Why 91% of Businesses Don’t Pass Our Vetting Process (and How to Improve Your Chances of Getting Sold With Us)
Updated on December 7, 2022
You might have heard that our seller submission rejection rate is one of the highest in the industry.
If you are a seller, that’s actually great news for you.
Because our vetting process is so thorough, buyers are confident about the high-quality listings on our marketplace—so confident that they’ve shown over $5 billion in proof of funds for buying businesses.
Before you can list your business for sale on our marketplace and gain access to our incredible buyer pool, you need to pass our vetting process.
This process requires all sellers to complete a series of tasks, and their businesses need to undergo a few rounds of in-depth checks before we can give them the green light to go live on our marketplace—only 9% of submissions make it to this stage.
To improve your chances of listing your business for sale with us, we analyzed 6,413 seller submissions across 12 months of recent data (from July 2020 to June 2021) obtained from our vetting team.
We’ll break down the most common reasons sellers failed the vetting process along with how our vetting process works. Armed with this knowledge, you’ll be in great shape to prepare your business for a sale.
Let’s start by understanding why we have a vetting process in place.
Why We Have a Vetting Process
To ensure both buyers and sellers have confidence in agreeing on a deal that works for all parties, we make sure that we list only high-quality businesses on our marketplace. Instilling confidence and building trust among sellers and buyers starts at the vetting process.
By thoroughly vetting businesses, we increase sellers’ chances of reaching a deal because buyers recognize the quality of their listings.
Well-funded investors know that during our vetting process, we have verified the earnings and traffic. When a great listing with a solid financial track record appears and shows impressive growth, buyers even compete for that acquisition.
At the time of writing, 80% of businesses that listed on our marketplace sold for 97% of their listing price.
To ensure you’re in a good position to prepare to list your business for sale with us, we’ll break down exactly how our vetting process works.
How Our Vetting Process Works
Our vetting process is divided into two stages: a five-minute check and the “in vetting” stage, where we conduct an in-depth review of your business.
Our Five-Minute Check Process
The pre-vetting check quickly filters out businesses that are not a good fit for our marketplace.
The majority of rejections happens at this stage mainly due to simple mistakes such as failing to verify your identity or not meeting the minimum criteria.
Keep in mind that there is a degree of subjectivity. If you’re unsure whether you meet the criteria, try our valuation tool or speak to our sales team for more information.
How The Five-Minute Check Works
Once we receive your submission, our experienced vetting team compares your business’s details against our minimum criteria and other key metrics.
We’ll look at your business’s earnings, the domain and brand names, and the country it operates in, among other data.
After this initial check, we determine if your business is a good fit for our marketplace. If yes, we move on to the next step of our vetting process, where we thoroughly analyze your business.
In Vetting
Our vetting team will pore over all areas of your business to verify the reported earnings and traffic.
Note that even if you passed our five-minute check, your business is not in the clear yet. Our team might find that a business isn’t profitable or its profitability is rapidly declining after analyzing the financial data.
To understand what financial information we need, let’s explore how this part of the vetting process works.
How the “In Vetting” Stage Works
To ensure we thoroughly review each business, we divided the in-vetting process into two stages: a preliminary valuation and a final valuation.
Both valuation phases require weeks or months for completion. During this period, we may find reasons that disqualify your business.
We look for a couple of things during the early stages of the in-vetting process.
First, we look for evidence that a business is profitable after expenses. For example, an Amazon FBA business that looked like a good fit for our marketplace after passing the five-minute check may be disqualified after we find that the business isn’t profitable owing to high inventory charges.
Second, we check that a business’s revenue streams are legitimate. Taking an Amazon FBA submission as an example, we will verify whether the SKUs included with the sale generate revenue by checking the seller’s Amazon Seller Central account.
Once we gather enough financial data, we have a clearer picture of how sustainable and profitable a business’s operations are. Here’s what we look for during our checks:
Preliminary Valuation
We ask sellers to complete a series of tasks so that we can create a profit and loss (P&L) statement, which is key to generating a preliminary valuation figure.
These tasks include the following:
- Complete an empty P&L statement with revenue sources (e.g., SKUs that generate sales or how much commission affiliate programs provide)
- Answer initial questions about the business’s operations
- Provide tracking IDs (for monetized content sites)
- Share where inventory is held and how it is managed (for ecommerce businesses)
- Indicate the expenses
A vetting agent will work with the seller to complete all of the tasks. We will require access to accounts so that we can verify revenue and traffic figures. This could involve access to an Amazon Seller Central account or proof of traffic via screenshots.
Once the seller has completed all tasks, the assigned vetting agent can build the P&L statement—the foundation of the preliminary valuation.
Many entrepreneurs normally hire an accountant to sort out their finances to build a P&L statement. When you sell with us, we comb over your books to make sure your finances are accurate, saving you time and money on this important task.
After the P&L statement is prepared, our vetting team will generate a preliminary valuation within a few weeks. Once the seller accepts the preliminary valuation, we enter the last stretch of our vetting process.
Final Valuation
Our vetting team asks sellers to complete a final set of tasks that clarify any discrepancies between what a seller reported and what the P&L shows.
Some of these tasks include the following:
- Confirming we have screenshots of revenue
- Answering another set of questions about the business’s operations
- Verifying EU account statuses (for ecommerce businesses)
- Completing missing P&L information (such as product landed costs)
- Providing a full list of assets included with the sale
- Checking trademarks
- Confirming the status of legal pending action taken against the seller
On completion of these tasks, new information often arises that can change the final valuation figure.
Some of the influential factors include additional expenses not mentioned earlier, additional sources of revenue, or add-backs that can increase the valuation.
Even if preliminary talks have gone well and there aren’t many details to clarify, sellers still sometimes withdraw at this stage because of unexpected issues that affect the business’s performance. Stock shortages or global manufacturing issues have caused sellers with favorable valuations to turn down the final valuation so they can stabilize the business.
If this happens to you, don’t worry—you’re welcome to submit your business with us for sale again. You may find that your business has a different valuation than that determined during the first time we vetted your business, but you’ll be much more prepared to get your business on our marketplace in less time.
If there aren’t any major roadblocks and a seller completes all of our tasks, all that is left is to accept our final valuation.
What Happens When Your Business is Listed
Your vetting agent will inform our marketing team to prepare your business’s listing to go live.
New listings go live every Monday at 10 AM EST. We promote all new businesses to our 200K+ mailing list the same day listings go live.
Our sophisticated platform allows buyers to apply filters on our marketplace so that they only see the listings that match their criteria. Our platform notifies the right buyers that your listing is available; in addition, our diligent sales team facilitates conversations with buyers who are actively reviewing listings to discuss your business with them.
We hope this gives you an idea of why our vetting process is so thorough. With an understanding of how the process works, let’s look at the most common rejection reasons.
Common Reasons for Failing the Vetting Process
Our rejection rate data revealed that 64% of seller submissions didn’t make it past the five-minute check.
Before we take a closer look at the reasons for rejection, we want to explain our minimum criteria so that you know if you are eligible to submit your business for sale.
Note: We currently only accept businesses where the main language is English. This criterion could change in the next 18 months.
What We Look for When Considering Seller Submissions
A simple stumbling block for sellers trying to submit their business is not reviewing the criteria for the kinds of businesses we accept on the marketplace.
Spending a few minutes to review the following criteria will quickly let you know if your business is eligible to sell with us:
We refined our minimum listing criteria based on our experience of helping over 1,700 entrepreneurs exit their businesses and being well aware of what buyers look for in an investable asset.
Looking over our initial criteria, you might think the vetting process is intense, thorough, or intimidating.
But that’s okay. If you’ve built a high-quality brand that is making a healthy profit month over month, you’ll have nothing to worry about in most cases when submitting your business for sale to our $5 billion+ buyer network. Thanks to our vetting process, buyers are confident in the quality of our listings and are ready to make their acquisitions.
Gaining access to this buyer pool is the sweet reward of passing the vetting process. Let’s dive into what the most common rejection reasons are so that you can avoid these pitfalls, starting with sellers who fail to verify their ID.
Not Verifying ID Accounts For 31% of Total Rejections
ID verification is one of the basic criteria for sellers before they can list on our marketplace, and that is why it’s the first step to register your account on our platform.
This step only takes five minutes to complete. By verifying your ID, you give your business a fighting chance to make it through to the later stages of our vetting process. If your business meets our criteria and your ID is verified, you could list on our marketplace within weeks of submission.
Your business could even sell within two days of going live for sale.
Here are five simple steps on how to verify your ID from your account.
Step 1 – Start The Verification Process on Your Account
Under “My Account,” head over to the “Verification” tab.
Click on the blue “Verify Identity” button to start the process.
Step 2 – Verify Identity
Input your name and date of birth exactly as it appears on your chosen form of ID. Failure to enter your details as they appear on your ID will result in your verification being rejected.
We accept your passport, driver’s license, or government-issued ID card as a method of identification.
If possible, documents should be submitted in English. If we can’t translate your chosen ID, it will be rejected until we can verify the ID.
Step 3 – Choose Your Country and ID Type
Confirm what country your ID is from in the dropdown list, which shows the options of acceptable IDs.
Step 4 – Upload Your Photo ID
You can submit a photo of your ID either by taking a picture or uploading an image that you’ve already taken.
Make sure the image is clear. Lighting should be even, and the image should not be blurred in any way. If we cannot clearly see all the details, we’ll reject the image.
Step 5 – Video Verification
The last step involves verifying your identity with a quick video. We ask sellers to record themselves looking directly at the camera and then turning their head left and then right.
When that is done, you’ve completed the verification process.
Our team will get back to you within two working days to approve your ID or reach out to you for more information.
Note that a significant number of submissions were rejected because of a lack of response after our team reached out to sellers to ask for more information. Remember: communication with our team is key to keeping the vetting process going, so set aside ample time to be available to work on this stage of the sale.
Now that we have discussed how to verify your ID, let’s talk about the next most common reason for the rejection of seller submissions: businesses that don’t generate sufficient monthly profit.
Lack of Stable Earnings and Sufficient Sales History
One-quarter of businesses don’t make it to our marketplace because they do not generate sufficient profit or do not have sufficient earnings history.
Buyers have left feedback that businesses with a short earnings history are too high risk to invest in.
For example, buyers will have little faith in an ecommerce business that has four months of profits.
A new ecommerce business can take at least six months to be profitable. Limited financial data present a high risk for investors related to seasonality and if the business sells in a trending niche.
To account for factors such as seasonality and random profit spikes, we use a 12-month pricing period. Viewing sales performance over a year gives buyers a more granular view of the business’s financial performance over the year.
We rarely list heavily seasonal businesses, as their earning power can be unreliable.
Even if your business meets our earnings requirement and has relatively stable income over the year, your submission may be rejected owing to monetization-specific nuanced reasons. A closer look at our dataset revealed these nuanced reasons for content sites and ecommerce businesses.
Let’s explore why we rejected certain sites during our vetting process.
Common Rejection Reasons for Content Sites
Apart from failing to meet our basic criteria, we found poor traffic quality to be the most common rejection reason related to content sites.
Most content sites generate regular traffic through SEO. Organic traffic makes running a content site relatively hands-off compared with other business models. This is why monetized sites and publications are attractive prospects for buyers.
Even if a content site is relatively passive to run, a traffic chart showing extreme peaks and troughs in visitors is a cause for concern.
We’re looking for content sites with relatively consistent traffic throughout the year. This looks like a graph with a linear trend if the site is maintaining or in growth mode.
The consistency tells buyers that the site’s content is being viewed regularly and is a good sign of white-hat SEO being used to attract views.
We also pay careful attention to a site’s backlink profile, the second most frequent reason for rejection.
Sketchy Backlink Profiles or Selling Black-hat Services
We require sites to have a clean backlink profile that doesn’t have a history of black-hat SEO techniques used to drive traffic.
If detected, we’ll reject the content site submission.
Sites that sell PBNs or social media likes and followers will also be rejected.
Lack of Analytics and Traffic History
We rejected a small portion of content sites because they did not have any analytics installed.
We require businesses to have at least three months of analytics data. Traffic history provides buyers a more granular view of the site’s performance over time so that they can holistically analyze a business.
Without a history of traffic performance, buyers cannot carry out their due diligence. A potential buyer would have to take a seller at their word around traffic numbers. Taking anyone for their word isn’t exactly due diligence—data is everything.
All it takes to pass this hurdle is for you to have analytics available so that buyers (and we) have the ability to do due diligence. Google Analytics and Clicky are the most commonly used analytics tools that are easy to install if you still need a way to track the analytics of your content site.
Sharp Traffic Decline from Algorithm Updates
Another small portion of content site rejections was related to lower traffic performance due to search engine algorithm updates.
We’ll still consider sites that are hit by algorithm updates as long as they meet our minimum revenue criteria after three months of the update and if traffic isn’t showing a sharp, continuous decline.
Ecommerce Businesses
Beyond not meeting our minimum criteria, we found the two most common rejection reasons for ecommerce submissions: an ill-fitting ecommerce business model and high owner involvement needed to keep the business running.
We reject business models that are certain kinds of drop-shipping and arbitrage businesses, businesses from different marketplaces that don’t hit our value threshold, and businesses that require too much of the seller’s time to operate. Find more details below:
Amazon Arbitrage Businesses
Amazon arbitrage is a form of retail arbitrage.
Retail arbitrage is when someone buys retail products at discounted prices in stores and sells them at a slightly higher price. Amazon arbitrage means sellers re-sell products on Amazon marketplaces.
These types of businesses don’t have a unique product that is specific to their brand and rely on trading retail items for thin margins to generate revenue. They don’t provide a stable income method and are labor-intensive for the seller.
Because these businesses don’t make quality investments for buyers, we reject any that are submitted.
EU/UK FBA Businesses Valued Below $200,000
Our buyers have huge appetites for FBA businesses selling on EU/UK marketplaces with one caveat: most of the interest is geared toward businesses valued at $200K and above.
Why is the buyer threshold at $200K and above?
FBA businesses that sell mainly on EU/UK Amazon marketplaces have significantly more moving parts during migrations compared to US or Canada FBA businesses. The added complexity means there are extra labor costs and time investment to ensure the migration goes smoothly.
Some of the added tasks for migrating an EU/UK FBA business include:
- Ensuring the buyer is VAT compliant
- Taking extra steps to communicate with Amazon
- Buyers need to create a legal EU/UK entity
For more information, refer to this in-depth guide, which gives a full breakdown of what to consider when migrating an EU or UK FBA business.
With the amount of added work needed to migrate the business, buyers want to see rapid ROI, so they tend to gravitate toward businesses with higher benefit-cost ratios.
We found that EU/UK FBA brands in this price range satisfy most buyers’ criteria for ROI, but that does not mean businesses below $200K will automatically be rejected.
If you have a successful EU/UK FBA business you think would be a good fit for our marketplace, book a call with our team to discuss further.
High Levels of Owner Involvement
Buyers are looking for a smart investment that requires as little owner involvement as possible.
Most buyers won’t consider an ecommerce business that needs over 40 hours per week of owner involvement to maintain.
Below are some red flags for over-involvement:
- a seller self-fulfilling inventory from their house
- a seller doing quality checks themselves
- time-consuming tasks, such as customer service and running PPC campaigns
A business that requires over 40 hours per week to maintain shows buyers that inefficient processes are in place.
There are always ways to improve a business’s operations. You could hire virtual assistants (VAs) to handle customer service or monitor product listings. Implementing well-documented standard operating procedures (SOPs) streamlines your operations and allows you to quickly train hired help to manage different parts of the business.
The more you can remove yourself from the business while it continues to function, the more attractive you make your business to a wider buyer pool.
Preparing to Meet Our Criteria
By now, you’ve got a better idea of how important vetting is to selling your business.
Let’s explore what you can do to pass our checks as part of your exit strategy.
Submit When You Have Stable Earnings and Sufficient Sales History
Generating sufficient monthly net profit is one of our basic requirements. Keep in mind that we have never listed a business that doesn’t earn enough profit, and we don’t make exceptions either.
We found that new sellers usually get rejected for failing to satisfy this criterion. They often make the mistake of submitting their business for sale too early after their business starts generating profit for a few months.
If your business is less than 12 months old and has only recently started generating profit, we recommend that you wait for at least another year before submitting your business for sale.
By delaying your submission, you can work on streamlining and improving your business to ensure that it generates sufficient profit to meet our requirements. A higher average monthly net profit could also increase your business’s valuation, as this figure is a key component of our valuation formula.
As exciting as selling your business is, the key is to not rush the process. Focus on meeting our minimum requirements before you execute your exit strategy.
Optimize Your Supply Chain and Inventory Management
A business with minor stock-out–related issues can still pass our vetting process depending on the cause of the issues.
However, repeated stock-outs can cause the business performance to fluctuate. This could be a major red flag and a cause for rejection.
Inventory issues commonly occur when a seller relies on a primary manufacturer and doesn’t have anyone else to order from.
When production issues on the supplier’s side causes stock-outs, this compromises the entire business. Having a network of suppliers to call upon lowers the chance of stock-outs.
Having more suppliers to order from means you can keep your best-selling SKUs in stock. This is important during peak seasons, where many ecommerce businesses enjoy higher sales than usual.
Another way to improve inventory management is by leveraging 3PL service providers, especially for Amazon FBA businesses.
Amazon implemented inventory limits in April 2021 at FBA fulfillment centers. This meant sellers had to be extra vigilant about how much stock they store with Amazon.
To adapt to these changes, FBA sellers began storing larger quantities of inventory at a 3PL that is close to fulfillment centers and sending required amounts to fulfill orders.
This tactic decreased the lead time into Amazon and lowered the risk of overstocking at Amazon.
Diversify Your Customer Base
Buyers want to eliminate as many single points of failure in a business as possible. For SaaS or subscription businesses, the greatest risk is when a few customers generate over 50% of revenue.
If a SaaS business only has three clients using their products, the business’s earning power decreases by a large margin when a single client churns.
This is why we need proof that four or more clients generate over 50% of the revenue.
Buyers will be hesitant to put in an offer for businesses with a narrow client portfolio because the risk is just too high if they don’t manage to secure several new clients shortly after the deal is completed.
To lower this risk, consider increasing the number of pricing plans you offer. You can attract more clients who are interested in your product but find the current plans too expensive for their use.
Keep in mind that SaaS or subscription businesses also require at least 12 months of financial data. These types of businesses are valued somewhat differently than content or ecommerce businesses because of their inherent business model of generating recurring revenue.
Check out this guide to find out more about how SaaS valuations work.
Recover From a Sharp Decline in Earnings
A business that has an earnings history showing a sharp decline indicates that it’s not a stable company, and this represents a high risk for an investor.
With that said, there is a niche market for businesses with declining revenue performance.
Investors who make a living from flipping online businesses for a profit naturally look for distressed digital assets. These types of entrepreneurs have a skill set that allows them to turn a business around and increase its money-making potential.
Even these types of business flippers have a threshold for the level of decline they can work with.
To make sure there’s a wide enough buyer pool for businesses with declining revenue, we accept businesses that meet these criteria:
- Less than 50% decline over the previous 12 months (not related to seasonality)
- Has plans to renew stock (if several SKUs are out of stock)
- Major traffic drivers are still running, such as paid advertising
If your business is consistently and rapidly dropping in revenue, you might want to consider pivoting into a different niche or business model.
If you think your business lands in a gray area and you’re curious as to whether we would be able to list your business for sale, the best way to find out is to share some information and submit it for sale; this takes as little as five minutes.
We might find that your business could be suitable for our buyers but that it isn’t ready just yet. In this case, we’ll be happy to give you some advice on how to get your business sale-ready.
Here are some tips to help you start your exit planning.
How to Get Your Business Ready to Sell
For most exit strategies, we recommend sellers prepare 12 months in advance. This provides enough time to implement the tips we’ve described in this article to improve the business’s profits and streamline its operations.
After optimizing your business for a year, you’ll be in a much better position to sell when your business is at its best in terms of ROI and owner-involvement—both key factors of what buyers look for in a sale-ready business.
Some aspects of a sale-ready business include:
- Organized operations with standard operating procedures (SOPs)
- Organized finances (including an updated balance sheet, etc.)
- A low level of owner involvement (typically no greater than 40 hours per week)
- Transferable assets and relationships (such as payment processing accounts or exclusive supplier agreements)
This isn’t an exhaustive list, but the more streamlined your business is, the more likely you are to get listed.
Think Your Business Could Be Ready for Sale?
The first step to getting your business sold is to submit your business for sale.
It’ll give you a rough idea of how much your business is worth right now. You’ll be able to take our tips to improve your systems and increase your business’s value further down the line.
Unsure whether your business is eligible for sale right now?
Schedule a call with one of our expert business advisors who can tell you whether you’re ready for sale and what to do next in terms of planning your exit for the best possible sale price.
