Preparing to Sell Your Ecommerce Business

I recently spoke at the Yahoo Summit in Chicago. It was a quick 7 minute tip on selling your Ecommerce business. Below are the notes that I wanted to share with you.

Preparing to Sell Your Business

Planning to sell? Getting your ducks in a row requires a three-pronged approach. Get your head in the game first; then make sure your affairs are in order (on paper and otherwise).

Part one: Mental Preparation

  • It takes an average of 2 to 4 years to sell a business, so it’s crucial to plan early. Lack of planning or poor planning often leads to missed opportunities. The trick is balancing the mindset of growing your business while you’re planning and preparing to sell it.
  • Take the time to do an old-fashioned pros and cons list. Why do you want to sell? Are you tired, bored, looking for a new opportunity, or distracted by a shiny new penny? Are there other factors, like illness/disability, divorce, partner disputes, or retirement? Is your business not-profitable?
  • If you’re just starting a business, begin with the end in mind. Understand the real reasons you’re starting a business. The most common reasons are that you want to make more money, control your time and destiny, and be your own boss. As you work on that business plan, be sure to include your exit strategy. Plan for success!

Part two: Preparing your Operations

  • It’s time to clean house! Get your books in order. Make sure your bank and credit card statements are reconciled and up-to-date, and all your accounts receivable and accounts payable are collected and paid. Get your dead inventory off the books — sell it or get rid of it. (Any smart buyer will not pay you for dead inventory, so you might as well get rid of it on your terms.)
  • Scale back on big investments. Don’t buy expensive technology or a new building. If you’re selling to a new owner/operator and they take over the business as a “turn key” business, then it’s okay to continue to make the investment as you would if you were going to continue to operate it. If you’re selling to a larger business and/or competitor, they might not assume your current back-end/processes, therefore, if you make expensive investments, you may never see the ROI.
  • If your business is movable, ask if you can renew your lease for a shorter time frame, or negotiate for a month-to-month lease.
  • Document every task required to run your business, for every job and every little nitty gritty task no matter how mundane or boring it is. This includes your job description as the business owner, and that of every single employee.
  • While you’re ensuring your operations are going smoothly, focus on growing your top-line revenue, growing market share and maximizing net profit. Eliminate personal expenses as well as any activity that doesn’t make money.

Part three: Negotiations

  • At the end of the day, it comes down to negotiating the selling price of your business. Your age, financial goals, and whether the business is your retirement nest egg, all contribute to what it will take for you to walk away. If your business isn’t profitable, be sure to at least get enough to cover your debt.
  • Work with accountant or even business broker to better understand what your business is worth. Typically an e-commerce business can expect to get between 3-5 times net earnings. So the more profitable your business is, the more you can expect to get for it.
  • Don’t throw out an outrageous number. Your potential buyers will not be amused, and it can be a non-starter and kill the deal.
  • Lastly, keep it professional. Work with experts — like your accountant, attorney, and even a business broker — to ensure that you have all your documentation in order.

By: Shirley Tan

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