When you start your online business, your goal is to grow it and make it profitable. As your online business moves out of the startup phase and becomes an established business, your goal is to continue to grow, increase your market share and keep your existing customers coming back to you. But then what comes next?
Some online business owners start a company with the plan of owning it forever and passing it on to the next generation, but increasingly, people are founding online startups in hopes of one day selling their companies for a large profit and then taking the money and using it to retire or fund a new endeavor.
If you’re an online business owner who got into the business to one-day sell, it’s important to plan ahead for the eventual sale. About two years prior to when you anticipate selling, you need to shift your mindset and begin to prep for the eventual sale. Doing so can help you to maximize the value of your company and ensure that you make as much as possible when the transaction is complete.
Following these four tips will help to ensure that your business is well tuned for a profitable exit strategy:
1. Don’t Stop Thinking About the Future.
One of the biggest mistakes that online business owners make when they’re preparing to sell is shortsightedness. You can’t stop planning ahead for the future of your business just because you plan to exit. After all, what prospective buyer is going to be interested in a company that has no path forward and plan for remaining profitable? To sell your online business for a good price, you need to have a well thought-out plan. They need to see that there is a potential for growth or for scaling your business, so that they, too, can make money with the company.
2. Consider Major Investments Carefully.
If you were planning to sell your house, what kinds of investments would you make in it? Naturally, you’d want to repair anything that was broken or that could decrease your home’s value like a worn out roof or an outdated heating and cooling system. But would you install a brand new pool? Completely remodel your bathrooms? Convert to solar energy? Of course not! While these enhancements could increase the value of your home, they would be wasteful and likely wouldn’t pay for themselves in the long run.
When you’re planning to sell your online business, you need to think of major investments in the same way. Ask yourself if the investment is needed to make your company appealing to prospective buyers. If it’s unlikely to add real value, skip the expense, especially if you have to take on debt for it.
3. Don’t Hang in for Too Long.
While you want to plan ahead when you wish to sell your online business, you don’t want to postpone the sale because of what could be coming in the future. Many Internet business owners make the mistake of riding out long periods of growth, so that they can reap the benefits of profitability. Unfortunately, what ends up happening is that they wait too long to sell and end up with lower valuations when their companies start to trend downward. It’s best to time a sale before you’ve reached what you believe is the peek rather than after you’ve crested.
4. Consider How Expenses Will Affect Your Valuation
Your business valuation will usually be calculated based on your cash flow or overall earnings, so it’s important to start thinking of expenses by a multiplier. Of course, you need to keep up with core expenses in order for your online business to remain healthy and attractive to prospective buyers; however, before spending money on non-core expenses, stop and ask yourself, “Is this expense worth two or three times what I’m going to pay for it?” You don’t need to cut out non-core expenses entirely, but be more aware of how much you’re spending and look for ways to minimize costs.
While it’s possible to fine tune your online business for an eventual sale all on your own, enlisting the help of Internet business brokers now can help you to maximize your return on the investments you’ve made in your company and get the best possible valuation. Online business brokers know how to position a company to make it attractive to prospective buyers and can provide you with advice on what steps you need to take to ensure a successful, profitable sale. To speak to an online business broker, call us today.