Putting your ecommerce business up for sale is a complex task. Understanding the process, the stake holders, the timing, the preparation all impacts your ability to maximize the final selling price. To help make things a bit easier, we’ve put together this guide to selling your eCommerce business.
So let’s talk about selling your ecommerce business.
Before going too far, though, let’s consider some of the reasons you would want to sell your business. Here are some of the most common:
There’s another reason it’s a good idea to sell your business: the market is hot. Business transactions have been on the rise in recent years, and the small dip it took last year likely won’t continue. There are lots of investors out there looking to inject money into successful ecommerce companies as it’s a hot growing market. Putting yours up for sale is a great way to take advantage of this trend.
On the other hand, there are some bad reasons for wanting to sell your business. If you’re thinking about a sale for one of the following reasons, you may want to reconsider:
Once you make the decision to sell your ecommerce business, you’ll want to familiarize yourself with the process so that you know what’s coming and also what’s expected of you.
Here is a summary of the ten steps involved in selling a business:
First, you’ll want to get an idea as to how much your business is worth. Obviously the final number will depend on who’s interested, the quality of the business and the market conditions, but this framework is important as it gives you a starting point.
The general rule of thumb is that a business trades between 2-3 times its yearly profit. Obviously larger companies (profit over $2m) will sell for a higher multiple (4-5) and smaller companies for a lower (1-2) that is why it is important to get a third party opinion on value because each business is uniquely different and thus while rules of thumb are great your business could have specific characteristics that change its value. This will fluctuate according to a few things, such as:
Probably the best thing you can do is to bring in someone to do an appraisal or engage a broker for an opinion of value to get a sense of your ecommerce business worth.
The next thing to figure out is whether or not you want help selling your business. The obvious difference is that selling on your own is cheaper. There are no commissions, so your final paycheck will be higher.
However, this extra bit of cash comes at an expense: you’ll have to find a buyer on your own. It’s hard to match the resources and network of someone who dedicates their entire life to selling businesses, so keep this in mind when you’re deciding whether or not to go on your own. Generally selling on your own is best when you are selling to a family or staff member or have a ridiculous offer on the table from a strategic buyer (yay for you!)
In general, bigger businesses are best sold through a broker or a bank, smaller through a marketplace.
If you’re going to get help in selling your ecommerce business, you may be wondering what commissions are like. This is a fair question, and it’s one that will help you better understand the sale process. Fees vary according to the size of the company. Here’s a standard commission structure used by brokers for Ecommerce businesses broken down by range of final sales price:
After you’ve determined the value of your Ecommerce business and chosen a method for selling it, you need to spend some time gathering information about the business. Ideally you need five years (less if the business is not that old) worth of profit and loss information, as well as at least five years worth of financial statements, tax returns, website traffic stats, bank statements, shopping cart statements, supplier agreements, staff contracts and merchant statements. These documents will be used to develop the information for the buyer, as well as used in diligence by the buyer to verify the business.
Now you’ll need to turn your attention to the Confidential Information Memorandum, also known as a prospectus, or simply, “the book.” This is a document detailing everything about your business so the buyer can make an educated assessment of the offer they want to put in. It will explain how you make revenue, how you operate, what are some of the risks you face, and what your projections are for the business moving forward. This document is usually between 15-40 pages.
The right buyer is someone who will pay the highest price with the best terms, and is the best fit for the business. You’ve worked hard to build your company, so you want to be sure you’re turning it over to someone who understands it and is going to treat it well. Generally the terms are more important than the offer so discuss with your advisors on how to best structure it.
If you use a broker or an investment bank, they will use their network to help you try and find a buyer.
Hopefully, all the work you and your broker put in marketing your business will result in a good offer. Offers usually come as written Letters of Intent (LOI). In this document, the prospective buyer will list their offer and their terms.
Once you get an offer, it’s your job to verify the identity of the buyer and do a little research to make sure they are a good fit as well as have the cash. Pay special attention to non-compete and exclusivity clauses in their LOI terms, and also look for what kind of post-sale support they are asking for to see what is expected of you when the sale becomes final.
Once you pick the best offer, you give that buyer an exclusive period, generally 2-6 weeks to do their due diligence. Now it’s time for all those documents you compiled to come in handy. When you get an offer, you’ll need to allow a period of time for the potential buyer to review all the claims you’ve made about the business. Present any information they request so that they can confirm what you’ve said and the sale process can move forward. Be quick to respond, and tell the truth as you respond to questions, even if there are problems. Being upfront about them will help you get the deal done.
If everything is still in order after the buyer has done due diligence, they will make their final offer, which usually comes in the form of a sale contract. You’ll want to carefully go over all the terms with your lawyer before agreeing. If there are problems during diligence the buyer may ask for a reprice, if not the original offer they made will stay the same.
When the contract is signed and the deal is final, it’s time for the money to change hands. This usually works through an escrow service and is supervised by lawyers. Essentially, your broker or lawyer sets up an escrow account, then the buyer deposits the money, and once everything is confirmed, the escrow service will deposit the money into the account you’ve specified. Once this happens, the deal is now official and it’s time to begin working with the buyer to facilitate the transfer and training.
After the deal becomes official, you’ll likely spend some time with the new owner training them on how your business works. What’s expected of you will depend on the terms of your contract, but standard practice is to spend 4 to 20 weeks with the new buyer to help them take over the business depending on what gets negotiated during the deal.
And there you have it: everything that will happen from the moment you start considering selling your business until you officially turn it over to the new owner. Be proud of your accomplishment, take a nice vacation with some of the sale money, and then move on to the next project.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.