Branko Mijatovic

November 2, 2017

Have you recently thought about selling your business? Or perhaps you’re considering selling at some point in the future?

You may be saying to yourself… “But this business is my baby; I’m never going to sell!” or “I just started; I don’t need to worry about this now!”.

Selling your business may not be on your radar right now; however, that may change in the future, and if it does, you don’t want to be scrambling at the last minute to get everything in order. Even if you never sell, the steps in this guide will set you up so you can run your business with more knowledge and efficiency than 90 percent of business owners out there. And that gives you an edge over the competition.

You also need to consider that your personal circumstances can change. Maybe a family member takes ill and you need money for medical expenses. Maybe you decide you want to take a few years off and travel the world (assuming you are not doing that already). Or perhaps you want to reinvest your capital in another business venture. Having a business asset that you can sell at a moments notice can open up a lot of opportunities for you.

In this post, we are going to walk you through the step-by-step process to help you prepare your online business for sale. We’ll guide you through what you need to do in the early stages, how to work out the value of your business, when to sell, and what you should do in the months leading up to the sale.

Even if you don’t plan to sell your online business, there are many best practices here that can help you run your business more effectively and with less “hands-on” work from you.

To kick things off, let’s take a look at what you should be doing right now to help you sell your business in the future.

Built to Sell — How to Prepare Your Business From the Start

Before you consider selling your business, there are a few things you need to get in order as soon as possible, including effective systems for day to day operations, consistent and accurate data, and easy to manage, healthy finances.

Historical data and effective systems will help support your asking price later on. Potential buyers will ask to see all this information once they start their due diligence. The sooner you organize and start collecting this information, the more valuable your business will be and the easier it will be to sell.

There are also benefits from going through this process as a business owner:

  1. You can streamline operations because you have your systems and processes in order.
  2. You’ll have solid stats and data to show you how your business is performing.
  3. Helps you identify any weak spots in your business and places where you can improve.
  4. Automates processes so that you can scale and grow your business without you being the only thing holding things together.

When you sell a business, prospective buyers want to know they are spending their money investing in an asset and not a liability. Buyers will want to see you demonstrate systems that function effectively and data and analytics to prove the business is profitable.

By preparing yourself for sale early, you will increase the potential profit you can make on the sale. A business that has been operating profitably for 12 months will sell for more than a business making the same money that only has data for six months.

Here is what you should implement as soon as possible, so at the minimum you have the data to support your asking price.

Analytics – Collecting Accurate Data About Your Business

A key data point that buyers look at when vetting an online business is how much traffic it is getting and where this traffic is coming from. In order to give them this information, you are going to need some way to track the traffic going to your site.

There are tools like Google Analytics (or Clicky, if you’d prefer not to have Google track your every move), which give you the ability to track the traffic on your site.

Why it’s better for the buyer

Buyers want to make sure that the reported traffic is real. Anybody can fill out a spreadsheet and say, “Hey look! I get 2 million hits a day!” Traffic is the lifeblood of an online business; having real data that a buyer can look at helps prove that the traffic is legitimate and they are buying a real asset.

Analytics helps them see where the traffic is coming from and verify that all those hits are from genuine leads, instead of spam traffic from some questionable site in Siberia.

The data you collect can also help potential buyers see what kind of conversion rates you are getting and allows them to assess if there are opportunities for growth once they take it over. These kinds of data points all help a buyer decide if buying your business is a good deal for them. The more data you provide, the better.

Why it’s better for you

As a business owner, you are better off having some sort of analytics at your disposal than having no data at all. With analytics, you have a history that you can measure performance against as your business grows. It gives you the ability to conduct testing and continue to improve your conversion rates on product.

Analytics can help you monitor your traffic and make sure you are not receiving any spam traffic that could be hurting your rankings in Google. You can even use analytics tools to drill down into how customers are using your site and see if that $10,000 you just spent on a sales page is converting or not. It will also make it easier for you to work out if that recent drop in sales was just a seasonal dip or if it’s a sign of something more serious.

Bonus Tip: Keep a journal or spreadsheet somewhere to track any big drops in your traffic and make notes on why they occurred. You will be glad you have this information at hand when a buyer asks what happened.

Finances — Knowing Your Numbers and Getting Your Books Straight

Buyers want this information presented to them in a way that’s quick and easy to understand, and they want to see a clear separation between your business and your personal accounts. So if you are still running your business out of the same account as your personal expenses, STOP NOW. Not only is it a messy way to manage your business finances, but it’s a nightmare for a potential buyer who’s trying to vet your business.

Why it’s better for buyers

Buyers need proof of revenue to assess the value of a business they plan on acquiring. They are going to ask, “What’s your net monthly revenue, gross margin, and cost of goods sold?” They will want to know how much money your business is spending on customer acquisition and overhead.

The reason buyers ask these questions is because they are trying to assess if your business is really profitable. One missing expense or overlooked cost can mean the difference between a business that is making money or financially in the red.

When someone buys your business, they are potentially taking on any debt that your business owes. A buyer needs to know that you are up to date with paying all your expenses and don’t owe anyone money. Making sure your accounts are in order is an easy win when selling your business to a prospective buyer.

Paying your bills on time is considered a good indicator of a professional business relationship. A business that delays or misses making its payments can’t guarantee that its suppliers will stick around after the sale. If it’s a primary supplier, having them walk could literally mean the death of the business. This is exactly the kind of issue a buyer is trying to avoid.

By making sure your books are in order, you help your buyers to see that your business is profitable, that your supplier accounts are in good standing, and that all relevant taxes are taken care of.

Why it’s better for you

When your business finances are in order, it’s easy to see how much money you are making, identify if there are any discrepancies with your numbers, keep track of your expenses as well as revenue, and stay on top of your taxes, as well as better assess the value of your business.

Keep on top of things by using a profit and loss statement (P&L), which should be tracked on a monthly basis. It’s important that these numbers are accurate, as buyers will be poring over these documents and anything that’s “off” could turn them off the deal.

Keeping a P&L statement can be as simple as maintaining a spreadsheet. However, if you are running a profitable business, investing in professional cloud-based accounting software is a no-brainer. The cost easily pays for itself, and the convenience of being able to pull your bank statements into the software electronically makes your life so much easier as a business owner.

If doing the books isn’t your thing, you should get an accountant, or at the very least a bookkeeper. If you are using cloud-based accounting software, your bookkeeper can manage your books remotely and keep you informed if something is off. The added benefit of a good accountant is they can advise you on ways to reduce your tax liability or how to optimally structure your business, but note they do come at a higher price than a bookkeeper.

Establish Systems — The Benefits of Creating SOPs

A Standard Operating Procedure (SOP) provides a detailed operating manual for the different aspects of your business. Basically, you write down how you handle various tasks: product selection, keyword research, writing product listings, SEO optimization, content creation, etc. Start with the simple tasks first, and then you can create SOPs for the more complex tasks.

Why it’s better for the buyer

Buyers aren’t looking for a job; they’re looking to buy a business. Many buyers are simply looking to invest in a well-oiled machine that they can manage without too much work while they sit back and collect their checks. If the business depends on the owner doing a majority of the work, it makes the business less attractive to most buyers. Creating SOPs resolves this issue.

Having SOPs in place also makes it a lot easier for a buyer to scale and grow the business. If a buyer can see an opportunity for further growth, the business has more potential value.

Why it’s better for you

Developing SOPs may seem like a hard sell: it takes up your time when you don’t have any to begin with. However, once you have SOPs in place, you will free up a considerable chunk of your time.

Which is why you should work on developing your SOPs early on, even before you hire your first employee. Every time you do any business related task, ask yourself the question, “How can I turn this into a system?” Write down the entire process step by step.

When you finally do decide to expand and employ people, it will save you countless hours in training them. SOPs can also help in identifying Key Performance Indicators (KPIs), which can be used to measure employee performance and incentives.

Once you have a system in place, it’s easy to revisit the process and see if it can be made easier or more streamlined. SOPs help you constantly look for ways to improve and grow your business. And when something goes wrong, SOPs will let you figure out if it’s an internal or external issue and help you to fix the problem.

Robert Kiyosaki famously said you want to work “on” your business, not “in” your business. SOPs allow you to step back and spend less time doing the busy work, allowing you to focus on the strategic growth of the business. Effective systems can help you scale and grow your business sooner than if you were just flying blind and, in turn, increase your eventual sale price.

The benefits of freeing your time for other activities will more than make up for the time spent creating these systems in the first place.

Now that your business is in top shape, let’s look at how to estimate the value of your business and when it’s the right time for you to put your business on the market.

When’s the Right Time to Sell?

Determining the right time to sell will depend on what you are looking to gain from the sale. What are you trying to achieve? Is it to cash out of one business to go into starting another one? Do you plan on using it to pay off the mortgage? Is a five-figure sale going to be enough for your goals or do you need to achieve a six or seven figure exit?

Once you’ve established what your end goal is and what you would like to gain from the sale of your business, you can assess the potential sale price using a valuation formula. This formula helps you break down how much net profit you need to be making in order to hit your exit target for the sale of the business.

There are two factors that make up the valuation formula:

  • The average net monthly profit (that’s profit less expenses) over a period of at least 12 months
  • The sales multiple.

The formula looks like this:

[6-12 Months’ Average Net Profit] x (20 to 60+) = Listing Price

There are many factors that can affect your sales multiple. We have created a free tool that can help you in estimating the potential value of your business here.

Work Backwards From Your Estimated Buyout Price

Let’s say you want to sell your business for $500,000. Your multiple can be anywhere between 20x and 60x+. For this example, we’re going to be conservative and aim for 26x as our multiple. Take your preferred sale price of $500k and divide it by 26. That will give you an estimated $19,230 net monthly profit, which means your business needs to be making on average $19,230, not including expenses, for you to sell it for $500,000.

By establishing your monthly revenue target, you can estimate roughly how long it will take you to achieve it and start identifying ways in which you can improve the business to increase your profits.

Now you have your ideal sell date in mind, and you’re working toward that goal. Keep focused on improving your business, and when you reach six months out of your goal date, it’s time to get serious.

6 Months Out From Selling Your Online Business

The six-month mark is a great time to review how your business is doing and to make sure everything checks out. Look at this as an opportunity to get some quick wins on the table and take care of those nagging issues you’ve been putting on the back burner.

It also gives you enough time to fix any glaring issues that you may discover while auditing your business. Six months is a big enough window where you can make significant changes which could positively (or negatively) impact your business’ cash flow and directly impact your final valuation.

Clean Up Your SEO

Now just to be clear, this is not a Search Engine Optimization (SEO) guide. SEO is a massive and complicated topic, and it’s a discussion that is outside the scope of this article. Nevertheless, SEO is an important aspect of online business, and as a business owner, you need to have at least a basic understanding of how it works and what to look out for. Here are some quick tips.

Check for Duplicate Content

Google’s algorithm can sometimes struggle to tell the difference between the original source content and the duplicate. If you find that you have pages that aren’t ranking in Google, check to see if duplicate content might be the reason. (And for a whole breakdown of how Google tackles duplicate content, go here.)

There are two reasons you might have duplicate content: someone stole your content or you accidentally created two of the same thing, like multiple listings for the same product.

You can check for duplicate content in a couple of ways:

  • You can type the following directly into Google “site:yourecommercestore.com [Insert Content Title Here]”.
  • Or you can run your content through Copyscape, a service which will search the web for content that matches yours.

If you have issues with somebody less scrupulous stealing your quality content, there are a few things you can do.

Step 1: Ask the offender to take the copied content down.

Sometimes being nice and asking politely can get you the results you are looking for. Offending site owners may not be aware they have duplicate content on their site; they may have been trying to save money by skimping on their content provider, which resulted in poor quality or plagiarised content. It’s best to reach out and see if it can be taken down first. But if you can’t track down the site owner, or if they flat out refuse or ignore you, you can try…

Step 2: Rewrite the content

If you haven’t spent a ton of money on high-quality content or copywriting, it may be easier to do a minor rewrite of your content. Yes, it’s a pain and hardly fair, but if the person is unresponsive or refuses, this may be your easiest course of action.

Step 3: File a DMCA takedown request

The next step is to contact Google directly and submit a DMCA Takedown Request. This will take up to two weeks and will get the content removed from Google search. It may even lead to harsh penalties for the infringing site, so use this action as a last resort.

Clean Up Your Site’s Link Profile

A link profile is an SEO term for describing the quality of the links pointing at your site. Your link profile is still considered one of the most important factors to ranking in Google. Although the impact of low-quality links (spam) on your site has been reduced since the new Penguin update, if you have a lot of bad links, they can still potentially affect your site negatively by triggering a manual review by one of Google’s employees.

This is particularly a problem for AdSense or affiliate site owners who may be employing “Grey Hat” SEO tactics to get their site to rank. As we mentioned, the Google algorithm isn’t smart enough to detect all the current SEO tactics, but a human can.

It’s important to keep your link profile “clean” to avoid any unnecessary scrutiny. If you would like to look deeper into your link profile, you can use tools like Ahrefs, Majestic SEO, SEM Rush or SEO Moz to check the health of your links. If you find your site has a bunch of spammy links, you can use the Google Disavow Tool to remove them.

Even if the spammy link doesn’t negatively affect your rankings in Google, they will mess with your analytics and can skew your conversion rate numbers by making it look like you have a heap of customers that aren’t buying your product, which can look bad to a prospective buyer. So it’s best you clean up your link profile, so you get the most accurate analytics data and best price for your business.

If you depend mostly on SEO and your main traffic source is organic search, then a good clean link profile is really important to avoid unwanted attention from Google. However, bad links will have less of an effect if you primarily drive traffic through paid traffic or social media.

Whichever is the case, having a clean backlink profile can give a potential buyer more comfort when considering your business as an investment.

Operational Tweaks

Supplier Contracts

Supplier contracts can make the difference between your business being an attractive proposition or a bad deal. When you sell, your supplier has no relationship with the new owner and, in some cases, won’t feel an obligation to offer them the same price they offered you.

Get an agreement with your supplier in writing. If you have a special deal with your supplier which gives you a great margin, now’s the time to make sure that the agreement is transferable to a new business owner.

You don’t want to be half through the transfer process to a prospective buyer only to have them pull out because you couldn’t lock down your supplier agreements.

Outsourcing

At this point, if you haven’t already started outsourcing or recruiting people, now might be a great time to do it.

You should have already created SOPs for most, if not all, of your business operations. Now you want to tweak and automate any other repetitive tasks you’ve been struggling to let go. Using tools like TimeDoctor.com can be a real eye opener for the lone-wolf business owner. Many entrepreneurs greatly underestimate how much time they spend on the day-to-day tasks of running their business.

If you are spending more than 10 hours a week on a task like customer service, outsource it and reclaim your time. The time you save frees you up to focus on the more strategic aspects of your business like developing new products or getting more customers.

Be aware that when you hire employees, you increase your cost base, which reduces your net monthly revenue. However, a fully automated business is much easier to sell and more attractive to buyers than one where they have to spend a lot of time managing the business. It’s also easier to scale and increase your revenue which can offset the temporary drop in net revenue.

3 Months Out

Home stretch! If you’ve done everything we’ve talked about to this point, the rest should be straightforward and easy to implement.

You don’t want to make any significant changes to the business at this stage. Focus on what’s working and fine tune what you already have to maintain your revenue.

Update SOPs — Has Anything Changed?

You should have already spent enough time creating and improving your SOPs, so this part should be easy. You want to make sure that any SOPs you have are still relevant to your business.

In the online business world technology moves quickly, and in 12 months a lot can change. Consult with your team — they work with the SOPs every day, so they will be in a better position to advise you on any necessary changes.

Maybe your marketing posts no longer go out on Instagram, so you have to update your social media marketing SOP. Maybe you got a great deal with a new shipping company and have to update your procedures to reflect that change. Regardless, your procedures need to be updated to makes sure they are still relevant and that your business keeps running smoothly for its new owner.

Clear Up Terms of Service

Make sure your Terms of Service is up to date.

Maybe you sell an info product and, in the beginning, it was a “pay once for lifetime access” deal, but now you have shifted to a monthly pricing model. Perhaps you have a client services business where you did one-off projects, but now you only work on a minimum retainer basis.

Look over everything and get some legal advice to make sure everything is correct and above board.

Review Financials and Analytics

If you’ve been maintaining your P&L spreadsheet or, better yet, been using professional accounting software, this part is easy.

You (or your bookkeeper) should be able to generate detailed reports that chart out how your business has been doing over the last 12-18 months.

Use this information to gauge how your business is trending. If your business is trending up, it’s a good thing and is going to be much easier to sell than if it’s trending down.

If you have been keeping a traffic journal from your analytics, you should have detailed notes on any dips that show up in your reports and you will be able to corroborate and explain them easily should a buyer ask.

Bear in mind even though your multiple is based on a 12-month average, if your business has been in operation for five years, a buyer is going to want to see the reports for the last five years. So don’t assume only 12 months of reporting is going to be enough.

Buyers like to see how the business is trending year after year. Some buyers love buying businesses that are distressed or on the downturn; other investors only want a positive cash flow machine. So it’s best to be 100 percent transparent from the beginning. Having a buyer withdraw their offer because you were not upfront with all the information wastes everybody’s time.

Outsource as Much as Possible

If you’ve followed this process up to now, there shouldn’t be much left to outsource! But some business owners fail to let a particular task go because they enjoy doing it personally. However, if you want to make your business as attractive as possible to the maximum pool of buyers, aim to outsource everything you can.

Some potential buyers may want to run the business from a remote location in another country, let’s say a beach in in Bali. If you have some tasks that are dependent on a physical location, such as fulfillment, you are limiting the number of potential buyers. Try looking for third-party warehouses or services that can handle this operation for you.

30 Days Out

Here’s what you have been working so hard to achieve: your business is finally ready for market. You’ve taken the average net monthly profit over the last 12 months and applied it to the sale price formula we gave you earlier. You’ve had your finances in order and a bunch of analytics to back up your traffic sources. So what now?

The last 30 days are all about prepping the business and all relevant documentation, so potential buyers can do their own due diligence, and then deciding on how you are going to sell your business.

Private Sale or Broker? — Which to Choose

The two avenues you have to sell your online business: a private sale where you handle everything or a broker who does it all for you. There are pros and cons to both options, so let’s take a look at a private sale first.

Private Sale

A private sale is pretty self-explanatory. You are in charge of finding buyers, transferring the data, conducting negotiations: the whole shebang. But if you are a shrewd negotiator and experienced at flipping sites, then you can potentially save money by avoiding a brokerage fee.

However, privately selling your business is not without its pitfalls, such as:

  • Buyer Reach: Most business owners don’t have a contact list loaded with potential buyers. Going private means most likely you will be spending a lot of time on the ground or on the phone looking for and reaching out to prospective buyers, which means the sale process can take considerably longer. Not ideal if you need to sell fast.
  • Qualified Buyers: When selling privately you are going to be dealing with a lot of tire kickers and people who will try to lowball you on price. You will need to come up with some sort of process to weed these people out fast if you go the private sale route. If you use a professional broker, they will do this for you.
  • Negotiations: A private sale is great if you are a) a shrewd negotiator and b) experienced at selling sites. Most people aren’t either. Negotiation can be tough, and buyers are more likely experienced at buying businesses than you are at selling them. Which leaves you at a disadvantage.
  • Migrations: Handing over your business is not typically a simple affair. It’s very easy to miss something and spend months later trying to rectify the issue, making the process painful for both you and the buyer. A decent broker will do most of the hard work and guide you through the rest.

If you do go the private route, one bit of advice is to look at strategic buyers. These are other businesses that could benefit from the purchase of your brand. An example would be a health and wellbeing authority website that generated a lot of affiliate income. This business could be a good way for a supplements business (with some tweaking) to generate additional revenue while using the site to cross promote its physical products.

But it’s not a great idea to sell to a direct competitor. Because you have to give them all the information about your business (supplier contracts, sales numbers, SEO keywords), they may use the vetting process to gain access to your supplier, poach your team, or reverse engineer your products or processes.

Using a Broker

An online business broker is someone who helps people buy and sell their online based businesses. The biggest reason people choose to use a broker is that they hand over the relevant information pertaining to the sale of the business once and the broker handles the rest. In a private sale, you will spend considerably more time trying to keep track of which buyer you gave what information to. A broker takes care of this process for you.

Brokers typically have a pool of pre-qualified and sometimes repeat buyers at their disposal, which makes it much easier to sell the business. They have systems in place that make the whole process painless for both buyers and sellers. Good brokers also have experience in selling your specific type of online business. And while good brokers do charge more, you can potentially make more money in the long run by leveraging their negotiation skills, tapping into their existing network of buyers, and selling your business sooner.

However, there are downsides, too:

  • The industry is still young, so finding good, experienced brokers can be tough.
  • Buyer beware, there are fly-by-night operators who are out looking to make a quick buck.
  • Good brokers charge a hefty commission (Full disclosure: Empire Flippers charges 15 percent commission on a sale).

Naturally, we’re a little biased here at Empire Flippers, but our results speak for themselves.

Submit Your Business for Vetting

If you’ve decided to use an online business broker, this is the part where you hand over all the relevant documentation to them so they can start vetting your business.

Some of the documentation you will need to supply:

  • Traffic data from the analytics you set up in the beginning (e.g., Google Analytics or Clicky).
  • Proof of revenue/earnings (reports from your accounting software or P&L spreadsheets).
  • Proof of ownership of relevant domains/brands/trademarks, etc.

For a full list of the requirements to list your site on Empire Flippers, go here.

The broker will go through the supplied information and make sure everything is on the straight and narrow. They will dig through your finances, analytics, how much revenue the business is making, and how it’s trending, among other things.

Depending on how large and complex your business is, this process can take anywhere between two and four weeks. This process happens before the broker does any marketing. While it takes a while, the process is important because it allows the broker to generate the powerful marketing materials to sell your business quickly and for the best price, so be patient.

Set a Hard Minimum Sale Price!

Typically, the higher the price of your online business, the longer the negotiations will take. It’s important that you set yourself a hard minimum sale price or the price that you are not willing to go below.

It’s very tempting to lower your price when you’re in the middle of protracted negotiations. Setting this limit is a way to help you (in the case of a private sale) or the broker know what kind of offers to bring to the table and which ones should be rejected outright. This way neither you nor the buyer are wasting each other’s time.

Some Final Tips Before Selling Your Business

If you are this far into the process, then you are either privately selling and reaching out to potential buyers or have made it through the vetting process with a broker and have your business listed on their site.

Even if you are not selling and have simply followed the information in this guide, you are already lightyears ahead of other business owners who haven’t thought about any of this stuff yet.

But we are not done. One final tip before you go.

How Talking About Your Failures Can Make Your Business Worth More

It sounds counterintuitive, right? But our experience has shown that going on about a business’ potential and projected growth can potentially give you a lower offer than you’re expecting.

Why?

Because when you are selling its “potential” value, most savvy buyers will make an offer with an earnout or “bonus” to be paid once the boasted targets are met. Which means if it doesn’t hit the goals you talked about, you lose a big chunk of change.

Understand that some buyers love buying distressed, underperforming, or poorly managed businesses. When you talk about what you have done wrong or where you’ve neglected to put in the effort, this kind of buyer sees an opportunity to fix things, make things better, and leave their mark on the business. These “quick wins” allow them to add instant value to the business and help them perceive your business as a bargain investment.

For example, let’s imagine your entire business model depends on paid traffic funnels to generate its revenue. You show a potential buyer your average, barely optimized ad campaigns and tell them this was an area you haven’t really done well in. A buyer who is a paid ads pro can see immediate optimizations they could make to double the business revenue.

Bear this in mind during the negotiations: speaking the language of the buyer can make a difference in how much you can sell your business for.

What’s Next?

Selling your online business is a big decision and is not something to take lightly. Especially if you have spent years of blood, sweat, and tears to build it.

But it’s worth thinking about how potentially life-changing it would be if you were to sell your business for five, six, or even seven figures. Following the steps mentioned in this guide, you will be setting yourself up for that big exit, if you decide to take it.

Even if you don’t decide to sell, using the information above will help you in improving, systemizing, and automating your business. One that’s a lean, mean money-making machine — a machine that creates opportunities and lets you live the life you want.

Photo credit: Khakimullin


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