Selling Your E-Commerce Business
Selling your e-commerce business that you worked hard to set up can be difficult. It can represent the end of a chapter in your life, and you want to be sure that when you let it go, you do it the right way.
When you decide to sell your e-commerce business, consider the following steps to help maximize your profit while limiting your potential liability.
Understand Your Motivation to Sell
There are a variety of reasons that you may decide it is time to sell your e-commerce business. Maybe you are ready for a new challenge in a different industry. Maybe you want to spend time with your family, or you are ready to retire. Maybe you are just burnt out and want a break.
You should get to the roots of why you want to sell your business because this will help you determine your priorities in the sales process. For example, if you are exploring selling your company because you want to retire in the next six months to a year, you probably are willing to wait a little longer than someone who is one irate customer away from changing their name and catching the next flight to Fiji.
Your psychological motivation will help you set a sales timeline and will influence the ultimate selling price.
Determine What Your Business is Worth
The next step in selling your e-commerce business is to evaluate what it is worth. One estimate is that an e-commerce company typically sells for two to three times the net profit, if the business brings in between $20,000 and $2 million each year.
- However, you should still weigh a number of factors before setting a sales price:
- Monthly and annual total revenue
- Revenue for each product
- Monthly and annual sales volume
- Value of your current inventory
- Amount of time, effort, and money spent on marketing
- Total number of customers
- How much it costs to acquire a single customer
- Number of repeat customers
- Projected short-term and long-term growth.
You should also do some research on any competitors or similar businesses, to determine what they sold for. Viewing other listings will help you determine what are, and aren not, important in a listing.
Often, if you work with a broker or e-commerce attorney, he or she will help you with these steps so that you can know what to expect before your company hits the market.
Get Your Financial Details in Order
Any serious potential buyer will want to see the financial statements of a company before agreeing to invest in it. You should take the time to get your bookkeeping in order to make it easy for your potential buyers to view proper income statements and balance sheets.
If you need to hire a professional accountant in order to complete this step, it is well worth it. Perspective buyers do not want to spend time sifting through messy paperwork to find the details they are looking for. Disorganization may also raise serious red flags for buyers, who may wonder if you are trying to hide something underneath all the mess.
Find Ways to Increase the Value of Your Business Before Selling it
When trying to increase the value of a home, owners may take the time to make some aesthetic changes to the home, such as updating the paint or having professionals steam clean the carpet.
Similarly, a business owner may decide to invest a little extra time before selling an e-commerce company in order to bring in a potentially higher sale. For an e-commerce business, this may involve updating your website, especially if it’s using an outdated theme or older pictures that take too long to load.
In addition to having your financial statements prepared for potential buyer consideration, you can also prepare forward-thinking documents, showing potential growth areas in the industry and in your customer base. You can also show a history of success, whether from streamlined operations, widespread brand recognition, a large number of repeat customers, or a low number of consumer complaints. In short, be prepared to demonstrate why your business will be successful in the future.
Finding Brokers and Potential Buyers
Whether or not to hire a broker is a personal decision and is dependent on how hands-on you want to be with the sale. It is possible to sell a business without hiring a broker, and there are a number of websites designed to let owners do just that.
Brokers will be able to help you connect with potential buyers and help you negotiate the deal. However, they will typically charge a commission on the sales price for the e-commerce business.
If you decide to hire a broker, you should select someone you feel comfortable with and who can give you a realistic view of what the sales process and timeline will look like.
Prepare Contracts and Close the Deal
Once you have a buyer, you should have purchase and sales agreements drawn up by an experienced e-commerce lawyer. At minimum, your contract should list:
- The parties involved,
- What is included in the sale – this can include physical inventory, but also intangible assets such as your intellectual property, as well as debt obligations the buyer will assume as part of the sale
- Disclosures of known liabilities, such as lawsuits or fines
- The agreement on how payment will be made, for example as a lump sum or as installment payments
- Any brokers or agents involved in the deal, and
- The signatures of the parties
Your attorney will help ensure that everything is covered in the purchase and sale agreement, so that you can look ahead to the next chapter. This article is for informational purposes only and does not provide legal advice. Revision Legal has significant experience assisting e-commerce owners through selling their businesses, including negotiating deals, drafting purchase and sales agreements, and assisting with all manners of intellectual property transactions. In order to schedule an appointment with an e-commerce lawyer, contact us today with the form on this page, or call us at 855-473-8474.