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How to Prepare Your Ecommerce Business for Sale

2017-03-15 21:30:43

It’s the start of the new year, and that means there are a lot of people out there starting on their resolutions and reviewing their current goals for 2017. For many, one of those goals might be to sell off their ecommerce business—or maybe even several of them.

This is a great goal, since selling a business can lead to a nice payday for an entrepreneur.

Every business should be built to sell. Whether or not you sell it, your business will become more efficient just by making the changes needed to get it ready for sale. Your business has everything to gain and nothing to lose by preparing it for a potential buyer.

Why Sell Your Business?

 

You might be wondering, “why would anyone decide to sell their business?”

After all that sweat equity, time, and work that has gone into it, aren’t you just throwing something valuable away?

Here are a few reasons:

  • Some people sell a business so they can collect 20-40 months of upfront profit right away, without any of the continuing risks of operating a business.
  • They might want the money to start other projects (as is usually the case).
  • Maybe they are looking to buy some real estate.
  • In one case, we even had someone come to Empire Flippers to sell their business to raise enough money so they could adopt a child.

Though there are many reasons why someone might sell, the process has a standard set of steps that everyone should follow.

It’s the start of the new year, and that means there are a lot of people out there starting on their resolutions and reviewing their current goals for 2017. For many, one of those goals might be to sell off their ecommerce business—or maybe even several of them.

This is a great goal, since selling a business can lead to a nice payday for an entrepreneur.

Every business should be built to sell. Whether or not you sell it, your business will become more efficient just by making the changes needed to get it ready for sale. Your business has everything to gain and nothing to lose by preparing it for a potential buyer.

Why Sell Your Business?

You might be wondering, “why would anyone decide to sell their business?”

After all that sweat equity, time, and work that has gone into it, aren’t you just throwing something valuable away?

Here are a few reasons:

  • Some people sell a business so they can collect 20-40 months of upfront profit right away, without any of the continuing risks of operating a business.
  • They might want the money to start other projects (as is usually the case).
  • Maybe they are looking to buy some real estate.
  • In one case, we even had someone come to Empire Flippers to sell their business to raise enough money so they could adopt a child.

Though there are many reasons why someone might sell, the process has a standard set of steps that everyone should follow.

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In this post, you are going to learn exactly how to prepare your business for sale, step-by-step. By the end of this post, you will have everything you need to know to properly prepare and make the actual sale process go very smoothly.

When is the Right Time to Sell?

The biggest question you need to ask yourself is: “when should I actually sell my ecommerce business?”

Ask yourself this question at the start of your journey and keep referring back to your answer as your business grows; this might be something that changes as your goals mature. Set a date for when you would like to look at selling your business, then put your head down and get to work making your ecommerce business as valuable as possible.

It is worth noting that online businesses are valued using a sliding range of monthly multiples. Typically, the range of multiples used is 18-36x, though they can go as high as 48x, depending on the business.

The basic formula for evaluating your business looks like this:

Average Monthly Net Income x Multiple (18x-48x) = Listing Price

Of course, there are many factors that determine what kind of multiple you will get. Some factors that affect your multiple are:

  • How much traffic you are getting
  • If you have an email list and the size of it
  • Social media presence
  • 12-month average used for monthly net income (common for seasonal businesses)

The biggest factor for determining a multiple is how long your ecommerce store has been around. If you are selling an ecommerce store that has only been around for six months, your multiple is likely to be a lot smaller than an ecommerce store that has been around for six years. The ecommerce business that has been around six years has shown longevity and stability. It has survived the test of time, and all the uncertainty that comes with it. Because it has survived so long, a buyer has more confidence in it surviving for the foreseeable future. In contrast, the ecommerce store that has only been open six months can’t lend a similar level of confidence to a potential buyer.

One thing we do to help sellers create a rough estimate of their ecommerce business’ value is to provide them with our free Valuation Tool, which will tell them what kind of listing price they might be able to sell their ecommerce business for.

Preparing Your Business for a Big Exit from the Start

The very first step in preparing your business for sale is getting your traffic recorded with a good tracking tool.

You should have Google Analytics or Clicky (a third party, but highly respected solution) installed on your website. This is easy, and in the case of Google Analytics, totally free to do. It will also help you grow your business because you will see different keyword opportunities and where your traffic is actually coming from, so you will be able to focus on those traffic channels specifically. Whether you plan to sell or not, you might as well start tracking everything from the very start so you can pinpoint trends.

The more data you have tracked, the better chance you have of being able to sell the business.

Next comes Standard Operating Procedures or SOPs.

Now, if you are a one-person shop, you might be wondering about the benefit of having these. After all, you are doing it all yourself. However, even if you have zero employees, having SOPs in place makes your business more attractive because it has a ready-made training guide for the new owner.

Good SOPs should break down a process so thoroughly that someone with zero experience could read it and adequately reproduce the same results.

When it comes to an ecommerce store, there are three main areas to look at for SOPs:

  1. Product Selection - How do you find the products, suppliers, get the deals etc?
  2. Keyword Research - Mainly for ecommerce stores doing SEO, you will want to list out your search engine optimization strategy and how you implement it.
  3. Advertising System - For ecommerce stores using paid traffic such as Facebook advertising, you will want a detailed guide on exactly how you set up your campaigns, who you are targeting, why you are targeting them and everything else that goes into your paid traffic strategy.

These SOPs might change over time, which is fine. The point is you can save yourself significant time if you write them as you are actually doing the work, since the process will be fresh in your mind.

You will be revisiting SOPs again three months before selling to update them. When you do revisit them, you will be thankful you had the foresight to write them all out in the first place, as updating them will likely come down to just changing a few lines here and there, or rearranging a couple of steps in the process.

As you are selecting your products and getting them ready to be sold on your store, make sure you are also looking for alternative suppliers.

Every product you sell should ideally have 3+ suppliers that can supply that product for you. These alternate suppliers should be listed out in the SOPs you have written for product selection. This helps build buyer confidence in your business, as the buyer will have options in case a supplier doesn’t want to transfer supply agreements.

What to Do Six Months Out from Selling Your Ecommerce Business

Woman working on  her laptop

You have a strong foundation now for your ecommerce business, and hopefully it has been running smoothly. You are now six months away from your listed goal when you want to sell your business. At this point, there are just a few things to review—mainly some housekeeping work.

Tracking Your Customer Service Hours

Make sure you are tracking how many hours you are spending handling customer service. You can use Time Doctor or any time-tracking software to do this. Try to be as accurate as you can.

If you find yourself spending 5-10+ hours a week handling customer service calls and emails, you will want to look into outsourcing this as quickly as possible.

 

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