Selling your ecommerce business can be both exciting and frightening! You’ve worked hard for years to build a business worth millions, and now you’re considering what to do next.
Regardless of the reason behind your exit plan, there are a ton of people in the market looking to buy ecommerce brands. Many don’t want to start from the ground up, and others are looking for new opportunities to add value to their current business by merging it with another brand.
Selling a business isn’t something you do every week, and it involves a different set of skills than running a growing enterprise. Many people I speak to are confused about the process or have questions, but no advisers to talk with.
In this guide to selling your ecommerce business, I’ll guide you through the process and share tips that you can quickly implement to improve the value of your business to potential buyers!
Is Now the Right Time to Sell Your Ecommerce Business?
There are countless reasons why selling your ecommerce business could make sense, and now might be the best time for you to sell.
You’ve probably heard horror stories of someone turning down a 7-figure payday as they believed waiting a year or two would guarantee them 8 figures. Within 18 months, they’ve liquidated as the market moved, and they didn’t move fast enough.
Even if you haven’t built to sell, your business is on the market for the right price! Be ready to analyze any and all deals that come your way.
So why might you want to exit?
You could be suffering from burnout, want to retire, or have other business ideas you want to explore. Boredom is another reason many sell their business!
Maybe several businesses have launched into your market in the last year, and some are looking for opportunities to consolidate. Are buyers knocking at your door as your niche is sexy?!
There are a ton of reasons why you might want to sell your ecommerce business. Equally, it might not be the best idea to sell up if you’re days away from running out of cash or your supply chain is in ruins. Any buyer worth their salt will uncover these issues and run away!
Preparing Your Ecommerce Business for Sale
Getting your ecommerce brand ready for sale can be a lengthy process. You need to clean up the financials, ensure you’ve documented as many processes as possible, carry out a stock take, and more.
You might want to cut corners and exit the business quickly. However, this approach could result in you leaving a pile of cash on the table. Here are the elements you need to sort before you can begin to look at selling your ecommerce business.
Financial health
Buyers will want to know if your business is financially healthy, even if they have their accountant double-check the numbers. Regardless of how you’ve been doing your accounting up to this point, it’s vital you get the basics in place.
You’ll need an up-to-date Profit and Loss account, balance sheet, and cash flow statement. It’s worth having detailed notes that explain what these documents show and clarify how the business drives revenue.
If you have outstanding debtors, you might want to take a haircut on the money owed to get repaid or write it off completely. It’s best to seek your accountant’s advice to ensure you present clean financials without any inconsistencies.
You can go into more detail and calculate key metrics such as profit margins for each product line, customer acquisition cost (CAC), and customer lifetime value (CLV).
Operational efficiency
Someone might be looking to buy a business to skip the start-up phase and use their talents to help the brand grow. Rather than having to sit with you for the next 6 to 9 months, you should have a folder with documents for all of the key processes needed to run the business.
This folder should include documents that cover everything from order fulfillment, customer service, marketing, and inventory management. These step-by-step process documents mean anyone should be able to run the business.
If these are in place, the new owner can keep the revenue flowing while growing the business by improving processes and expanding into new areas.
Legal and intellectual property
Next, you’ll want to gather all legal documents together. This pack should include employment contracts, supplier contracts, terms of service, and privacy policies.
If you have any trademarks or proprietary technology, you’ll want to ensure they are also protected. Finally, ensure any domain names are set to auto-renewal and are in a separate account, making transferring them easy.
Customer list
As there are only two ways to grow a business (find new clients or sell more to existing ones), your customer list is vital to the sale. You should be able to pull one from Shopify/WooCommerce or your CRM system.
Along with the customer list, you want to include any analysis and market research you’ve carried out, such as customer demographics, loyalty, brand reputation, and Net Promoter Score (NPS).
Inventory management
You’ll need to conduct a stock take when getting your business ready for sale. This includes the items in your warehouse, any goods in transit from supplies, and returned items that are yet to come back.
It’s worth documenting inventory valuation and turnover rates. Also, if you have warehouse documentation that details where stock should go and how items should flow between departments, you’ll want to include those as well.
Technology
As an ecommerce business, the technology you’re using has to be user-friendly, secure, and scalable. Otherwise, you have a massive liability on your hands! It’s worth documenting all integrations and software used to allow the new owner to conduct a technology audit.
Finding the Right Buyer for Your Brand
You have plenty of options for selling your ecommerce business. Some are more financially beneficial than others.
You could use a broker to find a buyer. However, they will charge you steep fees and can’t guarantee they will sell your business. Another option is to look for buyers on your own.
Identifying potential buyer types
While there are several types of potential buyers, each has different motivations and resources, meaning you need to qualify them closely to ensure you don’t waste time.
- Strategic buyer: These are existing businesses in your industry. They could be competitor or suppliers who are interested in synergies and how your business can enhance their existing operations.
- Entrepreneurs: They are looking to buy an established business rather than starting something from scratch. They have the capital and skills to acquire a small venture with growth potential.
- Investors: If you have a scalable model and a proven team, your business could be attractive to private equity, venture capital funds, and other such investors.
How to find buyers
With the ideal type of buyer in mind, you can choose the most effective channels to reach them.
It’s very easy to find brokers and M&A advisors with a quick online search. If you want to go down the DIY route, you can list your business on a few online business marketplaces and see if you get any offers.
Finding smaller investors might be tough, as they won’t be advertising that they are looking for new investment opportunities or businesses to buy. You can use your industry connections and wider professional network to uncover these people.
Another way is direct outreach to a potential buyer you feel might be interested. You only have one shot with this approach, but it can be highly effective as you bypass intermediaries.
Qualifying potential buyers
Getting several people interested in buying your business is fairly straightforward. The next step is harder, as you need to qualify every potential buyer to see who’s tall enough to ride the ride!
To properly vet someone requires understanding their ability to fund the transaction, their experience in running a business, and their knowledge of the industry. They don’t have to fully grasp your vision for the brand or want to expand it as you would.
Navigating The Process From Listing To Exit
Selling your ecommerce business is a complex process with many potential pitfalls. Many people wrongly assume agreeing to sell is all they need to do. There are multiple stages you need to navigate for a successful and profitable exit.
Let’s explore the key phases of selling your ecommerce business and empower you to navigate the complexities with confidence.
Valuing your ecommerce business
There’s an art and a science to valuing a business. Get it wrong and no one will want to talk to you. However, with the right figure, you’ll attract serious buyers.
The 3 most common methods to value a business are Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Multiples, Revenue Multiples, and Asset-Based Valuation. It’s worth working with an accountant to choose the right valuation method for your business.
They will help you decide how to value your business based on multiple factors, including profitability, growth rate, and niche. As a professional, they’ll be able to help you get a fair value for your business using real-world data.
Creating a prospectus
Now you have a clear valuation, you need to create a prospectus. This comprehensive document provides prospective buyers with the information they need to assess your opportunity.
It should cover the business’s history, mission, products, and competitive advantages. You’ll need to include financial details such as profit and loss statements, balance sheets, and cash flow projections.
You should also have sections that cover operational structure, marketing, customers, and, the significant growth potential and opportunities that await a new owner.
Negotiations and Due Diligence
Your prospectus is the groundwork that makes agreeing a sale and verifying the details with a potential owner easier.
Negotiations will cover pricing, deal structure, transition support, and other terms. Effective communication, transparency, and a willingness to find common ground are key to a successful negotiation.
Once a buyer expresses serious interest, they will want to take time to carry out due diligence. This involves a thorough examination of every aspect of your business. Your potential buyer will have questions and concerns. Again, answer these honestly and transparently.
Structuring the deal
How you structure the deal can have significant implications for both buyer and seller, particularly concerning tax and risk. Understanding the common structures is essential for protecting your interests.
Will you sell the business’s shares or just certain assets? Are you expecting an all-cash transaction or happy to pay off over the next few years?
When thinking about selling your ecommerce business, it’s important to consider all of these details and the consequences of these decisions. It’s worth working with your accountant, tax advisor, and lawyer to structure the deal in the most beneficial way.
The closing process
The closing is the culmination of months of hard work and negotiation, where the legal transfer of ownership and assets takes place.
Legal documentation
The closing involves signing numerous legal documents and agreements. It’s vital that an experienced legal counsel review all documentation thoroughly. Once you’ve signed the documents and handed over the keys, you’re no longer the owner.
Post-sale transition and support
Many deals include a post-sale transition period where the seller supports the new owner. This can range from a few weeks to several months of consulting. It’s crucial for ensuring a smooth handover and the continued success of the business under new ownership.
Common Mistakes To Avoid When Selling A Business
Much like buying a house, you don’t sell, or even buy, for that matter, a business every year. As a complex and demanding process, selling your ecommerce business will involve some ups and downs.
To enable a smooth transaction and a successful sale, you’ll want to avoid common pitfalls. Here are key mistakes to steer clear of:
Emotional attachment
You’ve poured yourself into your business and made many sacrifices as part of the journey. It’s understandable, you’ll be emotional and attached. That said, you don’t want your emotions to cloud your judgment.
Many deals fail due to the owner allowing their emotions to get in the way. So, it’s essential to remain objective and make decisions based on sound business principles, not sentiment.
Poor financial records
As we’ve already talked about, having accurate, up-to-date, and well-organized financial records is critical. Buyers will scrutinize every detail, and any inconsistencies or gaps can erode trust and devalue your business.
Not properly valuing the business
The market will decide what your business is worth not you. If you’re looking to exit, you need to be pragmatic when valuing the business.
Overpricing can deter potential buyers while under-pricing means leaving money on the table. You’ll want to seek a professional valuation that will take into consideration such factors as market conditions, assets, profitability, and future potential.
Underestimating the time and effort involved
It can take 6 to 18 months to complete the selling process after agreeing a deal. In most cases, finding a buyer to purchase your business is the easy part.
Be prepared for extensive due diligence, negotiations, and paperwork, all of which can take months to complete. You can delegate a lot of the process to trusted advisors but you’ll still need to be involved.
Legal and tax implications
Selling your ecommerce business has significant legal and tax consequences. To ensure a smooth process, you need to consult with experienced legal and tax professionals. If you don’t, you might make costly errors or end up with a large tax bill.
Poor communication during the process
Similar to moving home, the silent killer of many deals is poor communication. You must stay on top of the process, the buyer, advisor, and other key stakeholders.
Miscommunication can lead to misunderstandings, delays, and a breakdown of trust.
Not Planning for post-sale
I’ve saved the most common issue for last! So many people sell their businesses and don’t realize they need to stick around for a few months to advise the new owner on how to run the business. Nor do they have a plan for what to do next.
As a highly motivated individual, you’ll need something to do next. It could be taking a long holiday, getting stuck into charity work, starting another business, or taking on some consulting projects. Your ambition doesn’t stop because you’ve sold up!
The First Step to Selling Your Ecommerce Business
Selling your ecommerce business is a significant undertaking that requires careful preparation and a strategic approach. It can be an incredibly rewarding experience that results in a 7 or 8-figure amount dropping into your bank!
By understanding the process in more detail, you can better navigate the complexities of exiting a business. It’s best to approach the sale with objectivity, lean on trusted advisors, and plan for your exciting next chapter.
Your hard work has built something valuable, and now it’s time to ensure you reap the rewards of a well-executed exit. Remember, selling your ecommerce business is the first step to your new life!
Need a partner who can design your rocket-fuel ecommerce growth strategies and supervise their execution?
