If you’re an entrepreneur, then you’re probably sharing a common dream with other business owners around the world: build a company from scratch and grow it into a super successful brand. But have you ever thought of selling your business?
Sure, selling something that you’ve given so much of your time and energy isn’t easy but what if you have to sell out of necessity for your family? Or what if your business has grown too fast in a short period of time? Or maybe it is just a perfect time to sell because the market is financially strong.
If that’s the case, you must have tons of questions: Where do you start? How do you find a buyer? Should you do it on your own or sell it through a website broker?
This article will help you get answers to all your questions and prepare you to sell your online business.
1. Get Your Finances in Order
If you’re planning on selling your business, you need to know what it is worth. In general, a business is worth a multiple of its profit. Depending on the deal, that can be a two to ten times profit. Large deals usually average five to ten times profit ($20 million and over) medium deals three to five ($3-$20 million), and small deals two to three (under $3 million).
The next step is to sit down with your accountant and prep your financials. Your financials are the key step to a favorable valuation, so make sure you have the following:
- Percentage of growth per year
- Last three years of sales revenue
- Active wholesale accounts
- Monthly operating costs
- Value of inventory on hand
- Top ten products with their sales amount
- Number of orders, customers, and conversion percentage
2. Polish Your Website Up
Selling your online business is like selling a house: before you put it on a market, you need to stage it. Start by cleaning the backend of your website. Your goal is to make it clean and appealing but without any personal touches. Choose a new website theme that is simple enough so when the new owners want to update the logo, it won’t clash with the new theme. Bear in mind that the new theme needs to allow for the personality of the brand to shine through. This will increase your chances of finding a buyer sooner but also prepare your customers for a potential change.
The next step is to organize your inventory. Remove all products that aren’t in stock and try to condense your product categories to make your website look less cluttered and to streamline the flow. You should also optimize your product images to show your buyers that they’re not buying only your company but also your brand and personality behind it.
3. Find the Right Buyers
When it comes to finding the right buyer, take business formulas and calculators with a grain of salt. You need to know your industry and the type of buyer you want to attract.
The top 3 candidates for business valuation are manufacturer, employee, and competitor.
A manufacturer sells its services to other companies similar to yours, so their client base is made up of businesses. By manufacturing and selling directly to consumers, they will have a higher return on investment and, as a result, retrieve the cost of the purchase faster.
Trying to sell to a strategic buyer or a competitor has one big downside: you’ll need to give away a big amount of information in order to get them interested. For that reason, it might be wiser to stick to buyers looking for investments – they’re more interested in cash flow and less in copying business. To find interested buyers among your competition, consider using LinkedIn. Most businesses are present on this social platform, so it is a great opportunity for you to let them know that you’re selling. Use a LinkedIn automation tool to connect with as many people as possible and speed up the entire selling process.
Who else better to take over your business and run it successfully than an existing manager or employee? Management buyouts make up about 10% of business sales in the $5 to $25 million range. Below $5 million that number is lower. However, you should keep in mind that employees rarely have the cash, so raising capital is their only option, which can take months (or sometimes even years).
4. Consider Using a Broker
While there’s nothing wrong with trying to sell your online business on your own, using a broker is probably a better idea. Here are a few reasons why:
- A broker who has been around for a while will have the compounding effect of buyers from different listings.
- You won’t have to deal with multiple marketplace listings and unqualified buyers yourself.
- You won’t have to stress about unjustified last-minute changes in deal terms.
- You won’t need to wait for months for a buyer to make a decision.
- Buyers pay in cash.
- Brokers have experience in due diligence, negotiation, and closing.
- A broker will offer fair and balanced support to make sure the deal closes.
5. How Long Will Selling Your Business Take?
On average, the process of selling a business takes seven months. The valuation should take several days, which will give you enough time to decide on your exit strategy and prepare your business for sale. Then, potential buyers will inquire from the business broker’s marketing packet, review financial statements, tax returns, etc.
Once they’re ready to make an offer, they’ll submit a letter of intent, which might also include a down payment. Finally, you’ll negotiate the purchase agreement. The transition period usually takes three to six months after the deal closes.
Final Thoughts
Once you’ve found the right buyers, it’s time to sign the final contracts and start the handover process. Letting your ‘baby’ go will probably not be easy, but look at it as a fresh start and an opportunity for another dream to grow.
