Selling your eCommerce business can be challenging, especially if you are doing it for the first time. To avoid making costly mistakes, it’s advisable to have a clear understanding of the process of selling your eCommerce business from the valuation to the transfer of ownership and training management to run the company after your exit. While the sales process can be complicated, proper implementation of steps can make the deal run as fast as possible.
Most business sale listings are closed within 30-120 days, but some might spill over due to certain factors in the deal. Nevertheless, a sale is a difficult time in the life of the owner, and you will be kept busy with so many things to get the desired asking price for your business. If you are considering selling your eCommerce business, it is essential to ask yourself these vital questions from the start.
What Is My Online Business Worth?
Business valuation is a tricky affair and involves many variables. Aggregating these variables will help you arrive at a fair valuation range for your business. However, the valuation is an accumulation of these many factors and is not calculated by just coming up with a final dollar amount which meets your expectations.
When calculating your business valuation, the most critical variable is the value of the owner’s benefit or seller’s discretionary earnings (SDE) for the previous 12 months.
Note that this calculation is based on the 12 months preceding the business valuation, not the calendar year. When the SDE has been established, you determine the listing price by multiplying SDE (often 2-3.25 times the SDE for businesses with SDE of $750K or less, with that multiple increasing for SDE above $750K).
Some of the variables driving the valuation include:
- Owner’s total benefit or SDE
- Revenue trends
- Traffic trends
- The age of the business
- Growth potential
- Streams of income
- Tax returns reasonably close to SDE
Length of Sales Period
While the rule of thumb for business sales is approximately 90 days, a deal can be struck within two weeks if the level of motivation on both sides are high and the relevant conditions have been met.
For an expedited sale process, the owner must be physically, mentally, and financially ready to sell. While there may be certain variations in specific business transactions, most sales follow this pattern:
Listing Agreement: A Listing Agreement is a formal establishment of business relations between the seller and the eCommerce business broker.
Client Interview: In this stage, the broker prepares a written interview/questionnaire customized for your business. In this interview, the broker drills you about 80 percent of questions buyers are likely to ask you about the business. After that, your answers and the questions are included in the Marketing Package.
Marketing Package: Covers Client Interview/Questionnaire, Profit and Loss Statements, and screenshots Google Analytics and other relevant details.
Public Listing: The broker uploads your listing advertisement to many businesses for sale sites and further sends out emails notifying potential buyers of the upcoming sale of your business via there database of buyers. Note: the identity of your business is not disclosed until that potential buyer has signed a non-disclosure agreement.
Conference Calls: Here, you will be speaking with potential buyers so they can acquaint themselves with you and your business.
Letter of Intent: This is essentially an official indication of a buyer to purchase your business. It covers price, the time frame of the transaction, and the terms of the deal.
Due Diligence: In this phase, all the information about the business including financial records, existing contracts, licenses and permits, and others are verified to ensure they meet the terms of the LOI.
Asset Purchase Agreement: An agreement that formalizes the purchase of the business.
Closing: This is when business ownership is formally transferred to the buyer.
As a seller, it is your responsibility to prepare your eCommerce business for sale, but internet business brokers can help you expedite the process and ensure every factor that can impact the sales is addressed. It is essential to have a clear understanding of your financials, marketing and assets before the client interview/questionnaire is completed, as this makes the business valuation and sales process easier and straightforward.
What Type of Payment Option Should You Accept?
Most eCommerce business sales are paid for 100% cash at the closing. Typically, this includes SBA financed transactions. There are times where some owner financing may be needed to get the deal done especially if tax returns differ substantially from the owner provided profit & loss statements. The SBA almost totally underwrites loans based on Federal Tax Returns for the last 3 years.
Business financials will be required, ideally from accounting software. However, a P&L in a spreadsheet can also work.
Will the Details of My Business Sale Become Public?
No, the details of the business sale will not be made public. Only some aspects of the transaction will be made available to the public via the broker’s website and businesses for sale sites on the Internet. Note: the identity of the business will not be disclosed until a non-disclosure agreement has been signed by the potential buyer.
What Is Closing All About?
Closing is the final step of the sale process. It is the stage where you transfer ownership of the business to the buyer. Almost always a third party will handle the closing and will disburse funds received from the buyer. Money will not be disbursed from escrow until the business has been transferred to the new owner.
Should You Use A Broker?
The sale process is complicated and lengthy. Most owners just can’t attract the right buyers, don’t have their books in order, and don’t have the skill sets to negotiate a fair price for their business. In addition, problems do develop during the sales process and unless you have experience breaking through such road blocks then the transaction usually dies. To get the best value for your online business, your best bet is to use an experienced internet business broker who can help you realize the best sales price for your eCommerce business.