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How to Sell an
E-commerce Business & Maximum Your Business Profit
Many e-commerce store
owners don’t even realize they have a sellable asset.
Selling an ecommerce
business isn’t quite the same as selling a traditional brick and mortar
company. In some ways, it’s much easier to sell an online store, and in other
ways, there are additional challenges
The truth is that a
profitable e-commerce store is not just a sellable asset but also a highly
desirable asset. The number of e-commerce businesses being sold and the average
multiple at which they’re being sold have increased year on year since 2017.
All of this means that
investors and buyers have sat up and recognized e-commerce as a profitable
online business model, and now they’re willing to part with cash to own one.
We know this because
we’ve analyzed the data from every business we’ve sold on our marketplace.
We’ll begin by establishing market trends and what that means for you as a
seller.
The Facts Behind Selling an E-commerce Business
When you look into the
sales data for e-commerce businesses, you’ll realize that the emerging trends
will be of interest to e-commerce store owners.
In the past three
years, we’ve sold 100+ e-commerce stores on our marketplace.
This figure does
include Amazon FBA and dropshipping stores, as it’s common to see mixed
monetization methods. If you have a business with mixed monetization methods,
then it shouldn’t put you off from selling; in fact, some buyers will prefer
this.
We predict that the
volume of e-commerce businesses being sold will continue to trend upwards,
although there’s likely to be at least some leveling off when compared with the
explosive growth over the past few years.
Another positive to
note is that the desire from buyers also appears to be growing. Over the same
three-year period, the average sales multiple has increased by 9%, reaching 25
in 2021. At Primeshops.co, we use a monthly multiple rather than the annual
multiple that other business brokers use. We feel it allows for more nuanced
valuations.
Both of these factors make it an exciting time to sell. We’re seeing buyers compete against each other, which is helping drive these multiples up. Investors and private equity firms have also entered the e-commerce space looking to acquire high-performing assets. One of the benefits of using a broker is access to these high-net-worth individuals.
We’re the market
leader in terms of quantity sold. Even though we’re seeing more seven-figure
businesses sold on our marketplace, the high number of sub $300K e-commerce
stores sold on our marketplace has brought the average sales price down
somewhat.
That said, as far as
the market is concerned, selling now is better than ever.
When’s the Right Time to Sell?
This is a question
that gets asked a lot, particularly by first-time sellers, and there are a few
variables to consider.
Why do you want to
sell?
It’s an obvious
question, but asking yourself this will help determine the approach you need to
take. For some people, they need to sell now to fund something in their
personal life. Whether they’re paying off debts or buying a house, what’s
appealing about selling is receiving a lump sum that can be anywhere from 20 to
over 60 times your average monthly net profit.
How to Maximize Your Profit
If you’re not looking
for an immediate sale, exit planning will not only help you determine the right
time to sell, but also how you can get maximum value from your exit.
To begin this process,
you first need to determine the value of your e-commerce business. We’ll talk
about how this is calculated later on, but this is likely the largest factor in
whether you’re ready to let go of your business.
If you want to find
out how much your e-commerce store is worth, then check out our valuation tool. It will give you
a free, impartial valuation in five minutes using the latest industry sales
data.
Once you’ve got this,
it becomes easier to decide if you’re ready to sell. Maybe you have a figure in
your head that you want to reach before you sell. There are actually a few
things you can do to improve your exit, if you’re not doing them already. You
can also establish processes to ensure the sale goes smoothly.
To find out what these
processes are, it can be helpful to speak to an industry professional—someone
that oversees deals for a living. You can set up a call with one of our business
analysts who will give you exit-planning advice tailored specifically to your
business.
This doesn’t mean you
have to commit to selling, but it will help you determine if your business is
ready to sell, logistically speaking. This advice will allow you to take the
most profitable exit from your business.
We’ll also go over
some tips for planning your exit in the Preparing Your Business for Sale
section below.
Opting for a Private Sale
Deciding where you
want to sell your business will be a big decision, not just in terms of which
company you decide to use, if any, but also whether you opt for a private sale
or a brokerage.
A private sale is a
sale that you facilitate yourself. This involves locating prospective buyers
yourself or using a website such as Flippa to host the advert for your
business.
The downside of this
method is that you’re going to have to do the vast majority of the heavy
lifting when it comes to vetting, communicating, and negotiating with potential
buyers. In addition, you’ll also have to migrate the business to the new owner,
which is often forgotten when considering a sale.
If you do go down this
route, then privacy is not always an option with a private sale. You might not
have control over who gets to view your actual store.
Withholding the URL of
your e-commerce website is the best way to almost completely minimize the risk
of tire kickers and copycats. Only verified buyers should be able to view this
sensitive information.
The upside to this is
that you will not have a higher level of commission associated with using a
broker. If you’re willing to deal with the extra amount of work, then this
might be something for you to consider.
Working with a Broker
People who don’t have
a buyer contact list or the resources to facilitate a sale themselves can use
brokerage services.
As a broker, we’re not
afraid to admit we have a biased stance in this debate. To be as transparent as
possible, we’ll tell you everything we offer as a full-service M&A broker.
We feel that it stands up very well when you compare us to a private sale and
should be the minimum any other broker should offer.
The most well-known
reason for working with a broker is the use of their extensive list of buyers
and investors.
When selling your
successful e-commerce business, you’ll want to work with the broker that has
the most experience in working within e-commerce. This will give you more
opportunities to connect with relevant buyers. At Empire Flippers, we have the
highest deal flow of e-commerce stores in the industry.
What’s not as well
known is all the other tasks an e-commerce business broker should perform for
you. We vet both buyers and sellers who want to use our marketplace. This
ensures that there’s a high standard for both.
Listings will give as
much information about your business as possible without revealing specific
details. If a buyer wants to see your domain name and storefront, then they
have to become verified, which involves submitting identification.
We have a dedicated
team for each step of the process, from vetting and sales right through to
migration.
Vetting will work with
you to compile your profit and loss statement (P&L) and get your valuation.
You’ll also get to work with a business analyst who’ll guide you through the
whole process of dealing with buyers. This involves answering repetitive
questions on your behalf, only contacting you when necessary. You’ll also
receive advice before you go into any negotiations, and they’ll act as an
intermediary between the buyer and the seller.
Once a deal has been
worked out, your business will be handed over to our dedicated migrations team
to transfer the asset to the owner at no extra charge. We are one of the only
brokers to offer this service as part of the commission and not as an
additional cost.
At Prime shops, the
commission structures run from 2% to 15%, depending on the list price of your
business, some of the best in the industry. We’re also so confident that we can
sell your business that we have one of the lowest exclusivity periods of any
broker: two months.
We’re telling you this
so you have something to compare us to when doing your own research. Don’t be
afraid to ask a broker what they’re doing for you, as well as what kind of deal
flow they have for e-commerce specifically.
Preparing Your Business for Sale
Getting your business
ready for a sale will help you save time in the long run. You may already have
all the steps below in place, in which case we’ll try to provide you some
insight into what buyers are going to ask.
Accurate Data with Analytics
Buyers will want to
see how your e-commerce store is driving traffic and they won’t just take your
word for it.
If you built your
store with an e-commerce platform like Shopify, then your sales data will be
viewable in Shopify’s built-in analytics platform. It’s also a good idea to
install Google Analytics or Clicky, the two widely accepted analytics
platforms.
The kind of data that
these platforms provide is important to potential buyers. It’s standard
procedure to provide read-only access to these platforms for qualified buyers
to analyze the stats.
They’ll be looking at
where traffic is coming from to better understand your customer base and how
your business drives sales, ensuring it’s from a legitimate source. This will
allow them to see the conversion rate and help them assess the history of your
business.
If you have a blog
this will allow Buyers to take a look at your organic search data. Search
engine optimization (SEO) is a good marketing asset for your business to have.
Thanks to being inexpensive to run it’s a good way to lower the customer
acquisition cost for your store.
They’ll use all of
this data to see opportunities for acquiring new customers, should they decide
to take over the business.
Organizing Your Finances
Getting your finances
right is imperative to securing a deal. If a buyer spots that your calculations
are off, it might spook them out of committing to a deal.
Buyers will want to be
able to easily view the finances of your e-commerce store. Creating a P&L
is the best way to do this. A P&L will cover all the incomings and
outgoings of the business, including monthly gross sales, monthly net profit,
and cost of goods sold.
If you’re not adept at
creating a spreadsheet or calculating these figures, it’s advisable to hire an
accountant. At Prime Shops., our vetting advisors will work with you to create
the P&L.
At a minimum, expect
to have the following financials prepared:
·
Last three years of
tax returns
·
Income statement
·
Cash flow statement
·
Balance sheet
Some buyers might request additional information as well.
Establishing SOPs
Standard operating
procedures (SOPs) are basically instruction manuals detailing how you perform
certain tasks for your e-commerce business.
An SOP is an
incredibly useful resource for any task that requires some kind of methodology.
It might be simple for you because you do it every day, but what about for
someone outside of your business?
Finding new products,
writing product descriptions, and restocking inventory are tasks that would
need an SOP. Even if you have employees doing this for you, writing out a
template for the process will help the buyer hire new people, should the
current employees decide not to continue.
Having SOPs in place
makes your business a more attractive prospect. Buyers don’t want to spend too
much time working out how to run your business; they’re much more interested in
dedicating their time to growing it or having people run it for them.
Employee and Supplier Contracts
The supply chain is
paramount to the success of an online store, both in functionality and cost.
If you’ve got a good
relationship with your supplier, then this is a major asset to your business.
Inform your supplier that you’re working toward a sale and get it in writing
that your current arrangement will remain in place.
Buyers don’t want to
be caught short and find that the supplier ups the rates and affects the profit
margin once they’ve taken over.
A similar process
needs to be done for any employees your business might have. Speak with your
employees and find out if they’ll be willing to continue on with a new buyer.
If they’re not, then the SOPs you created should make training new staff easy
enough.
If your business has
used freelancers, then including their contact details will be appealing to
buyers.
Inventory and Business Management
With all the
procedures and contracts in place, your business is now in a prime position to
be listed for sale.
While it’s in this
state, you’ll want to avoid making any wholesale changes. Continue to run
things as if you were going to hold on to it. Updating products is fine, but
you don’t want to play with anything that is already working.
Inventory management
is also something that you will need to keep on top of. Just because your
business is being listed doesn’t mean it will sell straight away. It might take
a few months for a buyer to come in for it, so don’t let the stock dip any
lower than you normally would.
The Sales Process
Your business should
now be prepped for sale. One of the most important things you need to remember
is that the sales process isn’t a time to take your foot off the pedal.
Continuing to run your
business as if you were going to keep it will ensure there’s no drop off in
performance. This not only keeps everything as advertised but also shows buyers
that you care about the success of the business.
To give you an idea of
what to expect, we’ll go over the typical components of the sales process,
beginning with valuation.
Business Valuation
Business valuation is
the starting point of the sales process for everyone. Even if you aren’t
looking to list your business anytime soon, you’re at least considering the
idea of selling.
We recommend that all
e-commerce store owners find out the value of your business when you’ve built
up a year of profitability and at regular points thereafter. It helps you get
an impartial valuation of where your business is now as relating to the market.
Also, understanding
how a valuation is calculated may help you to improve your business.
Our valuations follow
a pretty simple formula:
[6-12 Months’ Average
Net Profit] x Multiple (Typically 20–60+)
The wholesale value of
the current inventory will be taken and added to the valuation.
Some of the most
common factors that attribute to the valuation of an ecommerce business
include:
·
Traffic
·
Financials
·
Age of business
·
Customer service
·
Logistics and
fulfillment
·
Inventory
·
Supplier relationships
·
Technology
·
Intellectual property
·
Patents and trademarks
Net profit is
determined by taking the revenue from a period of 6 to 12 months and
subtracting any costs (cost of goods sold, marketing, hosting, employees,
etc.).
If a business is
showing signs of seasonality, we’ll try to take a 12-month average to account
for it. Similarly, if a business is showing signs of recent growth or decline,
then we’re more likely to use a shorter pricing period.
What makes up the
multiple?
The multiple is
dependent on a number of factors, including business age, social media followers,
email list subscribers, and traffic diversity.
Using our valuation
tool will give you three selling price points.
The typical valuation
is where we price your business based on current sales data to get you the best
price and make it an attractive acquisition to buyers.
We also give an
absolute figure if you’re willing to hold out for a big offer, but this does
mean you are getting toward the range where you’re overpricing yourself. On the
other hand, lower figures are for business owners that want a quick sale.
The valuation tool
does provide an accurate estimate, but speaking to one of our business analysts
will help to get a more accurate valuation that’s specific to your e-commerce
business.
Finding a Buyer
Now that you’ve got a
valuation you’re happy with, it’s time to list your business.
Our vetting and
marketing teams will work together to get your business listed. All new
listings go live on Monday at 10 am EST and immediately get sent to our
extensive list of buyers and sellers.
Our business analysts
will also be using their contact lists to reach out to specific parties that
might be interested in your business.
We conduct a seller
interview with listings over $45K, if this is something you’re comfortable
doing. It gives you a chance to talk about your business in your own words and
is a feature that buyers have given great feedback on.
With your listing
live, you can expect to be in regular contact with our business analysts who
will be passing on any questions interested buyers may have about your
business.
Negotiating a Deal With Buyer and Seller
If your business is
below $100K in price, the process of negotiating a deal will be largely
automated thanks to our platform.
Buyers will be able to
make offers for your business, allowing you to counter or accept. If you accept
an offer below list price, your business will go into a 24-hour circulation.
This alerts all interested buyers that an offer has been made, giving them a
chance to beat it.
The circulation period
is an important part of the sales process; it helps us get the best possible
price for your business.
Listings over $100K
tend to have more moving parts to them, so it’s common for interested buyers to
set up a call with you. Before you go into any buyer-seller call, a business
analyst will do a pre-call with you to prep you and answer any questions you
may have.
For the larger priced
listings, deal structuring will become part of the negotiations. This may
involve an earn-out, where a buyer will offer an upfront payment that’s below
the asking price and further payments over subsequent months. Not all buyers
will have the immediate cash flow or be willing to stump up close to the full
amount. Considering offers like this will improve your chances of making a
deal.
This is an exciting
time for sellers, when you’ve received an offer you’re happy with, it’s time to
move forward with transferring the e-commerce site to the new owner.
Transferring Ownership
Even though a sale has
been made in principle, there’s still a lot of work to be done.
Transferring a business
can be a challenging task if you’re not experienced in online business. Handing
your business over in a quick but effective way is vital to the success of a
deal.
If your store uses
Shopify, it’s fairly simple to transfer. All the major e-commerce platforms
(Bigcommerce, Woocommerce) and WordPress are transferable. The migration for a
small business is likely to be considerably different to that of a large one,
but every business is likely to have a unique structure so it makes your life
easier if you use a professional.
At Empire Flippers, we
have a migrations team that will take care of this for you at no extra cost.
Due Diligence
A 14-day period of due
diligence is pretty standard across the industry and gives buyers time to
verify that everything was as sold.
During this time,
buyers can’t make any major changes to the business. To get started on making
changes to their new business, some buyers will end this early after
determining that everything is running smoothly.
Any kind of deal is
going to include some sort of post-sale support. This is something that you can
negotiate with the buyer, but it’s common for this to be at least 30 days of
email support and potentially a few Skype calls, should the buyer need them.
Being available for a
buyer is going to go a long way to help the deal go through. Once it does,
you’ll have your money sent through and you’ll be able to celebrate the sale of
your e-commerce store!
How long will it take to sell My Business?
The average sale time
for an e-commerce business on our marketplace is 92 days.
However, this does not
give the full picture when it comes to selling your e-commerce store.
The time it takes to
sell your business is largely dependent on the size of the business. The figure
of 92 days includes larger businesses, one being over $4 million. The time it
takes to work through a deal of a business that size will be longer than sub
$200K deals.
Selling Your E-commerce Business
Now that we’ve given
you everything you need to know about the selling process, it’s time to get a
valuation for your business.
Take a few minutes to fill out our valuation tool.
Conclusion
The ecommerce industry
is booming.
Thousands of people
out there are interested in getting involved in the space. Buying an existing
ecommerce website instead of building one from scratch is appealing to
entrepreneurs.
Selling your ecommerce business can be extremely lucrative if you act accordingly. Just follow the step-by-step process that I’ve outlined in this guide to ensure you get the best possible price for your ecommerce site.
