With online sales soaring, ecommerce businesses are popular with business buyers.
That many barometers of the business’s value – website traffic, sales revenue and social media reach – are digitally documented makes them comparatively easy to measure, further smoothing the sales process.
However, online businesses can decline as rapidly as they can grow – so you have to convince buyers that your success is durable or that the business has untapped potential.
Preparing your ecommerce business for sale
A solicitor and/or business transfer agent experienced in selling ecommerce businesses can help you plot an exit strategy that helps you achieve this aim. They can help you value your business, target buyers, conduct negotiations, prepare and share paperwork and close the deal.
You should aim to make the business more appealing to buyers at a cost and within a time frame that makes it worthwhile. There’s little point in spending a fortune on an entire new range of stock, for instance, if your business is making losses and your website cannot get traction on Google search results.
However, there are always minor improvements to processes and technology that could yield significant improvements in trading performance and customer reviews. For instance, upgrading elements of the website’s back end or front end, or refreshing your social media pages and output, could make the business a more appealing asset.
You could also boost its valuation by adding new revenue streams, posting content more frequently, eliminating unnecessary expenditure or negotiating better deals with third parties. Your exit strategy also involves plenty of admin, such as cleaning up your bookkeeping and financial documents and getting other paperwork in order.
You should prepare a sales memorandum outlining key information like operating costs and sales revenue covering the last three years, financial forecasts, numbers of customers and subscribers, inventory value and intellectual property. Also, document your systems and processes so that the buyer feels they are getting a turnkey business that is not reliant on the improvisational talents of the outgoing owner.
An accountant or business transfer agent will help you value assets such as the website, customer databases, social media accounts, goodwill and intellectual property.
According to Truelegal Solicitors, your adviser will probably also suggest a multiple of annual net profit suitable for the sector.
The multiple will additionally be influenced by factors like:
- Revenue stability and growth, and profit margins
- Proportion of repeat customers and/or engaged subscribers
- Growth potential
- Whether the retail niche is growing
- Age of the site – especially in such a fickle sector (consider eBay: launched in 1995 it has survived countless disruptive online trends)
- Processes and systems such as CRM, warehouse and fulfilment
- Supplier relationships
- Any outstanding legal disputes such as over intellectual property
Avenues for finding buyers include your business transfer agent, your own business contacts, conferences and other networking opportunities, as well as this website. If you care deeply about the business’s fortunes after you’ve gone, then you’ll be keen to find a buyer with integrity who is competent, and enthusiastic and knowledgeable about the sector.
Perhaps your overriding concern is simply a quick and/or lucrative sale. A competitor or manufacturer of your products might have the resources and knowhow to tick both of these boxes. Or you might find an entrepreneur with or without a serious pedigree in building successful online businesses.
Whether you accept a buyer’s offer will depend on many factors. Your reasons for putting the business on the market, for one, will affect your negotiating leverage.
Because you’re in a weaker bargaining position if you’re seeking a quick exit – for instance if you’re suffering ill health or the business has grown to a scale that you’re struggling to cope with – than if you’re in no rush to sell up.
Has the buyer given you a compelling reason for going a certain percentage below your asking price? Perhaps you like and trust the buyer and have faith that they can build on your success.
Are they prepared to pay the entire sum up front rather than in stages? The buyer might raise their offer if you accept a proportion of the price in tranches – known as seller or owner financing – possibly linked to hitting target revenues.
You could sweeten the deal by offering to stay on as a consultant for a specified period post-sale, to help the buyer become familiarized with the business.
You could also insert warranties and indemnities into the purchase agreement to give the buyer legal protections after the sale.
Any terms you agree will remain non-binding and contingent on the outcome of due diligence.
An exhaustive examination of your assets and day-to-day operations, this includes things like visiting your premises, trawling your trading history and scrutinizing your Google Analytics data.
Thus armed with more in depth knowledge of your business, the buyer will then stick to the original terms, seek to renegotiate or even abandon the deal altogether.