Imagine launching an online business, before spending time growing it, scaling it and turning it into a profit-making monster.
Imagine you do all of that – and then, right at the last when you put the business up for sale, you screw things up so that you don’t get the price you deserve for it?
It’s a nightmare scenario. But it’s one that happens among online business owners who are selling for the first time.
The stakes are too high at this point. You’ve worked too hard to get your online business into a position where you can sell it for a profit and then move on to your next project. You don’t want to make the same mistakes others are making.
In this article, we’ll be uncovering the 5 most common mistakes entrepreneurs make when selling their online business. By the end of the article, you’ll know more about what to do – and especially about what not to do.
I’ll level with you: One of the hardest things to get right when it comes time to sell our online business is the price.
The last thing you want to do is to undervalue your business, or overvalue it. Overvaluing it means you’ll miss out on buyers who may have been interested, but who were deterred by your crazy asking price.
Underpricing it, meanwhile, means you’ll get way less than you deserved. Which means all those years of blood, sweat and tears were largely for nothing.
Naturally, you should still opt for the highest valuation possible, but this valuation needs to be grounded in reality, and you need to be able to demonstrate to prospective buyers how you reached this figure.
How do you value your business correctly?
While the answer to this question largely depends on the type of business you run, it’s normal for an online business to go for a multiple of between 1 to 4x their annual net income.
You could also take your monthly net profit and x it by your multiple.
For online store owners, you can also factor in inventory at cost and use the following formula:
Inventory at cost + monthly net profit x multiple
If you already worked out a price for your business and it was way above 1 to 4x your annual net income, it’s likely that you’ve overvalued it. If you’re still not sure, you may want to bring in some outside help to get your numbers on track.
On the other hand, if you’ve (apparently) overvalued your business, you could target strategy buyers who are looking to buy online businesses related to their niche that they can integrate into one of their own ventures.
Typically, a strategic buyer will purchase a business for more than it’s actually worth simply to – among other reasons – eliminate some competition.
Maybe you planned all along to put your business up for sale on a specific date.
But what happens if, in the weeks and months leading up to that date, your business undergoes a dip in performance?
In such a scenario, it’s much better to sort the issues out and get your business back on track before putting it up for sale.
Because the last thing prospective buyers want to see is uncertainty and risk. They want to see stability (for better or for worse).
I write “for worse” because if your business was doing well for a few years but has since been on the slow, progressive decline, there’s not as much uncertainty. Instead, in this scenario it’s far likelier that the once-thriving business simply needs a fresh pair of hands to get it back on track.
But if your recent dip is a bit of an anomaly, it’s a safer idea to avoid selling for now, and to instead address the issues so that your business looks more stable and is following a clear forward trajectory.
What is an exit strategy?
An exit strategy is basically a roadmap that gets you from A to B in the sales process. It covers everything from preparing your business for sale, bumping up its value as much as possible, and – lastly – getting the deal you deserve.
Why is this all important?
Because unless you have a clear path to a sale, you simply won’t get the price you want for your business.
What’s more, you might end up missing out the vital components that allow a deal to get over the line smoothly, such as clean financials.
You also need to take into consideration your creditors and investors, and how they’ll be compensated, as well as what the compensation process will look like.
In short, an exit strategy means that your business is so well-prepared for sale that it attracts the kind of serious buyers who’ll not only offer you the price your business is worth, but who actually care as much as you do about your business.
When preparing an exit strategy, here are some things to bear in mind:
Do you have to work with a broker when selling your online business?
But if you’re selling an online business for the first ever time, it helps a lot to work alongside an experienced broker who’s sold businesses just like yours multiple times.
This is because the selling process is complex. Just one mistake can be devastating enough to ensure you don’t get the price you deserve.
What can a broker do for you?
A broker can:
In short, a broker is able to oversee the entire process, vetting potential buyers and guaranteeing that you sell a) quickly and b) at a price that accurately reflects how much your business is worth.
Conversely, if you don’t work alongside a broker, you might not only struggle to get a price you deserve, you may also struggle to close a deal at all. And this is no criticism of your negotiation skills – it’s just an observation of a common mistake first-time sellers make.
Naturally, you also want to avoid the mistake of hiring an unsuitable broker. You can swerve this one by hiring a broker who’s experienced in your sector, who’s already sold multiple businesses over the years, and who is offering you an excellent payment structure that makes sense.
You should also read online reviews to see what other clients are saying about different brokers.
As mentioned, selling an online business is a complex process. It’s also time-consuming and hugely challenging.
In short, it requires an immense amount of effort on your part.
One of the issues that can arise for first-time sellers is finding a way to balance the running of their business with selling it. It’s not easy, but you can help yourself out on this one by automating a number of tasks so that your business can essentially run in the background even if you’re not there.
How long should you expect your sale to take?
There’s no one-size-fits-all answer to this one. If you go it alone, you could be looking at several months. And if your business isn’t ready to be sold just yet (maybe you haven’t organized your finances), you might have to wait even longer.
If, on the other hand, you work with a broker, you could potentially close a deal within 90 to 120 days.
That’s still a fair amount of time, during which you will need to price-up your business, list it for sale, generate interest, negotiate deals, sort out the legal side of things and – finally – hand over the keys.
And if there are obstacles, more things will come up.
So it’s important to set the time aside, and to prepare in the right way.
Selling a business isn’t easy but the good news is that many people have done it before, which means you can use their experience to help you sidestep the most common mistakes.
Use the advice in this article to value your business correctly, sell at the right time and put in place an exit strategy that allows you to make a clean break.
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.