Even if it’s not happening today or anytime soon, it still pays to learn the basics of selling an online business early on. Preparations for selling will also come in handy even if you decide to keep your business, as these can help you improve your systems and operations and can also give you an advantage in market competitions.
Knowing the Right Time to Sell
E-commerce stores are among the businesses most commonly sold these days. Entrepreneurs opt to sell their businesses mainly because selling offers good opportunities to earn and cash in.
While we know money is the main driver, there are various reasons that affect the decision of business owners and these include: changes in personal circumstances (e.g. needing cash for sudden medical expenses or starting a family); taking a few years off (to study, travel or just simply rest); wanting to invest in a new business venture; and wanting to make other investments such as building a house or buying a car.
Now you might be wondering, “when is the right time to sell my online business?” The answer all depends on you! Once you identify the goal of the sale, it will be easier to determine when the ideal time to sell is. Say you need to raise a certain amount for medical expenses immediately, of course there will be an urgency to sell. But if you’re looking forward to raising capital for your next business venture, then you can wait until a better price comes up. You just need to be clear with your goals.
Things to Prepare Before Selling Your Business
Selling your online business can be overwhelming and quite challenging, but preparing everything you need can make a huge difference. You have to ensure these three things are present before you start selling your business:
- Effective systems for day to day operations
- Accurate data
- Easy to manage finances
In fact, even if you don’t have intentions to sell, these three things are still very important for your business and you have to start paying attention to them as soon as you can.
Buyers are very particular about information and systems, and they also want to make sure that they’re making a wise investment in your business. Effective systems and operations, accurate and consistent data, and healthy finances will prove the profitability and value of your business. If you take care of these three things early on, your business will be easier to sell.
To give you an idea of the importance of collecting data accurately and effectively, it is said that a business that has been operating successfully for 12 months is expected to sell at a higher price than a business that earns the same amount of profit but with only six months of available data. It is advisable to collect data as soon as possible so you can support your asking price with sufficient and correct information once you push forward with the sale.
How Much Your Online Business Will Cost
Aside from the three things mentioned above, it is best to also have an idea of how much your business would cost.
There are two parts to the standard valuation formula for an online business: (1) average net monthly profit over a period of at least 12 months; and (2) sales multiple. You can use this formula for the computation: (average net profit]) x (sales multiple) = listing price.
Say an online business has an average net monthly profit of PHP5,000 and it goes for a 20 times sale multiple, the listing price of the said business would be PHP100,000.
Computation and pricing may vary depending on the type of business and other factors per country, but this formula can help you envision an estimated listing price for your business.
How to Sell an Online Business
The following steps are related to the three things you need to prepare before selling your online business. As discussed earlier, these are important considerations when running a business. And if you are planning to sell your business in the future, the goal is to maintain the efficiency of your data gathering and collection, systems and processes, and finance management to ensure the business will continue to operate smoothly under new ownership.
Here’s how you can prepare your business for selling:
The Standard Operating Procedures (SOPs) are essential in any type of business. When you’re operating an online business for example, your everyday tasks may include product selection and listings, keyword research, content creation, SEO optimization, social media and community management, and customer service, among others. The SOPs will then serve as your detailed operating manual for each task.
With the help of SOPs, it will be easier for you and your employees to revisit various processes and procedures. If you hire new employees, the SOPs will also streamline the processes for them in a much quicker and efficient way. SOPs also allow business owners to constantly review their processes and determine which are effective and which need improvement.
Disorganized and inefficient processes and systems are usually a deal breaker for most potential buyers.
Collect Accurate Information and Data
A website is important in establishing the online presence of a business. Potential buyers would usually ask about your site data, including the amount of traffic it gets and information about your customers.
You can use tools such as Google Analytics to gather necessary information and data. You need to keep track of your site’s traffic, including the content and pages with the highest and lowest views and visits; as well as customer demographics and information, such as their interests and purchasing behavior. These will give potential buyers a better understanding of your business and how you operate.
Keep a Record of Your Finances
Whether you are selling your online business or not, it is only proper to keep a record of your sales and expenses. The moment you start your operations, you must have an efficient way of tracking and documenting your finances to make sure all figures are accurate.
If necessary, you can also seek help from accountants and bookkeepers to make sure your taxes are paid correctly and your sales are recorded properly. If potential buyers see how well you manage your finances, the value of your business might also increase.
Where to Sell Your Business Online
All set for selling your business? Here’s where you can find your potential buyers:
- Private sale: selling privately means you are in charge of looking for buyers and handling all negotiations, including transferring business data.
- Broker sale: you ask the help of a third-party broker to sell your business. You need to provide the broker with relevant information, including website traffic data, proof of revenue, and proof of ownership of relevant domains, brands, and trademarks. Then, the broker will be the one to take care of the negotiations. Of course, however, you need to pay for a broker’s fee.
- Flipping websites: these are marketplaces for buying and selling businesses. Flippa, Shopify Exchange, Empire Flippers, and Side Projector are among the most popular flipping websites today. These channels are said to have an already built-in audience and can also charge lower rates compared to brokers.
Maximize the Sale Value of Your Business
The following tips can help improve your business and eventually increase its sale value. You might want to consider doing these three things to attract potential buyers or even sign a deal right away:
- Optimize your website and improve your SEO efforts
- Create and maintain after-sale relationships with suppliers and make sure the deals you have in place will still be applicable to the new owners
- Make sure the final year before you sell your online business will deliver strong results and income growth
Most potential buyers will be very particular about your sales performance in the last year so make sure you’ll come up with really impressive numbers. Keep in mind that the profitability of your business can determine how high you can sell your business for.