How to Prepare Your Ecommerce Business for Sale

How to Prepare Your Ecommerce Business for Sale

Woman working from a hammock using her laptop

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?

Man talking on the phone

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?

Table full of clocks

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

Hand writing a list with a beverage off the the side

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.

Very few buyers are interested in purchasing an online business that gives them a job with extra work.

If you are spending a large amount of time talking with customers, and your business isn’t making enough money yet to justify outsourcing customer service, then you might need to push back the date you set for selling the business.

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You might want to focus on ramping up the profits or streamlining the business’s efficiency to the point where you can justify a $300-500 a month customer service rep that handles all of your customer service for you.

If you have never hired before, it can be a stressful situation. Luckily, if you are following this guide you should already have an SOP written that breaks down all of your customer service protocols, so you know exactly what you are looking for.

Aren’t you glad you wrote those at the outset?

Check Duplicate Content

Go through your ecommerce store and check for any duplicate content on the website.

You might have duplicate item listings (perhaps from a promo you did), that need cleaning up. Or maybe something funky is going on with your URL structure causing duplicate content to appear because you happened to use tags that double post everything you do to various category pages (some of which you might not even realize you have).

Duplicate content can potentially hurt your website from an SEO perspective, so it is important to do this routinely, to give your store the best shot it has in ranking high for valuable ecommerce keywords.

Cleaning Up Your Backlink Profile

If your website relies heavily on SEO, it is good to go through your backlink profile now and again to make sure everything is kosher. You want to use something like Google’s Disavow Tool to clean up any nefarious or spammy looking links. (Though this might not be as important as it used to be, according to the new Penguin update)

Also, you want to go through your profile to see if there are any old links pointing to you that are no longer active. Likewise, you will want to clear your site of any broken links you have that are effectively pointing nowhere now.

There are easy tools to do this—consider using a website like Siteliner (which also can help check your website for duplicate content) and/or a tool like Ahrefs to check out all the links currently pointing to your site.

Some Special Notes for Dropshippers

For those who are primarily using dropshipping as their way of supplying products, now is a good time to get organized.

You want to make sure that your dropship suppliers agree that the terms you currently have with them are transferable to the new owner of the business.

This likely won’t be an issue, but it is important to head this off before you list your ecommerce store for sale. Also, verify that your backup suppliers are also okay giving the new owner the same agreement they have with you.

Get. This. In. Writing. It is THAT important.

What to Do 3 Months Out from Selling Your Ecommerce Business

Man standing in a big room talking on the phone

We are getting down to the wire now. This is really your last chance to do any major changes to your ecommerce business. If you have been following this plan though, there should not be that much stuff you have to change or prepare.

SOPs and Terms of Service

I mentioned earlier that we would be revisiting the SOPs you created when you first started your ecommerce store. Now is a good time to dust them off and review them all. As your business grows, you might have learned new steps that make the business more efficient.

You want to make sure your SOPs reflect these new changes. This is also a good opportunity for you to clean up your terms of service, to make sure they still make sense with how the business is currently being operated.

Review Financials

You will want to review your financials. Are there any dips in earnings? Why? Make sure you can explain these, along with any spikes in revenue. Do your financials paint a picture of a healthy business on an upward trend, or one that is spiraling downward?

If the latter, you might have your work cut out for you turning it around. It might be a good idea to push back your listed sell date to fix the downward trends in earnings, as that could negatively affect your multiples.

Review Traffic

Just like you did with your financials, it is time to review your traffic. Make notes of when you have traffic spikes and why (perhaps a new Facebook ads campaign or a large uptick in organic keywords sending you a rush of search engine traffic), or when your traffic dips uncharacteristically. These are things buyers want to know.

If a buyer knows that the reason you saw a dip in traffic was because you shut off a Facebook ad campaign you had been running unprofitably for two months, that makes them feel a whole lot more comfortable.

Outsource

At this point, every aspect of your business should be as outsourced as much as humanly possible. Your customer service, even product selection in an ideal world, should all be handled by agents who are successfully using the SOPs you created for them. The more you can make your business hands-off, the more attractive it is going to appear to a potential buyer.

You will also want to open up a new document titled “Training and Support for New Owner”. If you didn’t guess, this document will highlight everything you will be showing the new owner once they have bought your business.

What kind of training are you going to give them? What kind of support? This document should outline everything in detail.

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A Note for Store Owners With Their Own Physical Products

If you are sourcing and warehousing your own physical products, make sure you are NOT the person who is packaging up all of your products to be sent off to the fulfillment house. You want this outsourced, and if you haven’t outsourced it yet, then now is a good time to do so.

For Amazon FBA sellers and ecommerce store owners with their own physical products, we suggest using someone like FBAInspection.com to take over this duty for you.

Yes, it will add an expense to your business. It will also make your business far more attractive and help you get a better multiple. This will also open up your pool of potential buyers to a much larger crowd.

Since many buyers are traveling around or simply are not set up to take in hundreds of products that they have to package themselves, they likely won’t be interested in purchasing a business that doesn’t already have this done for them.

What to Do 30 Days Out from Selling Your Ecommerce Business

Hands holding an inventory list with ingredients spread out on the table

At this point, everything is in its place and ready to be sold. You have two real options here, and 30 days out is a good time to start researching these to see which one is going to be right for you.

Researching Strategic Buyers

Thirty days out is when want you compile a list of people that might be interested in buying your business. These could be people that would have a strategic interest in your business due to a business they already own.

Or, these could be cash-heavy investors looking to get in on the online ecommerce game.

Either way, compile this list now so you can reach out to them.

This is something you will want to do if you decide not to go with a broker.

There are some advantages in doing this, like not having to pay the commission fee that comes with using a broker, and therefore potentially getting more money for their business. However, this is often an advantage that a seller doesn’t get to fully appreciate.

Because a seller’s reach to buyers is limited, they will often have to sacrifice what their business is actually worth in order to sell it—taking a lower overall price than what they were hoping for. This isn’t as true for a veteran seller who has built up a rolodex of people interested in purchasing ecommerce businesses, but it is certainly something a first-time seller will have to overcome should they choose to go down this route.

Unless you have a connection already in place willing to pay your asking price, you can avoid this potential devaluation by going with Option #2, which is using a broker.

Researching Different Brokers

For most sellers, using a respected online business broker is a shortcut to selling an ecommerce business. Since a broker already has all the marketing in place, a larger buyer’s audience, and is used to brokering deals day-in and day-out, they can make the selling process a lot smoother for you.

This is especially true if this is the first ecommerce business you have ever sold. There is a lot that goes into transferring a business over to a new owner that can be tedious, and even complicated, to do if you are not used to the process.

The broker you go with should have a running track record of selling your style of business, in the same price range as your business, and have a good reputation.

The Vetting Process

Once you find a good broker, if you’re using one, it is time to submit your site for sale, so you can start the vetting process. Depending on the complexity and size of your ecommerce business, the vetting process could take anywhere from one to three weeks before it is ready to go live and be marketed to potential buyers.

Now that you have the valuation from a broker (if you have gone down that route), it is time to make sure you set a hard minimum of what you would be willing to sell your business for.

If your ecommerce store is worth $450k according to the broker, be flexible on that price, but you might want to set a hard minimum of $430k (or whatever you are willing to walk away with) after the broker takes out their commission fee for marketing your business.

When you have this hard minimum, it helps you from getting caught up in the negotiation process and accepting terms that you aren’t happy with—so write it down!

What’s Left to Do?

Man lying on a couch using his iPad

You have gone through the entire process and your ecommerce store is now listed for sale either with a broker of your choice, or privately as you have begun to reach out to potential buyers.

There is not a lot left for you to do, outside of actually selling your business.

That being said, you should be prepared for a few last-minute things that will pop up during this part of the process, one of which is sharing your Google Analytics with a potential buyer.

Some sellers feel very uncomfortable with this, but you must place yourself in the buyer’s shoes. Would you really feel comfortable buying a business where the seller is denying you critical information, such as traffic data?

You will want to be able to explain all the traffic sources your analytics are showing, and also how they work. This second part is very important to detail out specifically in the training and support document you created earlier.

A Seller’s Tip: Be Honest About the Negatives of Your Business

One thing you want to avoid as much as possible is selling your business based purely off potential. If you build the idea in the buyer’s head that this business could be huge, then you are going to get a bunch of offers where they low-ball you, with the promise of paying you more money when the business does reach this mystical huge phase.

Instead, you can build potential in the buyer’s head without saying anything at all on the subject. Rather, you talk about the negative aspects of your business.

For example, maybe you lost several thousands of dollars in Facebook ads and currently your ecommerce store gets all of its profitable traffic from organic Google search. This is a great thing to mention to a potential buyer. That buyer might hear that you couldn’t get a good Facebook funnel going, and consider that a big opportunity for them, as they happen to be very good with Facebook ads.

More often than not, the blemishes and negatives of your business will be looked at as possible opportunities for the new owners.

Use These Strategies to Make 2017 Your Most Profitable Year Yet

2017 written in paper

By planning from the start of your ecommerce business, and revisiting six month, three month, and one month goals, you are putting yourself ahead of the vast majority of ecommerce store owners out there.

Even if you don’t end up selling your ecommerce business, running your business as if you were will cause you to operate your business in a whole different mindset—one that can lead you to more profits and time freedom as you make your business more and more efficient.

Plan effectively and you can make 2017 your biggest year yet, as you create a big payday for yourself by exiting your ecommerce business successfully.


shopify-author Gregory Elfrink

About The Author

Gregory Elfrink is a Content Manager at Empire Flippers, where he writes content to help online businesses successfully buy and sell websites. He loves fiction, science, and in his free time, he moonlights as a novelist.

 

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