Are you getting burnt out running your business day in and day out? Do you fantasize about being able to spend your time doing other things, instead of being tied down by your current operation?
Maybe it’s a new project you can’t stop thinking about, or dreams you have of traveling the world. Perhaps you are simply ready to retire. Whatever you have next on your mind, it likely requires complete and total flexibility and a separation from your everyday responsibilities.
Selling your business at the right moment can therefore be a logical and necessary move, in order to free up both the capital and time needed to pursue other ventures.
In this article, we’ll walk you through the steps you might take in order to effectively do just that by selling your ecommerce business.
When Should You Sell Your Ecommerce Business ⏱
First and foremost, selling your business requires planning the right time to exit. This can hinge on a number of personal and situational factors. As an owner, you must be ready to walk away. Likewise, your business must be in such a position that it is attractive to a potential buyer.
The more time you have to prepare for a sale, the more you can ultimately sell it for. This means getting all your ducks in a row as early as possible, from the moment you decide that selling is indeed something you want to do.
Assuming you are ready to cut ties with your ecommerce business, and there are positive headwinds in the market that would clear the way for such a sale, you want to make sure all your financial and customer data is organized and clean.
This will allow you to arrive at a fair, proper valuation for your business, and negotiate the terms of your sale from a place of both knowledge and strength.
How to Sell Your Ecommerce Business 📙
The process for selling your ecommerce business is as follows:
- Value your business. Take a hard look at the annual net profit of your business. This will be used in most cases as the foundation for appraising your operation, and arriving at an estimate of what your business is worth. If you have other favorable factors going for you–such as a large, engaged mailing list and diversified traffic sources–you can expect to fetch on the higher side of what is typically a valuation multiple between 1.5 and 5 in the ecommerce space. Use this guide to learn how to value your ecommerce business.
- Maximize the value of your business. The same way you wouldn’t put a house on the market before sprucing it up, you don’t want to start soliciting buyers for your online business before doing everything in your power to make it one worth taking over. Satisfy as many conditions that buyers want to see as possible, and make sure your systems are streamlined and scalable. From ensuring that your brand has strong intellectual property protection to securing relationships with primary and backup suppliers, take all necessary steps to minimize the risks for any incoming owner.
- Prepare it for sale. A crucial part of getting your business ready to sell involves developing a prospectus. This is essentially documentation that contains all the facts and figures surrounding your business. Use top-notch software tools and professional assistance if needed to crunch the numbers and run your detailed analysis. Determine such things as your exact revenue breakdowns and sources, pin down your profit margins on all SKUs, and fine-tune the cash requirements needed to run your business. Really take the time to do a thorough dive and get your numbers straight. This will pay dividends when putting your business on the market.
- Identify where to sell it. Depending on the size and complexity of your business structure, there are different avenues you can take for listing and selling your business. Smaller businesses are usually best sold privately on relevant forums or online marketplaces, while medium-sized businesses can benefit from brokers that are able to arbitrate and facilitate the transaction. Larger businesses–say those doing over $10 million in yearly profit–are uniquely suited to be sold through entities like investment banks and companies that specialize in mergers and acquisitions. Once you know the route that you intend to take based on the qualities of your business, you can engage with the proper services and platforms to get the ball rolling on a sale.
- Closing and transitioning. After hammering out the details of a sale, a buyer will typically do due their diligence, whereby they verify that all financial information communicated to them is accurate. Closing the deal also likely involves drafting a legal agreement with the help of an attorney who specializes in contract law. Utilizing an experienced and detailed lawyer here can help you limit your exposure to certain liabilities. Upon transferring all assets that were agreed to in the deal, it is standard that you are still available, at least temporarily, to help train any new owner during the transition process. By providing guidance and helping to oversee the nuances of certain processes, you will be able to help ensure the business continues to run smoothly.
What is Your Ecommerce Business Worth? 💰
There are several different methodologies that can be drawn upon to value your business and sell your company. These include looking at historical earnings and multiplying them by an agreed-upon number (often referred to as a “multiple”) that is based on the health of your business and other variables being considered. It is also common to look at what other similar-sized companies in adjacent categories have recently been sold for, and use this precedent as a benchmark for establishing a sales price.
Click here to read our article on how to properly value an ecommerce business.
How to Increase the Value of your Ecommerce Business When Selling 🏷️
If you’re an ecommerce owner who has built a brand from scratch, you have undoubtedly invested a large chunk of your time, energy, and labor into molding it into what it has become. When deciding to sell your business, you want to therefore make sure that you are maximizing your return on that investment. Take steps to ensure your efforts were not made in vain, so that you can fully reap the rewards of your blood, sweat, and tears.
Establish and identify for prospective buyers all the ways that you have achieved a diversified, well-rounded operation. Buyers want to know that all their eggs are not in one basket. Either show that you already have–or take concrete steps to acquire–site traffic from many different sources. This should include a mix of paid advertising on different platforms, social media marketing, and organic clicks from different search engines. Be able to point to robust recurring revenue in the form of repeat sales and site visitors also. Make it clear to any potential buyer that not only is current revenue well-protected, but there is a long runway for future growth.
Preparing to Sell Your Ecommerce Business for Maximum Value 📒
Getting all operational and financial aspects of your business ironed out before deciding to sell can have a large impact on the price you ultimately receive. Small steps now can make a big difference later. From a storefront perspective, you can do things like optimize your product images and descriptions, as well as replenish depleted inventory on popular items. After all, your site will likely be the first interaction that potential purchasers have with your business, so you want to make sure any initial impressions are good ones.
More importantly, get clean and accurate financial statements in place. This should include, at a minimum, the last three years of tax returns, an income statement, a cash flow statement, and your balance sheet. You want to make it crystal clear to buyers that you have been a good steward of the financial health of the business they are planning to inherit.
Where to Sell Your Ecommerce Business 🛣️
There are several different venues for selling your ecommerce business depending on how large it is and what it’s generating in yearly profit. The most common approaches are selling through a private forum or marketplace (best for small and micro-businesses), professional brokers (best for medium-sized business), and through investment banks or merger and acquisition companies (best for larger business).
Marketplaces are a simple resource to connect owners looking to sell their business with buyers looking to acquire them. Some examples of business marketplaces include:
These are high-traffic spaces that allow you to get many eyeballs on your offer, and ideally land a sale with the right qualified buyer. Few arenas are better tailored to the buying and selling of ecommerce businesses.
Brokers are third-party arbitrators that can help streamline the sale of an online business in a neutral, expedient fashion. Medium-sized businesses often require more elbow grease to negotiate and structure the characteristics of a deal, which is where brokers earn their keep.
If you’d like introductions to brokers that will facilitate the sale of your ecommerce business, fill out this contact form and we’ll match you with a broker that best fits your needs.
These are just a few of the top ecommerce website marketplaces and brokers to choose from.
Smaller businesses making less than $1k a month in profit are typically most effectively and efficiently sold privately by the owner. This can be done through classified websites or on business forums like Shopify Forum or Exchange App. These enable you to create listings for your business and communicate directly with buyers.
Closing and Transitioning Ownership 🔀
Selling a business is not as simple as handing over the keys to a car and wiping your hands clean. Buyers want to know that you, as a previous owner with a wealth of institutional knowledge, will be on standby during the transition process to answer any questions and resolve any unforeseen issues. Not only does this make a business more appealing to buy, but it is beneficial to your reputation should you want to buy and sell another business in the future. You are demonstrating that you are an asset who can continue to provide guidance and assistance for incoming leadership.
How Long Does it Take to Sell an Ecommerce Business ⌛
While every deal is different, because every business is different, a reasonable amount of time to land and close a deal could be between two to four months. This can depend not only on macroeconomic conditions and market trends, but also the size of the individual business. A business valued at over a million dollars is generally going to take longer to find qualified buyers than a business valued at a tenth of that, for instance.
How Much Does it Cost to Sell an Ecommerce Business 💲
If you decide to go the route of utilizing a broker, they typically charge between 10 to 12 percent of the price the business is sold for. This commission is the price you pay for being able to leverage their services (and if they helped connect you with a buyer, this is a small price indeed). Any professional accounting or legal services you outsource during the selling process must also be taken into consideration.
How to Minimize Your Tax Liability 🧾
Minimizing your tax liability when you sell your business can save you a significant amount of money. You can do this by making use of Qualified Small Business Stock (QSBS).
Essentially, this allows you to buy stock in a C-corporation and then when you sell it, pay 0% in capital gains taxes on the greater of $10 million or 10x your investment amount. To qualify, the stock must come directly from the company, it must be bought with cash or property, the buyer cannot be another C-corp, and over 80% of the business’s assets must be used in the active conduct of business. Additionally, the enterprise value (EV) must be less than $50 million.
So, in a practical sense, let’s say you start a new product-based company. If you make it a C-corp from the jump, and receive founders stock, when you sell it after a minimum of five years, the first $10 million is capital gains tax-free.
Avoid These Costly Mistakes When Selling Your Ecommerce Business ❌
- Avoid selling impulsively. Only go through the process when you are fully prepared and have thought through the ramifications of selling your business. It is a big decision that should not be taken likely or made on a whim.
- Do not overlook optimizing your online store. Your storefront is likely the first thing potential buyers will see when investigating your business. Make sure your site speed leaves nothing to be desired, your product catalog is well-organized, and the layout is user-friendly. Not doing so could leave a bad impression and make it harder to receive offers for your business.
- Make sure you are getting paid upfront. Avoid taking deals that involve anything less than getting paid in full and immediately upon sale. There are many variables that could derail an installment plan that would result in you never seeing the money you were promised. Make receiving a lump sum that is transferred directly to your bank account upon finalizing the deal a priority.
Selling your business can be a challenging and daunting process. Making the wrong move can cost you significantly. That’s why it’s critical to ensure you’re working with the right people to facilitate the sale.
Fill out this form and we’ll pair you with the right team to help you get top dollar for your business.