Many eCommerce owners are under the assumption that they’re stuck with their business. However, just because it doesn’t have a physical location, there’s still plenty of potential for a high-profit sale. Further, a fully functioning eCommerce store is a sought-after asset to many people, which means you’re in luck. Since 2017, year-on-year sales of eCommerce businesses have risen steadily, and it’s only expected to rise. Now that you know you can sell your eCommerce business, it’s time to find out how it works.
Organize Finances
You need to know what you’re talking about when you’re selling a business, which means thoroughly understanding the finances – if your buyer sees errors, they’re likely to bail. The easiest way to demonstrate the financial landscape of your business is by creating a profit and loss (P+L) spreadsheet, which will include every incoming and outgoing for the business. If you lack the skills to create a P+L sheet, hire an accountant to sort your books out.
Generate Data and Analytics
When you buy a car, you wouldn’t part ways with hard-earned cash without looking at the statistics. Well, the same goes for your business – potential buyers want to see evidence to support income claims and much more. When it comes to your website, you can use a tool like Semrush to analyze traffic and demonstrate how successful it is online. In particular, your buyer will want to see where your customers originate from and what the age brackets are, which will help them to work out the audience.
Arrange Suppliers and Contracts
You will have an existing supply chain and workforce, and you need to determine which services and staff will transfer to the new business. The best way to do this is through communication with your team – selling highly skilled talent with your business will help to boost your profit. The process is similar to suppliers because you will need to reach out to them and explain the situation. If a supplier agrees to carry a contract over to the new owner, you need to make sure you have confirmation in writing.
Inventory Management
Once you’ve communicated with suppliers and staff, you’ll have a better understanding of what your business will look like at the point of sale. Therefore, you need to try and keep the landscape the same, which means not making large changes. You can update the products you sell to an extent, but you don’t want to play around too much when the business is in a workable format. In the run-up to your sale date, you need to keep on top of inventory management, which will call for stock-taking and analysis – you need to let the buyer know exactly what stock is on hand and which inventory needs replacing.
Establish Standard Operating Procedures (SOPs)
When your buyer takes over the business, they need to know how everything is managed. Therefore, you need to codify your SOPs, which is essentially a manual for how to run your business. You should include everything from simple mundane tasks to the complex, whether you have employees for the task or not. If your buyer can easily understand how your business operates, they can make better decisions on the number of staff they need to hire. Further, having written from SOPs reduces friction, which is what your buyer is looking for; no one wants to spend weeks getting their head around business operations.
Create a Valuation
When you begin the sales process, you will need to create a valuation of your business, which tells potential buyers what the worth is. As good practice, you should have a business valuation carried out after the one-year point, and then at regular intervals after that.
Understanding the valuation process will help you to improve your business. Typically, the following formula is used:
“[6-12 Months’ Average Net Profit] x Multiple (avg. 20 to 60+)”
The net profit is usually measured against the number of sales, which makes a business appear more attractive. Not everyone works well with numbers, which is why you can hire professionals to carry out the valuation for you. Once you’ve had your business evaluated, you’ll be ready to think about your ideal sale price; find out how to set a price for your eCommerce business by following the link.
How To Negotiate
When you’ve got an ideal price in mind, you’ll be ready to accept offers. Buyers will request the information discussed above, and then they’ll make an offer for you to accept or decline. When you accept an offer that’s lower than your asking price, your business will enter a 24-hour circulation period. During this time, anyone with interest will be alerted and they’ll have the opportunity to counter the offer. If your business is worth over $300K, get ready to hold a pre-sale call to ask questions and negotiate.
The Length of Time
The sale of your business will depend on its size, but larger entities (valued at over $4 million) are looking at an average of 92 days. There are a lot of components to selling a business, as discussed above, including codifying SOPs, generating data and analytics, and arranging employees and suppliers. Then, on top of this, you will need to find a buyer and attend meetings to secure the sale.
Remember Post-Sale Due Diligence and Support
The fun doesn’t stop after your sale, so if you were hoping to wash your hands of the business straight away, think again. Typically, there is a post-sale period of 14-days, which is assigned for due diligence. During this time, everything will be re-assessed, and all assets will be confirmed as transferred, which saves time in the future. Then, you need to stick around by email, for a further 30-day minimum, to provide any support.
Conclusion
Many entrepreneurs create eCommerce businesses before searching for alternative ventures, which leads them to sell their companies. You can stand to make a large profit from an eCommerce sale, but you need to be willing to put the hard work in.
