WES S03E02: The Best Time To Sell Your Online Business (Reasons Why People Sell)
What are the REAL reasons people sell their online businesses?
Sure, most of them say it’s because they’re going to “work on other projects” or something like that – but what’s the real reason behind that answer?
In today’s episode, we’re going to look at the reasons behind selling your business and review the good and not-so-good reasons it might be time to sell.
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Listen To The Full Interview:
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What You’ll Learn From This Episode:
1. Are you emotionally ready to sell?
- Are you ok giving up your baby?
- Do you have something else exciting to do?
- Am I bored with the business?
2. Is the business ready to sell?
- Are you tracking traffic and financials?
- Are they trending well? Showing profit?
- Do you have processes documented and organized?
- Can someone unfamiliar with your business
3. Are market conditions right for selling my business? (Can you time the market?)
- Sellers market (in 2017 at least)
- Economy is strong – lots of money to invest
- Baby boomers cashed up and looking for retirement projects
- All brokers/marketplaces showing strong year-over-year growth
- Sophistication in online businesses has increased, strengthening the barrier to entry.
4. Are there more personal reasons you should sell?
- The company/business has outgrown your skills (or interests).
- The market is moving against you.
- You’re having life events/issues.
- A lucrative opportunity presents itself.
Featured On The Show:
Justin Cooke: Because the bared entry is higher and I think stronger. The businesses that are already out there are more valuable because it’s not as easy to start today and compete.
Woman: Buying and selling businesses just got out a lot easier. Welcome to the Web Equity show where thousands of successful entrepreneurs go to learn about buying, growing, and selling online businesses still hosts Justin Cooke and Ace Chapman share their real life advice examples and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.
Justin Cooke: Welcome to the Web Equity show this is season three episode two I’m your host, Justin Cook, and I’m here with my cohost, Ace Chapman. What’s going on, buddy?
Ace Chapman: Man, I am excited. We’re in 2017 this is going to be a big year for us and I’m really excited about this new season. Getting into the second episode.
Justin Cooke: Yes man, we’ve got some really good stuff to talk about. We’re talking about the best time to sell your business are also some of the reasons why people sell. We’re going to really dig into this reasons why people will do sell, why they should sell, or why they shouldn’t sell, all of that stuff. One of things we notice is that like some newbies want to sell too soon, right there a little early in the business or still going through high growth and we’re going to talk about why that’s not such a great idea.
We also run to experience Biz owners that don’t think they’re ready. They’ve built up this awesome business, but they’re like, “Oh, it’s not ready yet because of this, that and the other.” And the truth is it’s perfectly ready. They just don’t know. Right? They don’t know. They’re not buying and selling businesses on a regular basis. So they don’t know what buyers are actually looking for them. And we talked to them, but we figure out, “Oh my God, we’ve got buyers definitely looking to buy your business.” So if that’s you, hopefully you’ll find yourself in this episode.
Ace Chapman: Yes, and I know I talked a lot of people all the time that they been on the fit for a little while and thinking about some of the business, they don’t know if they really want to, those folks are going to love this episode because I think we’ve come up with some questions that you can ask yourself to help figure out, hey is this really what I want to do? Cause I know what it feels like to be in that place of being on the fence in your business is not going to do well until you make a final decision.
Justin Cooke: Yes. There’s a lot of people that think you know also they’re wondering about the best time to sell and they’re hoping to time the market. Right. So we’re going to get into timing the market and how you can do that or not do that when you’re selling your business as well. A lot of this you mentioned depends on what stage your business is and where it’s at, but it’s also I think really important based on what you have going on in your life personally and a lot of our sellers have sold for personal reasons, right? A death in the family, marriage, divorce, and we’re going to talk about that as well. I think this may, this episode may actually help some buyers to understand better why business owners are selling, why they shouldn’t sell, why they shouldn’t sell specifically because they should look at those businesses and either there’s an opportunity there or there was a sign to stay away. Either way those are good things to know.
Ace Chapman: Yes. I think from the buyer’s perspective, if you’re asking the seller a question and they give one of the answers that we’re going to talk about in this episode that could tell you, hey, this is somebody who’s really motivated to sell or it’s going to be a very tough person to motivate to sell and could even end up walking away in the end. And I have been in those deals, which is painful. So this is going to be a great episode for buyers as well.
Justin Cooke: All right buddy. Let’s do a quick listener love. We’ve got a five star iTunes review from Antonio. Mr Billions says, give us five stars. I like listen to these guys appeared as so natural and informative and actually come from the heart. I need to hear more and build a strategy and our strategy out first. Really appreciate it, Antonio.
Ace Chapman: Nice and I love the name. I’ve been watching that show billions on Showtime. Either Showtime or HBO that’s Great though I like that.
Justin Cooke: I started watching I dropped out watching the first couple of episodes and I end up dropping out. It’s worth sticking with, Huh?
Ace Chapman: It is worst. Stick it with man. Yes, check it out.
Justin Cooke: All right man. Let’s get into the meat in this episode. All right man the best time to sell your online business or reasons why people sell. We really have four questions I think potential sellers should ask themselves and then we’re going to get into some scenarios where it might make sense to sell or it might not make sell to sell, but the first question is, are you emotionally ready to sell?
Ace Chapman: This one is such a tough one for people to get a clear answer on, but you got to ask yourself, are you okay giving up your baby? There’s nothing worse than buyers finding out right before you hit the closing table that really you’re not ready to sell. So getting some clarity there is helpful and some of the things you might ask yourself. Is there something else exciting that you want to work on? I find that if you’re in a deal and you think you want to sell but you don’t have another project, that’s when you do all this work, you get the perspective, you get a buyer and you get to the content when you’re like, “What am I going to do next? I don’t want to let this go until I know I’m ready to move on.”
Then another thing to ask yourself is, am I bored with the business? Because it can be dangerous to be in a business that you’re no longer aggressively growing. We all know those that could be not growing then you’re dying. And so it’s the same with business. If you’re not growing that business is dying, this slow death and so you really need to get rid of it and you need to do some work to find that next project to get excited on and so that you can sell that one and move on.
Justin Cooke: Yes, good signs that a seller is not emotionally ready is when they get to the closing table or close to the closing table and they’re mostly getting everything they want negotiations going well on their side and they keep coming up with new things, right? They’re like I just I think we need this. Or they want to adjust the contract a little more and it’s like negligibly their favor. As a broker you’re just have to have a heart to heart with a seller says “Look do you really want to sell this business? Is this really something you want to do or have you changed your mind?”
Sometimes having those heart to hearts helps you realize it’s like a, like you’re peeling back the layers of an onion to get to the real root of their issue. And sometimes it’s one of these issues you mentioned, right? They don’t have anything else exciting to do and they have nothing, no other projects they want to work on. And so this is, it feels like giving up their baby or giving away their baby, which can suck. Right. Some sellers ultimately, and they thought they were emotionally ready to sell and after the sale they have that, I guess seller’s remorse where the business has gone and they didn’t have anything to work on and they’re feeling regretful about it.
Ace Chapman: Yes. One of the reasons that I let sellers know that I want them to be involved with a business. And we tried our best involvement as they want to is because a lot of times you bet next day you’ve been working on something every day for three years it’s been your baby and then you close and then the next day it’s not there. And it’s weird.
Justin Cooke: If you’re in a business that you just neglected. So Joe and I, my business partner had a business, it was a Twitter background business called twit art. It was worth like mid five figures per small deal. But we were working on our other business and we just let it go. We didn’t really focus on it and end up dwindling so much. I think we sold it or gave it away for like, I don’t know, a few thousand bucks at the end or something. Like almost nothing. So it went for maybe 60,000-70,000 worth nothing effectively over a couple of years because we just didn’t focus on it at all. So and that wasn’t out of boredom. It was more just other things were going for, so we really, we should have just sold it. We should just put it up for sale right away when we realized we weren’t focused on it.
We weren’t doing anything with it. Why not sell out at that time? That would’ve been a good move I think. Some of the ways Ace you can prepare yourself emotionally would be if you do want to sell and you have good reasons to sell, start picturing your life without your business. What are you going to do with your time? What are you going to do with your money, with your efforts? Where else do you see yourself and try to disassociate your identity from the business. If there’s an issue there, if some of your identity is wrapped up in the business, you’re going to want to start separating that and putting clear breaks between your personal life and your business life. I’m not so good at that in my business. I’m very tied up in the business. It is partly me, but if I were looking to sell our company in my Flippers, I would have to disassociate that a bit. Does that make sense?
Ace Chapman: Yes, absolutely and that’s some work and some things to consider. And for you buyers out there, one of the things you can do is ask the person these questions. How much have you thought about what you’re going to do when you leave the business? I’m going to deal right now where the person has run this business for 16 years and put it on the market three years ago and now it’s literally worth half of what it was three years ago. And she still has this emotional, she knows that she’s out of it, she needs to move on, but that has that emotional attachment and one of the things that we’re doing, it’s like helping her with that because now she sees the numbers. So it’s good to walk somebody through that.
Justin Cooke: There’s a reason we put this question first her, right? It’s because you think a little touchy feely and what are they going to get all woo woo and crazy on me here with this emotional stuff? No, I mean it’s because it’s so important in six and seven figure deals. Your emotional readiness to south is hugely important to you actually getting the deal done.
So let’s say that someone’s got through this and they’ve answered that question. I make the last person to ask regarding whether they’re emotionally ready to sell is, the truth is that they’re probably selling at a two to three ex-annual multiple of profit or something like that, right? So there is some that are not so, and then just hung onto the business for another two, three years, kept running and they didn’t grow. It all just stayed the same and multiple state the same, they’d still have the business. So they made all that money. So if they’re thinking about that and selling it now sounds crazy. You want to just hang onto it for another two or three years, they’re not ready to sell. It’s not a good time for them to sell, right?
Ace Chapman: That is exactly right.
Justin Cooke: Let’s get to the second question. Is the business ready to sell? So we’ve gone through whether the seller’s emotionally ready, this is the business actually ready and some of the things they need to do here are that need to be tracking their traffic and financials. They need detailed reporting on how much money they made when they made it, what their expenses were, if it has traveled with the business, how much traffic they’re getting, what their traffic sources are answering the question, are they trending well? Are they on an upward trajectory and not a crazy upward trajectory, but as their growth, are they declining? Are they declining heavily? Is the business showing a profit because the business valuations we based on profit and how much money the business is making. If it’s not making money, the business isn’t ready to sell.
Another one is do they have their processes documented and organized? Do they have employees are those employees capable? Have they been trained? Are Their SOPs in place? Standard operating procedures, written documentation for the new buyer that they can take over and these things are super important when you’re going to sell your business, having your team in place, trained, having standard operating procedures in place, which we’re going to get into in future episodes, but having all that ready to turn over to new buyer makes your business way more attractive and interesting. A good question to ask is if you’re, can someone unfamiliar with your Business, let’s say a broker that you’re going to work with, can they step in and walk through a few conversations and some explanation? Can they understand where your business is, where it’s going and how it runs? If they can do that, then you’re in pretty good position and your business is in a pretty good position to sell.
Ace Chapman: What are some of the work here for sellers and on so many seller calls where they don’t take the time to do this, but you’re going to have to be able to explain what your business is, how it works, and in a conversation, get somebody comfortable with the fact that they, it’s even plausible for them to be able to run your business. And I get on these calls all the time where people haven’t even prepared to the point where they can just explain their business. I’ve been on calls where the person says, “Well, it’s going to take me at least six months of working with you and training you and eventually you’ll get it.” It’s like, no, nobody wants that. So if you’re in that place where you feel like, oh yes, and the reason I’m clarifying here, Justin, is because some people it’s like, “Oh yes, I can train somebody how to run my business, but they haven’t broken it down into the simple, succinct thing. Just telling the buyer that you’re going to teach them over six months doesn’t work. That’s not having everything ready.
Justin Cooke: Yes. All those processes you have in your head, you’re like, “Oh, I just explain it.” No, no, no you need to take us out. You need to document them in a clear and consistent way so that a buyer can read through it and understand it. I think we were talking about this before we even got on and I’m not going to say the deal or we’re not going to mention the specifics, but there’s one where the seller has a lot of work they to do. Work that they personally need to do and a lot of involvement and stuff that needed to know to do it. And you said it was like, it was tough you were working with a buyer and they were like, I like it, but I don’t know if I can do that because they do all this work. There are some knowledge they have and the processes aren’t clearly documented so that an employee could take over or they could train someone else to do it
Ace Chapman: It’s an awesome business, but that means that it’s really not ready to sell at this point.
Justin Cooke: Yes. All right. Question number three are market conditions right for selling my business? The question is, can you time the market Ace? So as business broker as M&A professionals, we run into this all the time. People were asking, “How’s the market? What’s going on the buy sell space right now. Is a good time to put my business up for sale. Are there hot buyers?” And the interesting truth, Ace, what is it?
Ace Chapman: This matters way less than people think it does. When you talk to somebody, they put this question above the other two that we just went over that are way more important. Like before you even think about the market, are you mostly ready to sell? Before you even thinking about the market is Your Business ready to sell? But you talking to potential sellers, you would think that the most important thing is what’s going on in the market. And unless you’re a billion dollar company, this just matters way less than most people think. The businesses that we’re in right now, it’s a great market, but we’ve been in this a long time, Justin, and it hadn’t really changed that market. That market isn’t that different from a cold market.
Justin Cooke: Yes if I’m Uber the market matters to me because there’s a very limited number of potential buyers for my business, right? Like there’s not a lot of people rolling around with billions of dollars to buy my business. But if we’re talking 2 million, we’re talking 600,000 we’re talking 200,000 that’s a lot more people with that cash, right? They’ve got investments, they’ve got other places. So the market is so big and so vast that you have to narrow down to that particular niche on that particular size. How’s that market? And the data on that is pretty weak.
So in terms of timing the market for that niche and that price range. Yes no need to really worry about it. Still I think we should talk about a little bit how we see the market, and this is going to be a little dated, so it depends on when you’re listening to this podcast, but, well, let’s talk a little bit about where the market is out in 2017 it looks like we’re heading into a seller’s market. I think that’s going to continue for a lot of reasons Ace. I mean the economy’s really strong. There’s a lot of people that are looking to invest their money. There’s a lot of people looking for places to put their money to grow and to earn more money for them. And so I think with all the buyers and the buyer pool growing, I think sellers are going to have a good time in 2017
Ace Chapman: Yes, we’re in a good economy right now, but I think this base in particularly is hot. It’s a lot cooler to own a internet business then to put your money into the S&P and obviously the returns are a lot better as well. So what we’re seeing right now, I mean as I talked to all the brokers and the marketplaces, everybody is showing some very strong year over year growth and that’s really exciting and it’s also helping that there’s a lot more sophistication in online businesses.
There’s a whole ecosystem now just in the services around the businesses that we’re buying. I remember 15 years ago when you wanted an e-commerce site, it was hundreds of thousands of dollars. I remember paying hosting of thousands of dollars for, actually I’ve met with some people at rack space. I remember paying them outrageous amounts of money. Now we buy e-commerce site, it’s all on Shopify. Each one we automatically know the apps we want to add to it, what we want to take away, we know how to run it instantly. So you’d have these systems, you have these ecosystems and a lot more sophistication around running these online businesses. And that makes it a lot easier as well and a ton easier than trying to start from scratch.
Justin Cooke: Yes it’s just interesting, so I think the sophistication the Margaret places interesting like it’s become simple in terms of you don’t have to pay all crazy money to set up posting and to subside or whatever. That’s all super easy and simple. So that’s, I’d say less sophisticated. That’s a lot easier. But the sophistication of marketing and getting people’s attention and getting the business started and be able to compete with all the other competition out there as much harder. So I think that businesses that are already established that are already out there, because the bared entry is higher and I think stronger. The businesses that are already out there are more valuable because it’s not as easy to start today and compete and people do it and people do it really, really well. I think it’s more difficult than it was before. And that’s one of the reasons that businesses are just worth more honestly.
Ace Chapman: Yes. What’s happened is you’re exactly right. The barrier is lower. So it’s anybody can go get a subscript to the Shopperfi and start a e-commerce [crosstalk 00:17:57]
Justin Cooke: No, no that’s not what I’m saying? No, no, Ace, I’m saying the barrier is, well, the barrier to get started is lower, the barrier to be successful is higher. So it’s hard to be successful, but it’s easier to get started. Right? So it means lots of people are getting into it.
Ace Chapman: There is poor competition so we’re saying the same thing is [inaudible 00:18:13] there’s a ton more competition than ever before because that barrier was a lot higher before. So just won a bunch of e-commerce sites and day that barrier is super low, so anybody can do it. And so, you’re better off picking the winner and buying it out of all that competition any trying to enter the fray so it yes, it’s a win win on both sides.
Justin Cooke: Yes man. Question number four. Are there more personal reasons you should sell? And we made this number four, but actually I think this is a pretty common one for us
We see this a lot and sell and the reasons they should sell. So the first one we’ll mention in terms of person, it’d be the company or business has outgrown your skills, right? You started the business and you were an SEO geek or pay traffic geek or whatever and you were able to drive the marketing or drive the sales that way. And when you cap that out you realize, well, I don’t have these other skills or I don’t really want to expand it beyond that because it’s just not that interesting to me. It’s going to be a problem for you, right? So if you become like a worst assets in the business or less of an asset to the business, that’s our reason for you to potentially sell. It might be that you prefer to work on an earlier stage business.
So I just talked to, I did an interview with someone, one of the co-founders that lead pages and he loved starting the business, starting the company, right? Loved it, built it up, love the team, loved building the team and they built it fairly large. And at some point he realized his value to the business just wasn’t there as much. He didn’t like it as much. He didn’t like his role as much and it was a slow moving decision. But eventually came to me like, “I prefer to work on a business that’s scrappy, that’s young and immature and can move on a dime. We can turn on a dime. And it’s just really young and fun.” And he just wasn’t enjoying it as much anymore. And I think that’s a pretty good time and a reason to sell. Maybe you’re just not enjoying the niche of the industry. Maybe you started off and it was five years ago and you were younger and had different interests and maybe those have changed over the years and you’re just not that interested anymore.
Ace Chapman: Yes, and this is a tough one for people to accept sometimes because we were entrepreneurs, so we’re naturally confident people and we feel like, oh well I can do anything. And it’s tough for us to look at the business and be able to separate ourselves and look at ourselves and number one say, “Hey, do I have the skills to take this where it needs to be?” And number two, and probably even more importantly, do I want to, even if I can go and learn the skills, do I want to be in this business? And so that’s one part that the next thing is the market moving against you. Are there some competitors that are coming into the space that may have all guns blazing, maybe some venture capital, and you really don’t want to have to deal with them. And part of that you’ll start to see your path to growth dwindle.
Whether that’s seeing it stopped, which makes it a little bit tougher to sell. But if it’s already stops growing, it’s going to be tougher to sell. It’s better to sell when you can see your path to growth. And you can see, okay, in three months, the way we’re growing right now isn’t going to be as easy as it is or has been. And that can be a good time to let somebody else who has another skillset take over that business and start to grow it. And we’ve taken over businesses where the current owner and seller has a certain skill set, like say what they’re good at is Google ad words and we take over the business and we have somebody on our team that’s amazing our Facebook marketing and it blows the business up.
Justin Cooke: I know you’ve told me you talking about what some of the businesses your buyers bought with us, right? Because you guys the thing is the seller, they reached a limit, like they couldn’t see beyond that event horizon. That’s a silly analogy, but they couldn’t see above that level and they say, “Oh, that’s the cap with my skills, with my whatever ad words, skills. That’s the cap.” And then you guys come in and you go, “Oh, we don’t have that cap because I’m not limited in my skillsets or I have skill sets in other areas that can blow this up.”
Ace Chapman: Exactly we’ve just seen it over and over. And then sometimes you just get into a space where there’s a downturn in the niche or the market and you have to make a decision, am I going to double down on this or am I going to move on? And it’s a crucial decision because it becomes a pain selling the business. If you do double down and now you’ve got more money suck into the business and you’re trying to get that out in addition to the business value and it you need more cash in order to make the deal work. Whereas you know when you sell and you’re sitting on some cash you made from the business, the business is doing well, you can be a little more flexible in your terms and how you set the deal up with your buyer was can actually result in more money over time and trying to get as much cash up front as possible.
Justin Cooke: Sometimes the market is really [inaudible 00:23:16] it just gets a little too risky for you or the legal ramifications make it a little to ski- You’re like a little more security, in your industry. So I like some good industries to look at right now in 2017 would be the marijuana industry in the U.S. right. That’s an interesting space where it’s a legal gray area and it can be super, super profitable for people getting into the space and they may want to buy your business cause they’re wanting to take on that risk. You may be in that space and be like, “Ah, I think I need to go the other way. Or The vape industry is another good one. I think the hover boards would be another good example. There’s a lot of these industries that are either have some legal issues or some things that are troubling and you don’t know which way it’s going to go. And you as a seller thinking, you know what? I don’t want to ride that way over. I don’t want to ride that line. I want to get out now and let someone else deal with that risk.
Ace Chapman: Yes.
Justin Cooke: Another personal reason that people saw this is just life events or issues. Right. And you mentioned this at the top of the show. Maybe you’re going through a divorce, right? And you’re, you got to pay out the husband and you got to pay up the wife. Maybe you’re getting married and you’ve got a whole lot of expenses coming up. I’m getting married soon. So that definitely comes up. Maybe you’re adopting a kid. We had this with one of our sellers, they were adopting and it’s super expensive and they wanted to get a new house and pay for the adoption, everything. And it’s expensive. So they were selling off their online business. Maybe you have health issues or one of your loved ones has health issues that are going to keep you from running the business long term or you need to help defray the costs of the health issues that are going on.
So there are a lot of personal reasons that solar cell that may be affecting you and make you need to sell. I will make a note here that if you’re going to be selling your business, it’s an active process. You may get the sale done inside of 30 days and you’re super happy and you walk away, everything’s good. It may take six months, it may take a year, but it is an active process. So they’re going to be people wanting to look your business, they’re going to look at your books, they’re going to want to ask questions, they’re going to want to do phone calls, and then we want to come see you in person and check out the facilities. There’s going to be some work and some stuff you have to do. So if those life events or issues are going to get in the way of you doing any of that, it may make it very tough to sell your business. You’re going to want to lay that out with your broker so they know where you’re at and what you’re capable of doing.
Ace Chapman: Yes, we’ve dealt with people at each one of those events, but there is something a little special about the adopting a kid thing. We bought one of those from you guys. We’ve done that a couple of times and I had no idea how expensive it was to adopt kids, but that one is really special.
Justin Cooke: We have someone right now with the seller at that is hearing impaired and so can’t do conference calls and comfortable doing conference calls and anything like that. So basically we just need to work around and their difficulties, but that’s fine. I mean, as long as they tell us up front and like tell us what they can do and they can’t do it allows us as brokers to work around what their capabilities are in terms of the sales process. So to let them know up front and where you’re at and what’s going on and make it a lot easier for everybody.
Ace Chapman: Yes. How cool. All right, let’s talk about this one, Justin. You get to a point in the business, you’re running the business and then off in the periphery you see this amazing lucrative opportunity that presents itself and you have to make that decision. Am I going to go over here or am I going to focus on what I’m working on? And we all know that there’s a little bit of a squirrel tendency or entrepreneurs. It’s better to recognize that if you are distracted by some other more lucrative opportunity, this can be just as bad as getting bored with your business because your focus and in the back of your head you’re thinking about this, you’re thinking about the possibilities, you’re excited about it, and naturally your business is going to become a little bit of the stepchild. So you want to pay attention to where your thinking is.
It obviously the other opportunity, if you can do it on this side, then it may not be necessary to sell your business right away, but if that opportunity requires a big outlay of capital, a big outlay of time, then you may want to sell your business so you can really focus on it and take advantage of it as opposed to splitting time and neither one of the opportunities reaching its potential. One of the things is that you could already have a side business and then it starts to take off and it’s this big thing and you don’t want to have this loyalty to the first business just because it was first. If the second business is the thing, that’s going to be the bigger opportunity.
Justin Cooke: Or if you got a partnership on that first business too. Right? So like you don’t want to leave your partner hanging. We’re let’s be putting an equal work and both involved in that and you’re like, “Look buddy, I’ve got this other thing. It’s taking off for me. I can’t do this. I [inaudible 00:27:59] my piece. I really need to sell this business so we’d get up because otherwise it’s not fair. Or that’d be putting you in an awkward position because I have this other thing that’s taking up so much more of my time.” You know what I mean?
Ace Chapman: Yes. That’s it. And really the cool thing is I think a lot of times people think, oh, somebody is selling and I get this all the time. I know you do too. Justin, why would anybody sell a profitable Internet business?
Justin Cooke: Yes or why would anyone, there’s a ton of reasons. Some of them are personal reasons. Some of them are they feel like they’ve hit the top of their market. They feel like they can’t get any better, but there’s all these different things and they may or may not be true or may or may not be good reasons, but they are reasons and that’s why people sell.
One thing I mentioned, I think this is interesting, I saw this recently. One of our sellers sold an FBA business for mid six figures and his reason for selling was he wanted to get out because he saw a lot of new players coming into the FBA space and said, “Look, I want a bigger moat around the castle. I want a bigger barrier to entry. So I want a big nut. I want a big, nice amount of capital to get involved in FBA businesses that the new players can’t get involved in. So if I’ve got $300,000 to spend on products and inventory to get us rolling, that’s a big enough barrier to entry to keep all the new players out.” So that was their reason to sell. They really want to up level their product categories so they can go after bigger fish, which I thought was really interesting.
Ace Chapman: I love that. I love that. So bottom line is there are a lot of reasons and sometimes they’re positive, they’re not always negative. It could be that there is this huge opportunity that’s right in front of them that once you sell that business, you’re going to be able to take advantage of.
Justin Cooke: That’s right, man. So let’s talk about when you should not sell. Talked about a couple of the reasons. I mean it’s just a rehash of the opposite of what we talked about already. The first one being you’re just not emotionally ready. You are not ready to give up your baby. Right? I mean, that’s really the thing. Second one is your businesses and prepared. You don’t have your earnings together. You don’t have recordings of everything you’ve done. You don’t have the right growth trends. Your businesses aren’t profitable, you don’t have the SOPs is in place. You don’t have a team in place. You don’t have all the knowledge that’s in your head on paper and documented for a buyer to take it over. Now you may have personal reasons that are going to keep you from taking an active role in the sales process we just talked about.
No matter what, you’re going to be have to be involved in the sales process. Buyers are going to have questions for you and you’ll need to be able to turn that business over and if you have things go on in your life, we all have them because of things going on in your life that keep you from being able to do that to transfer the business over, that’s going to be difficult for you to sell.
If you’re going through a period of very heavy growth, this wasn’t mentioned earlier, but if you are doing you’re doubling or tripling or quadrupling your business every year for the last couple of years and you can, or continuing on that trend now, if you’re doing 10% month over month growth, that’s not a good time to sell. The reason is your valuation is based on past performance. So we’re not talking about what you’re planning to do six months from now, a year from now, because that’s unseen and that’s gambling. What is based on is what you’ve done in the last six 12, 18, 24 months. So if you’ve done a lot less in the last 12 months and you plan to do in the next 12 months, then selling now you’re probably selling yourself short. You need to hang onto the business a bit more until that growth curve drops a bit, right?
Ace Chapman: Yes and people have a really tough time dealing with that. Everybody wants to sale potential and people aren’t willing to buy potential because they’re the people that are going to have to do the work so that it does reach it’s potential. And if you’re that person or you just can’t get over the idea that if you didn’t sell the business, you could make the money over the next two to three years, still have the business as opposed to somebody that two or three times, then you’re in this same spot because you probably don’t have that other opportunity. You don’t have that motivating factor and it’s not quite time to sell the business yet.
Justin Cooke: I think about that a lot is I think about instead of selling right now, right, what if I just kept this for 12 months, let’s say. I didn’t even grow like crazy. I just grew by 20% just 20% in 12 months I’ve collected all that profit. I’ve grown the business. It’s worth more now. Right, and I’ve got the full bio on the side. I feel that way a lot, but it’s other factors start to override that feeling like it’s kind of like for me right now, I view that and I’m like, no way. I would absolutely not solve the business, but that can start to turn. Right. Right now I’m like 90% feeling that way. If you got down to like 70 and then 50 and then 40, 30 now I’m like, okay, now I’m, I’m leaning towards selling. That’s a good time to start talking to her broker and looking at actually selling your business.
All right man. So we’ve talked about the best time to sell your online business started about a lot of the reasons that seller sell, whether they admit to or they don’t have that too. We talk about some of the reasons that, so let’s should not sell. That’s it for this episode. So if you dig it, please head over to webequityshow.com and let us know. You can also drop us a review on iTunes. We’d really appreciate it. Love to give you a shout on the show and the next episode we’re going to look at the steps you can take right now to prepare your business for sale. We’re going to get into the nitty gritty details that we’ve promised you in season three. I think you’re going to love it if you’re a walk and a nerd and you’re looking to sell your business. This is the stuff you’re digging and you’re going to appreciate.
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From a buyer’s perspective, however, I would have to agree with professor Ruback and Yudlock – it is generally a bad idea to buy from a seller who wants to “move on to another business” or claim “they’ve taken it as far as they could, and need a new owner to take it to next level” (https://hbr.org/ideacast/2017/02/why-you-should-buy-a-business-and-how-to-do-it). Generally a red flag.
Best reasons, from a buyer’s perspective, seems to be looking for sellers that are selling for retirement, health issues, divorce, etc. reasons. Basically there must be an external reason that compels the business owner to sell (http://theopenbook.com.au/faq-business-owner/why-sell-my-business).