Sell ecommerce business

 

How to Sell an E-commerce Business & Maximum Your Business Profit

Many online store owners are completely unaware of their sellable assets.

Selling an online store is different from selling a typical brick and mortar business. Selling an internet store is considerably simpler in certain aspects, but there are also more difficulties.

The fact is that a successful online store is not just a sellable asset but also a very sought-after asset. Since 2017, both the number of e-commerce enterprises sold and the average multiple at which they are sold have climbed annually.

All of this suggests that investors and customers have understood the potential of e-commerce as a business model for operating online and are now willing to spend money to acquire one.

We are aware of this since we have examined the data from each company we have sold on our marketplace. Establishing market trends and their implications for you as a seller will be our first step.

The Facts Behind Selling an E-commerce Business

You'll see that e-commerce store owners will be interested in emerging trends when you look at the sales statistics for e-commerce enterprises.

We've sold more than 100 e-commerce stores on our marketplace in the last three years.

Due to the frequent occurrence of various monetization strategies, this figure does include Amazon FBA and dropshipping stores. You shouldn't be deterred from selling your firm if it uses a variety of monetization strategies; in fact, some buyers will prefer it.

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.

It is an exciting time to sell because of these two elements. These multiples are rising as a result of the competition amongst purchasers. Private equity firms and investors have also entered the e-commerce market in search of high-performing assets. Access to these wealthy people is one of the advantages of employing a broker.

In terms of amount sold, we dominate the market. The significant proportion of e-commerce stores selling for under $300K on our marketplace has slightly lowered the average sales price even though we are selling more seven-figure firms.

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 frequently asked issue, especially by first-time sellers, and there are a few factors to take into account.

What motivates you to sell?

Although it should go without saying, the answer to this question will assist you decide on the best course of action. Some folks must sell immediately in order to raise money for a personal expense. The allure of selling is getting a big payment that can be anywhere from 20 to over 60 times your normal monthly net earnings, which is enticing to people who are paying off debts or investing in real estate.

How to Maximize Your Profit

If a sale isn't your immediate goal, exit planning will not only assist you choose when to sell but also how to maximize the value of your exit.

You must first establish the value of your online store before you can start this process. This will be discussed in more detail later, but it will probably have the most impact on your readiness to sell your company.

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.

Having this makes determining when to list your home easier. Perhaps you have a target price in mind that you want to hit before you sell. If you're not currently doing them, there are a few things you can do to enhance your exit. Processes can be established as well to guarantee a successful transaction.

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 does not obligate you to sell, but it will enable you to assess the logistical readiness of your company. You can depart your firm in the most profitable way by following our advice.

In the section below on preparing your business for sale, we'll also go over some suggestions for organizing your exit.

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 one that you organize on your own. This entails finding potential customers on your own or using a website like Flippa to host the advertisement for your company. The drawback of this approach is that you'll have to carry out the lion's share of the labor-intensive screening, communication, and negotiation of prospective purchasers. The business must also be transferred to the new owner, which is something that is sometimes overlooked when thinking about a sale.

A private sale is one that you organize on your own. This entails finding potential customers on your own or using a website like Flippa to host the advertisement for your company.

The drawback of this approach is that you'll have to carry out the lion's share of the labor-intensive screening, communication, and negotiation of prospective purchasers. The business must also be transferred to the new owner, which is something that is sometimes overlooked when thinking about a sale.

Working with a Broker

Brokerage services are available to those without a buyer contact list or the means to make a sale happen on their own.

As a broker, we're not ashamed to acknowledge that we have a prejudicial viewpoint on this issue. We'll be completely open with you about everything we provide as a full-service M&A broker. We believe it compares favorably to a private transaction and ought to be the bare least that any other broker provides.

Utilizing a broker's large network of investors and buyers is the most well-known benefit of doing business with one.

You should engage with the broker who has the greatest experience when it comes to working in the e-commerce industry when selling your profitable e-commerce business. You will have more chances to interact with pertinent buyers as a result. We have the highest deal flow for e-commerce stores at Primeshops.co

The other activities that an e-commerce business broker should carry out for you are less well known. When someone wants to utilize our marketplace, we screen both buyers and sellers. This makes sure that both are held to a high standard.

Listings will convey as much information about your firm as possible without revealing precise facts. Buyers must provide identity in order to become confirmed before they can view your domain name and storefront.

Every stage of the process, including verification, sales, and migration, has a dedicated team.

In order to create your profit and loss statement (P&L) and obtain your valuation, Vetting will collaborate with you. Additionally, you'll get to work with a business analyst who will walk you through the entire buyer-related process. This entails responding to routine inquiries on your behalf while only getting in touch with you when needed. They'll operate as a middleman between the buyer and the seller, and you'll get advise before you enter any discussions.

Once a transaction is reached, your company will be sent to our specialized migrations team, who will transfer the asset to the owner at no additional cost. We are one of just a few brokers to include this service in the commission and not charge extra for it.

In order to create your profit and loss statement (P&L) and obtain your valuation, Vetting will collaborate with you. Additionally, you'll get to work with a business analyst who will walk you through the entire buyer-related process. This entails responding to routine inquiries on your behalf while only getting in touch with you when needed. They'll operate as a middleman between the buyer and the seller, and you'll get advise before you enter any discussions.

Once a transaction is reached, your company will be sent to our specialized migrations team, who will transfer the asset to the owner at no additional cost. We are one of just a few brokers to include this service in the commission and not charge extra for it.

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.

Your sales data will be available in Shopify's integrated analytics platform if you build your store using an e-commerce platform like Shopify. Installing one of the two widely used analytics platforms, such as Clicky or Google Analytics, is also a smart option.

For prospective purchasers, the type of data that these sites offer is crucial. It's usual practice to grant qualified purchasers read-only access to these platforms so they may review the statistics.

To better understand your consumer base and how your firm generates sales, they'll be looking at the sources of your traffic to make sure they're reliable. They will be able to examine your company's history and the conversion rate thanks to this.

Buyers will be able to view your organic search data if you have a blog. The marketing tool of search engine optimization (SEO) is beneficial for your company. It's a good strategy to reduce the cost of acquiring customers for your store because it's cheap to operate.

Should they decide to take over the company, they will utilize all of this information to identify prospects for winning over new clients.

Organizing Your Finances

For you to land a contract, your finances must be in order. A buyer can back out of a purchase if they notice that your figures are incorrect.

The financials of your online store should be accessible to customers. The best method to do this is to create a P&L. A P&L will include all of the company's income and expenses, such as monthly gross sales, net profit, and cost of goods sold.

Hire an accountant if you're not skilled at making a spreadsheet or computing these numbers. Our vetting advisers at Prime Shops will collaborate with you to develop 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 essentially guides that explain how to carry out specific duties for your e-commerce company.

An SOP is a very helpful tool for any task that calls for a certain technique. Because you do it every day, it could be straightforward for you, but what about for someone who doesn't work for you?

An SOP would be required for operations like finding new items, creating product descriptions, and replenishing inventory. Even if you already have staff handling this for you, creating a template for the procedure will make it easier for the buyer to find replacements if the current workers decide not to carry on.

Having SOPs in place increases the appeal of your company. Buyers are considerably more interested in devoting their time to growing your business or hiring someone else to manage it for them than they are in spending too much time figuring out how to run your firm.

Employee and Supplier Contracts

A successful online store depends heavily on its supply network, both financially and functionally.

A strong working connection with your supplier can be very beneficial to your company. Get confirmation in writing from your supplier that your current agreement will continue once you let them know you're working toward a sale.

The last thing that buyers want to happen is for the supplier to increase prices and reduce the profit margin after they take control.

The same procedure must be followed for any employees your company may have. Ask your staff members if they would be willing to work with a new customer. If not, the SOPs you developed should make training new employees simple.

Customers would be interested if you include the contact information of any freelancers your company has utilized.

Inventory and Business Management

Your company is now well-positioned to be put up for sale with all the procedures and contracts in place.

You should refrain from making any significant adjustments while it is in this condition. Run the situation as though you planned to hang onto it. It's okay to update things, but you shouldn't tinker with anything that is already functional.

The administration of your inventory is another item you must be vigilant about. The mere fact that your company is being listed does not guarantee a quick sale. Don't let the stock to fall below where you typically would because it can take a few months for a buyer to come in for it.

The Sales Process

You should now be ready to sell your company. One of the most crucial things you must keep in mind is that the sales process is not the time to let up on the gas.

Performance won't suffer if you maintain operating your company as though you're going to keep it. This not only keeps everything as promised but also demonstrates to customers your concern for the company's success.

We will go over the standard elements of the sales process, starting with valuation, to give you a sense of what to anticipate.

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.

If you're ready to wait for a large offer, we can also provide an absolute price, although this does indicate that you're approaching the point where you're overcharging. Lower values, on the other hand, are for business owners who seek a rapid sale.

Speaking with one of our business analysts will help you obtain a more precise assessment that is relevant to your e-commerce business. The valuation tool does provide an accurate estimate.

Finding a Buyer

The time has come to list your business now that you have a valuation you are satisfied with.

Together, our screening and marketing teams will strive to list your company. On Monday at 10 a.m. EST, all new listings go up and are promptly delivered to our large database of buyers and sellers.

Additionally, our business analysts will get in touch with particular individuals who might be interested in your company utilizing their contact lists.

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

Thanks to our platform, the negotiation process for businesses with a price under $100,000 will be largely automated.

Your company will be the subject of offers from buyers, which you can either accept or counter. If you take an offer that is less than list price, your company will enter a 24-hour circulation. By doing this, all potential purchasers are made aware that an offer has been made and have the opportunity to counter it.

The circulation period is crucial to the sales process because it enables us to negotiate the best price for your company.

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.

Deal structuring will be discussed during the talks for the higher priced properties. This can entail an earn-out, in which the buyer makes an upfront payment that is less than the asking price and further payments over the course of future months. Not all buyers will be able to pay the whole price up front or be ready to do so right away. Your chances of closing a deal will increase if you take offers like this into account.

This is an exciting time for sellers because it's time to proceed with handing over control of the online store to the new owner once you've accepted an offer you're happy with.

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 Primeshops.co, 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.

Buyers aren't allowed to make any significant changes to the company during this time. Some buyers will finish this early once they see that everything is working properly and they can start making improvements to their new firm.

Any deal will involve some kind of post-sale assistance. You can discuss this with the customer, but it's typical to provide at least 30 days of email assistance and perhaps a few Skype sessions should the buyer require them.

Making yourself accessible to potential buyers will go a long way toward facilitating the transaction. When it does, you'll receive your money and be able to celebrate the success of your online 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

E-commerce is a flourishing business.

There are thousands of people interested in participating in the field. Entrepreneurs find it more enticing to purchase an existing e-commerce website than to create one from start.

If you proceed properly, selling your e-commerce business can be quite profitable. To ensure you get the greatest price for your e-commerce site, simply follow the detailed process I've provided in this tutorial.