Last Updated on February 23, 2023 by lukesguide
Whether you are selling your online business through an online business broker or via a private sale, the process of selling an online business can be complex. But, with a little preparation, the process of selling your online business can go very smoothly.
The purpose of this article is to be your first port of call when you are thinking of listing your online business for sale.
You can use this article as a checklist of questions you should ask yourself before making the decision to sell your business.
Let’s get started.
There are a number of factors that come into play when deciding whether it is the right time to sell your business.
No matter the reason, the decision to sell an online business can be an emotional one and is not something that should be done in a hurry.
Before you make the decision to sell your business, take the time to consider your ‘why’ and ask yourself, what is the reason for selling your business?
Some of the common reasons a business owner may wish to sell an online business include:
- No longer passionate about, or interested in, running the business.
- There is a desire to free up capital and pursue other opportunities or invest money elsewhere.
- The business is performing poorly or there has been a significant drop in traffic to your website.
- Changes in personal circumstances, such as starting a family, illness, divorce, relocation, etc.
- Anticipating market headwinds that may adversely affect the business in the near future.
- The business may be in high demand and attract high valuations.
- Wanting a lifestyle change or considering retirement in the near future.
Whatever the reason, there is usually a lot of emotion attached to the decision-making process.
Before making any decision, it is worth taking a step back and thinking through:
- the ‘why’ or reason(s) you have decided to sell your business (as discussed above).
- what your goals are immediately after the sale and into the future; and
- whether selling your online business will help you achieve those goals over the long term.
At the end of the day, unless you have a crystal ball, you can never know for sure whether selling your business is the right move. The key is to take your time, think things through, and not make any rash decisions.
Just because someone comes along and offers you a pile of cash for your business, this does not mean selling is the right path forward for you.
If you are finding it difficult to separate your emotions from the decision-making process, it may be worth consulting with an unbiased third party. This could be a friend, family member, colleague, or professional advisor (more on this section 4 below).
After you have thought through whether now is a good time to sell, you may find yourself on the fence about whether selling your online business is a good idea or not.
In these circumstances, you may decide that selling a portion of your business (rather than selling the entire business) is a good option for you.
Selling a part of your business may give you the best of both worlds.
By selling a part of your business, you could:
- potentially free up some time and/or capital to spend on other opportunities or interests;
- retain some involvement in how the business is run; and
- participate in any future growth/value creation of the business.
In each case, selling a part of a business will look different. Some examples of how a partial business sale could be structured include:
- Selling a percentage interest in the shares, stock, or securities of a company. This could be the sale of a minority interest (less than 50%) or a majority interest (more than 50%).
- Selling select assets of the business only, while retaining others. For example, if your business has some valuable intellectual property (IP) but a buyer is only interested in your customer list or other assets, you could separate the IP and license it to the buyer under a licensing arrangement.
Before deciding on what form your business sale will take, it is worth talking with a professional advisor to ensure you understand the key issues and risks involved with selling a part of your business.
A good lawyer will be able to guide you through the complexities of these types of arrangements and also advise you on what legal documents should be in place to ensure your interests are protected when third-party investors come on board.
The decision of selling your business in whole or in part will ultimately come down to what your goals are.
Are you looking for a clean break, in which case a partial sale doesn’t make much sense?
Or are you looking to scale back your responsibility and involvement in the day-to-day operations of the online business while wanting to remain passively invested in the business? In this case, a partial sale could make a lot of sense.
You should take the time to consider your options before settling on the structure of your business sale.
Deciding where and/or how you should sell your online business, comes down to balancing how much of the sale process you are willing and/or able to run yourself vs the proportion of the sale proceeds you are willing and/or able to forego to obtain professional advice.
As a seller, wherever you sit on this spectrum, there are multiple options available to you. In many cases, you even have the ability to customize your business sale experience and ‘cherry pick’ the specific aspects of the process that you would like professional assistance with and those that you can handle yourself. Ultimately, the level of customization available to you will depend on the specific professionals you engage.
Let’s briefly go through the options available for listing online businesses for sale:
A typical ‘direct sale’ will be the most ‘time intensive’ sale option since you will need to run most of the sales process yourself.
If you go down this route, you will not have a ‘middle-man’ helping to connect you with potential buyers, assisting with marketing your business for sale, negotiating on your behalf, and assisting with closing the deal.
On the flip side, you will not need to pay a commission, meaning more of the sale proceeds will end up in your pocket.
Selling to an aggregator or to private equity (PE) firm is similar to a direct sale, except that aggregators and PE firms usually approach sellers directly. This means that you will save some time ‘going to market’ and promoting your business for sale.
Aggregators and PE firms are well versed in the business sale process and they will usually do most of the heavy lifting so it can go very smoothly. This doesn’t mean that you forgo obtaining professional advice from an M&A advisor, lawyer, or tax advisor.
The advantage of selling to an aggregator or PE firm is that you won’t need to pay a commission to a broker.
Selling your online business via a marketplace like Empire Flippers or Flippa, can be a good ‘halfway’ point for sellers of online businesses. The advantage of a marketplace is that you aren’t going it alone through a direct sale but you’re also not hiring the services of a full-service broker.
There are many different marketplaces that help sellers of e-commerce businesses and all offer varying levels of service. Most will charge some type of fee (i.e. a listing fee or a commission, or both) but this will generally be less than the commission payable to a full-service broker.
A business broker is someone who can help you find potential buyers for any business you want to sell and guide you through the process to sell a business.
Some brokers specialize in selling certain types of online businesses. There are brokers that specialize in selling SaaS businesses, Shopify e-commerce stores, affiliate websites, social media businesses, marketplace platforms, and Amazon FBA businesses.
FE International and Latona’s are examples of full-service brokers that play in the online business space.
For many business owners, the question of whether they should hire professionals to advise them on the sale of their e-commerce business can be a challenging one.
Balancing the risks of not engaging professional advisors with potential cost savings can be a real challenge for business owners. It is not a decision to take lightly and regard should be had to a number of factors including:
- The size of the deal: Things to think about include:
- how much work will it be to pull everything together and can you do this on your own or should you outsource?
- how much money are you risking if you try to sell the business yourself and something goes wrong?
- Your experience in selling a business: Do you have previous experience buying and/or selling online businesses? If so, how much of the sale process can/are you willing to handle yourself?
Here is a list of the key professional advisors you should at least think about hiring when selling an online business.
You can think of a broker as the ‘project manager’ of the sale.
A broker can:
- Help bring together buyers and sellers through their existing contacts, marketing and advertising your business for sale.
- Screen for serious buyers looking to buy a business.
- Help you with determining the value of your business and setting an asking price using real data from past sales.
- Recommend other professionals in their network, including lawyers and accountants.
- Review your financials and advise on areas that could be tidied up.
- Help negotiate the sale on your behalf and keep you updated on the status of the sale.
A good lawyer with experience selling online businesses can:
- help you navigate the business sale process and understand your legal obligations as a seller;
- prepare and/or advise on the legal documentation needed to sell your business;
- identify and provide advice on any major risks relating to the sale process;
- ensure that adequate funds are available/held in escrow for the buyer to complete the sale;
- help respond to legal queries submitted by potential buyers during the due diligence process;
- assist with the closing of the deal and the transfer/migration of the business to the new owner.
In some cases, your accountant will be able to provide advice on your tax obligations when selling an online business.
However, you should check this with your accountant to ensure they have the expertise to provide tax advice. Otherwise, you may need to engage a specialist tax advisor or another accountant who can do both.
An accountant/tax advisor can:
- help you determine the value of your business by looking at all aspects (not just net profit);
- identify any areas of your business that can be ‘uplifted’ to make it more attractive to potential buyers;
- together with your lawyers, provide advice on the sale structure;
- advise you on any tax issues and/or obligations relating to the sale of your business;
- prepare financial records (i.e. balance sheet, profit, and loss statement) and help respond to financial queries submitted by potential buyers during the due diligence process.
There is a common myth that you don’t need to engage professionals when selling smaller online businesses.
In reality, many of the same risks and issues are still present, regardless of the size of the business being sold. What the size of the business affects is the ‘quantum’ of the risk.
The real question for an online business owner to consider is, how much risk are you willing to bear?
In many cases, this question is considered through a ‘financial’ lens. That is, business owners, ask themselves, how much money am I potentially risking if I try to sell the business myself?
This is often difficult to quantify, as the financial risks are not limited to the valuation of the business and how much you sell it for.
Risks can arise during the sale process and after the business is sold. For example, if you sign a sale contract without understanding the warranties and indemnities that you are providing under the contract, and the new owner makes a claim, you could be on the hook for compensating the new owner.
I was listening to an episode of the Niche Pursuits podcast recently where Mark Daoust, the founder of QuietLight brokerage was interviewed.
Mark made a really interesting observation about how business owners tend to have a good idea of how much money is in their checking account, how much their house is worth, and how much their car is worth, but when it comes to the value of their business, they have very little idea.
For many business owners, their business is likely their largest asset but many see it as ‘money in-money out’. Very few have a good idea of what their business is worth from time to time and will only think about value seriously when an exit is on the table.
This is why it helps to understand what your business might be worth at any one point in time.
Even if you are not looking to sell your online business, it is worth understanding what your business is worth.
This could mean having a valuation done at regular intervals (i.e. once a year) by a valuation expert. This doesn’t necessarily need to be a detailed exercise and could involve a simple desktop valuation.
If you don’t have a good idea of what your business is worth, it is very difficult to have a holistic picture of how your online business is performing.
You may be thinking that you can just look at the financial records and net profit of your business to work out whether its value is growing. However, financial records only show one part of the picture.
An in-depth valuation will look at many other factors including future or projected earnings, your competitors, market/industry trends, and the overall management of the business.
Without a business valuation, you wouldn’t be able to see whether the value of your business growing over time or whether it is going backward. Understanding whether your business is growing or not will also prompt you to investigate and understand what factors are or are not helping with the growth of your business.
Most lenders and investors will want to see a valuation before lending or investing funds which means understanding the value of your business is very important when trying to secure more capital.
The key to preparing your online business to maximize its value is to start as early as possible.
Do not leave it until you decide to sell your online business to start getting all of your ducks in a row.
Many of the actions you can take to make your online business more appealing to prospective buyers are things that should be done as part of operating a well-run business.
For example, your online business will be more attractive to buyers and likely attract a higher valuation if:
- accurate and up-to-date financial records have been kept (there are tools available to help you with this);
- records evidencing good core business metrics are kept (i.e. traffic, conversions, customer satisfaction, etc.)
- key supplier contracts are in place;
- any intellectual property of the business has been registered and is well protected (i.e. trademarks, business names, domains, etc.); and
- any standard operating procedures are well documented.
Having clean documentation that you can provide to potential buyers to give them comfort that your business performs as well as you claim it does, will go a long way to improving the likelihood of a high valuation and a quick sale.
Every online business is different and this means that each potential buyer is probably looking for something different.
You can save time and money spent on advertising and marketing your business for sale by taking some time to identify your ideal buyer.
By identifying your ideal buyer, you can target your advertising and marketing in the most appropriate channels.
Some examples of possible buyers include:
- Existing customers
- Your employees
- Family members
- Investment vehicles
- New market entrants
A broker will usually have a database of qualified buyers and they will help you in your search for qualified buyers as part of their service.
If you are thinking about selling your business, you may have some thoughts on certain terms that are non-negotiable. Whereas others (such as your asking price) may be negotiable – to a point!
These non-negotiable items are usually separate from the financial aspects of the sale and may have some emotion tied to them.
For example, you may require an incoming buyer to retain your current employees for a period of time following the sale. Or you might want to have the right to continue to work in the same or similar industry after the sale without any restriction.
It’s worthwhile thinking about these non-negotiable terms early on and making sure you flag them with any potential buyers as part of the initial negotiations to make sure everyone is on the same page.
This is where a terms sheet or heads of agreement is useful as it sets out details of the key agreed terms in writing but is not binding on the parties.
Knowing what legal documents will be needed in order to sell your business is tricky since every sale is different.
This is where a good lawyer comes in handy. A lawyer will not only advise you on which documents you will need but will also help prepare the documents.
In most cases, it is the seller who would be responsible for preparing the initial draft legal documents for the business sale. These would then be provided to a buyer for their review and comment.
For a typical business sale, the legal documents you would expect to see include:
- Confidentiality agreement or non-disclosure agreement
- Memorandum of understanding (sometimes called a terms sheet or heads of agreement)
- Asset purchase agreement or Stock Purchase Agreement
- Transition services agreement
- Non-compete agreement
No matter what country you are located in, taxation law is incredibly complex and not something you want to try and figure out yourself.
This is because for many countries, the sale or disposal of a business will trigger some kind of taxable event. In some countries, there may also be separate tax laws in that country’s States, Territories, Provinces or other local government areas that apply to business sales.
Misinterpreting the tax law in your country can be a costly mistake and it is imperative to have a specialist tax advisor in your corner.
A good tax advisor will be able to provide guidance on any discounts or concessions available to you and could potentially save you money in the long run.
Transferring or migrating a business over to its new owner after the sale has been completed can be challenging.
In many cases, there may be approvals that need to be obtained before the transfer can occur. For some assets, the process can be highly technical and may require someone with expertise to provide assistance.
There are also legal considerations that need to be worked through when transferring a business.
A broker and/or a lawyer would be best placed to assist with this process.
For most business owners, preparing their business for a potential sale only arises after they have made the decision to sell. However, by this stage, it is probably too late to add any real value to the business before the completion of the sale occurs.
Preparing for a sale should be an ongoing process that starts well before you make a decision to sell. Many of the actions you can take to prepare your business for sale are things that should ideally be done as part of running a successful business.
Are you thinking of selling your business or have you sold a business before? Let us know in the comments.