After years of trudging into your 9-5, you finally decided to drop the rigidity and embrace the flexibility of running an eCommerce business. Maybe it started as a side hustle, or maybe just as a blog you kept for fun. But what began as something small has slowly grown into a full-fledged business that can provide you with the lifestyle you want to live.
However, there may come a time when it’s time to move on from this life. Perhaps you no longer have the passion you once did for the business, or maybe you’ve got some other projects you’d like to pursue.
When this does happen, know there’s a right and a wrong way to exit your business. The wrong way is to simply close up shop and walk away. The right way is to sell the business to an interested investor. This not only ensures the continued success of the company, making sure your hard work was not in vain, but it will also bring you a nice injection of cash you can use to get started on your next endeavor.
But selling an eCommerce business is a process that takes time. And it’s important you understand that process so that you can begin taking the necessary steps to ensure a prompt and effective sale. To help you learn this process, here’s a complete guide to selling your eCommerce business.
Determine your timeline
The first thing you need to do is decide when you’d like to sell the business. Know that it takes between six months and one year to sell a company. It could be longer or shorter depending on demand, but plan for at least a half a year from the time you decide to sell to the moment when you actually sign the contract.
Once you make this decision, it will give you an idea as to what to do next. If you’re looking for a quick exit, then you’ll need to immediately begin the process of getting a valuation and marketing the business. However, if you have more time, then you can start to work on your business in a way that will enhance its value and improve the caliber of offers you receive.
Get a valuation
The next thing to do is to perform a valuation for your business. To do this, you’ll need to bring in an expert, either a business broker or an appraiser (often times they are the same person). This individual will take a look at your business inside and out to determine its value.
They will start by looking at your financials. Business value is typically determined by multiplying yearly revenues by 2.5. From there, they will look at a variety of different factors, such as:
- Business processes and systems: The more efficiently your business runs, the more it will be worth.
- Future sales and growth projections: Businesses whose arrow is pointing up will fetch higher offers from investors.
- Risk management: the better you understand and prepare for any risks inside your business and industry, the higher the valuation you will receive.
- SEO and digital presence: Of particular importance for eCommerce businesses, your digital presence will tell investors what they have to work with to make the company grow beyond the sale.
If you’re looking for an immediate sale, then you essentially need to take this valuation at face value. However, if you have some time, then work with the person doing the appraisal to identify areas you could improve upon to boost the value of your business and encourage higher offers.
Gather all documentation
The next thing you’ll need to do is to gather all the relevant documentation about your business. You’ll do some of this during the valuation process, but there’s still more to do. Gather all tax information, revenue and income statements, information about your website traffic, marketing costs, etc.
You’ll want to put all this together into what is known as a Confidential Information Memorandum. This will be the complete “book” about your business. Not only does it include all of the company’s financial information, but it will also include a detailed synopsis of how your business runs. This document, also known as the CIM, is what you will give to someone when they approach you with a serious offer. It’s best to prepare it in the beginning so that you have it ready when someone requests it.
Choose how you’re going to sell
At this point, you’re ready to move into the actual sale process. There are a couple of different ways you can expose your company to the market. The three most common are:
- Selling on your own. This is best for businesses with yearly revenues under $100,000. You put your business up for sale on a marketplace such as Flippa, and then you pay no commissions when the sale goes through. The downside to this approach, though, is that you will have a smaller market, and also people looking to buy businesses on auction sites such as Flippa are usually looking for a good deal, meaning they might be less willing to offer you the true value of the business.
- Using a broker. Brokers are a good option for businesses with revenues between $100,000 and $20 million. These individuals can help you with the valuation, and then they will use their network and marketing skills to help you find a buyer. Once they do, they’ll walk you through the actual sale process. In the end, they take a commission, but it’s often well worth it, since their expertise can help you find a buyer willing to pay full price or above for your business.
- Hire an investment bank. If you’re business makes more than $20 million a year, then you may want to consider working with an investment bank to set up an IPO or other type of merger/acquisition. They will help you with all the legalities involved in this process. Their commissions will be higher, but it’s virtually impossible to manage this type of sale completely on your own.
For most eCommerce businesses, the best route will be to hire a broker. They will be best equipped to help you, but they do not require as much as an investment bank or merger and acquisition firm does.
Sign the contracts and finalize the sale
After choosing how you’ll sell the business, it’s time to put the business on the market. Once you receive an acceptable offer, the legalities take center stage. Work with you broker, and perhaps some legal counsel, to draw up the contract.
In the contract, you’ll specify the terms of the sale, including the price, how the money will be transferred, and also also agree to the terms of the post-sale support period. Typically, you will spend around 3-6 months working with the new owner to help them get set up with the business, but this is something you will need to negotiate with whoever decides to buy the company.
Once you sign the contract, the buyer will be asked to put funds in escrow. They will stay there until all the paperwork has been completed, and often times until the post-sale support period is over. Then, the money will be transferred to you and the sale is complete.
Be patient and stay focused
Selling a business is a long process. There’s a lot of preparation involved, and then once you do put the business on the market, you need to wait for offers to come in. This will depend on the state of the market at the time. You may get great offers right away, or it might take some time for them to come in.
The best thing you can do is be patient. The purpose of the valuation is to determine what is a good price and what is not. If you’re not getting appropriate offers right away, then wait and give your broker time to find a quality buyer. In the meantime, stay focused on running your business and maintaining its value. Eventually, you will find someone willing to take over your business and run it in a way that does justice to all your hard work.