Process
Once your business is up for sale, there’ll come a time when someone comes along and makes you an offer. Whether or not you choose to accept their offer will come down to a few things.
For one thing, how much of a hurry you’re in to get a deal over the line will come into play. The more time you have, the less likely you are to get a good deal. With no hurry, there’s more room to move.
If a buyer makes an offer that’s below your asking price, you need to ask yourself if they’ve got a good reason for doing this. And, hey, maybe you know the buyer and trust them to make a success of this. Therefore, you’re willing to take a bit of a hit.
Also, what are the terms of the deal? Will the buyer be paying upfront, or will they be paying in instalments? The terms of any deal or even more important than the price. If you don’t get the terms you want/need, you will lose out even if you got the right price for your business.
You can also make things sweeter by suggesting that you remain as a consultant for a set period of time until they get adjusted to the business. This is essentially a strategic concession, and you might find that you have to make more of these as you go along in the negotiation process. There will be a lot of to-and-fro, and there will be times when you offer to give up something of value in exchange for something else of value.
Selling your online store is a big decision. It’s really important that you first determine whether this is truly the right step for you. Then, when the time is right for you, use the information in this guide to help you prepare your store, value your store – and negotiate a deal that’s absolutely right for you.
And good luck!
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