The nuances involved in selling your ecommerce business are often more daunting than those involved in buying one. Even the process of preparing your online business to be sold is not easy.
- 1 Selling Your eCommerce Business – FAQs
- 2 The Bottom Line
Selling Your eCommerce Business – FAQs
Certain questions like how to determine the worth of one’s business, how to fast-track the sale procedure, and the likelihood of having to pay fees are commonly asked by sellers. Below, we will address some of these frequently asked questions about selling your ecommerce business.
1How long should my business take to sell?
When both parties are thorough and sufficiently motivated, selling a business can be accomplished within as little as a couple of weeks. However, many outside factors determine the speed of one’s sale. A general rule of thumb is that most businesses should be sold within 90 days since their sale announcement. A host of procedures need to be carried out to ensure your business is sale-ready. These include writing your engagement letter, interviewing potential clients, and finally drafting your asset purchase agreement once you have settled on a buyer, among others. Going through these phases in a disciplined and rigorous manner will speed up your sale.
2How do I know my business’ worth?
Valuing your business is an essential component in its sale. Reaching the correct valuation involves looking at a variety of factors. You can place these factors into a mixing bowl to establish a range at which your business should be valued. Perhaps the most important factor to consider is the ‘SDE’ or the ‘seller’s discretionary earnings’ for the previous year. Other factors to be considered are
- Number of sources of revenue for the business.
- Trends observed in traffic.
- Trends seen in revenue.
- Age of the business.
- Total benefit afforded to the business owner.
- The path to growth for the business.
Beyond addressing these factors in a numerical manner, it is also worth considering that any B2B company will generally require lesser client interaction while affording bigger growth opportunities. On the other hand, a business requiring more work from the owner will probably be less attractive to potential buyers and could potentially take a hit in its perceived valuation.
3How to move to the next step in the sale process?
Evaluating the worth of your online business can take months but the length of this process is different for different businesses. Knowing when to advance to the next stage is key. Note that no buyer should be able to value your business over a 15-minute phone call. Instead, look for a range while having a firm grasp of your financials as well as business trends. In order for you to get the most accurate business valuation, begin with your revenue and loss statement which dates back as far as possible. If your business is older than 5 years, having a profit and loss statement for 24 to 36 months works well.
Using this information, you can see trends in profitability and performance. This also helps you establish a valid value range. For instance, if your business appears to be trending down over the years, the value of it can be set at the lower end of the range. In general, any financial information that is taken from your business accounting logs will help in firming up the range at which you want to value your business.
Additionally, you will also need to have a catalog of your add-backs like your phone, salary, car, office supplies, travel, and more, in your profit and loss statement. Any of the personal expenses running through your business should not be excluded as a part of your finances. For this reason, the evaluation process can take anywhere between a week to a few months. Once you establish your range as precisely as you can, you can move onto the next step which is deciding the mode of selling you wish to attract buyers using. Click here for more information on putting your ecommerce business for sale, as it is key to understand the process strongly
4What are the different channels I can use to put eCommerce business for sale?
Any eCommerce business for sale can be sold through a variety of channels. These are as follows.
- Marketplace: A marketplace sale is when your store is bought off of a market, a process that can take seven to nine months. Listing fees are applied, however, your business is also subjected to market prices giving it a much higher success rate at 50% than direct sales.
- Direct: Direct sale is pitching your store to a buyer without using any kind of intermediary. This can be a fast or slow process ranging from anywhere between a few months to a couple of years. One drawback is that you are left to negotiate on your own with a limited amount of context.
- Mergers and Acquisitions Advisor: An advisor will negotiate your e-commerce business to their reputed seller network at a pre-decided rate. Fees involved tend to be 10%–15% of your sale price paid to the advisor. Of all channels, this one has perhaps the highest success rates of delivering a sale.
- Auction: You present your store to the highest bidder, making this is one of the fastest routes to sell your e-commerce business. The time for sale usually ranges from one week to a month. Note that business owners are usually required to pay 10% of their sale amount in addition to a listing fee.
5Will incidental fees or charges be applied during the sale process?
Whether you will be charged a fee for your sale depends upon the mode of sale you opt for. If you choose to sell your business through a brokerage, there will most likely be a brokerage cost attached to closing the sale of your eCommerce business. This fee is usually capped at 10% for the brokerage and the remaining 90% for the business owner(s). On the other hand, if you choose to sell directly to a buyer, there are no fees or charges involved during the sale except for any marketing you might go for to attract buyers. Choose the mode of sale keeping in mind any added costs that might be associated with it.
The Bottom Line
If you are thinking of putting up your eCommerce business for sale, know that there are a lot of steps involved in the planning as well as facilitation phase. The sale of your business can seem challenging without addressing important questions like how to know your business’s value and the channel you wish to utilize for your sale. Being mindful of each step involved in your sale process will ensure you do not have to backtrack.