There are few activities that require so much sweat equity as building a successful business. At the end of the day, we want to build an asset that is profitable and valuable — one that makes a difference in our personal lives as well as in the lives of our customers.
The good news is that there is a light at the end of the asset-building tunnel: a successful exit in the form of selling your business.
You might be wondering, “Why would I ever sell my business after all the hard work I’ve put into it?”
The truth is, there are MANY reasons you might choose to sell. But regardless of whether you eventually decide to sell your business or not, there are a plethora of reasons why you should build your business AS IF you are going to sell it.
Why Sell the Business at All?
Some people wonder why they would ever want to sell their business. Usually, people in this camp are still building their first business, so it will hold a lot of emotional value, especially if it’s the first success that the entrepreneur has had.
However, there are many attractive reasons to sell. Some of the most common are:
- Big payday. You can get 20–40 times the average monthly net profit from the business upfront in a sale, mitigating risk for what might happen to the business in the future by collecting two years (or more) of the profits today.
- Create a large amount of capital to reinvest in other businesses, which might have better scalability and payoffs.
- Use the profits to buy real estate free and clear.
- Fund your retirement.
At Empire Flippers, we even had someone sell their business with us in order to be able to adopt a child.
While there are many things you can do once you sell your asset, there is a very clear route when it comes to how to go about it.
It all starts with the right preparation (something Bean Ninjas can help you with, by the way). Ideally the decision to sell your business should happen at least six months out from the time you actually list the business on a marketplace, such as ours at Empire Flippers,
Why Build to Sell
You might be fairly certain that you will never sell your business. That is fine, but you will actually build a more efficient business if you build out the business as if you were going to sell it, regardless of whether you do or not.
Here are just a few reasons why you want to build a business as if you were going to sell it:
- You will outsource and systemize your business more because a systemized business is going to be much more attractive to a potential buyer.
- You’ll have better outlined SOPs (Standard Operating Procedures), since a potential buyer will want to know every detail of how you run your business before purchasing. This will also make it easier if you choose to hire someone to manage these processes.
- Your hourly earnings will actually go up, despite increased expenses (since you’ll be working ON the business rather than just IN the business)
- You’ll have cleaner bookkeeping and be able to track downward and upward trends (and why they might be happening).
Preparing Your Business for a Big Exit from the Start
Whether you are just starting to build your business, or are currently running a successful enterprise that you may sell one day, there are a few things that should be in place from the very start (or as close to it as possible)..
Google Analytics or Clicky (Some Form of Traffic Tracking)
Google Analytics is the golden standard when it comes to tracking traffic to a site, but for those out there who are paranoid about Google having too many insights into your traffic, a good third-party tracking service is Clicky.
The more data you have about how much traffic you are getting, where it is coming from, and bounce rates, etc., the easier it is going to be to sell your business, because you will be able to tell the full story of what is happening with it — whether that is an uptrend or downward trend. A buyer wants to know what is happening, and the more data they have, the easier the job of deciding whether the business is a good or bad investment will be.
Without this information, is very unlikely you will be able to sell your business at all. That makes this a crucial first step.
Every Step Needs a Standard Operating Procedure (SOP)
Everything you do in your business should be documented as clearly as possible. You should be able to hand off these documents to any qualified person, and they should be able to do just about as good a job as you are doing.
The more SOPs you have, the better off your business will be. Every role and task in your company should be defined, to the point that if someone leaves your business, you can fairly easily and quickly get someone else to fill their role by following the SOPs outlined.
For most online businesses, there are three main areas in which to create SOPs:
- Product Selection: If your business involves selling something, then you need to note how you handle product selection. Things to take into account could include the price of the item, how much volume you believe you can move, and how you choose which products to write content for. For drop-shipping and e-commerce stores sourcing their own product, you should have SOPs that can guide a potential business buyer through how to select a new item to add to the store.
- Keyword Research: Almost every business relies on keyword research of some kind, though this is especially relevant to businesses that rely heavily on organic Google traffic. What is your process for finding these keywords? Are you using a keyword tool like Ahrefs, or are you doing it manually? Outline this process and outsource it, if possible.
- Advertising System: From a buyer’s perspective, the system you use to advertise is one of the most important SOPs. After all, they already have the market-proven product that you researched, sourced, and put up for sale. Now, they need to make sure sales keep coming in for that product. Regardless of what kind of traffic source you use, you should have this outlined in extreme detail, even if you are using a third party service like Search Scientists.
If you run a business that involves sourcing products, such as an e-commerce store, or even a drop-shipping store, you should try your hardest to have multiple suppliers.
If you only have one supplier, your business will look less attractive to a savvy potential buyer. Also, if for whatever reason a supplier goes out of business or loses the ability to make your product, it could seriously handicap the business.
When you have multiple suppliers, you have greater resilience, as well as a greater capacity to order larger quantities of product during high seasons.
It is always worth having backup suppliers, and it will make your business more attractive to potential buyers.
A Long Life is a Prosperous Life
The longer your business has been earning profits, the better your multiple (the number your average profit is multiplied by to calculate the business’ overall worth) is going to be. While you could sell your business at around the six-month mark, and use a six-month average of your net profits to get a multiple, you would likely be better served by waiting at least a year.
The longer the time period you take your average from, the better off you are going to be in terms of how big your multiple could be. While a 12-month average might lower your average profits, the higher multiple will usually more than make up for it overall.
A hypothetical example of this would be a business that made $6,000 net profit per month, taken on average from a three-month period. When this person goes to sell their business, they might get a 18x multiple, say, at that price. This would allow them to list their business for sale at $108,000.
Now let’s say this same business decided to use a 12-month average, showing a full year of earnings and traffic. The average might come down to $4,000 per month, because during the rest of the year the earnings were less. But since we are using an entire year of data, this business appears much more stable, and that is more attractive to a buyer than a slightly higher three-month average.
The lower 12-month average of $4,000 per month will probably yield a higher multiple — let’s say 30x — because the more comprehensive data shows how strong the business is. This would allow the business to be listed at $120,000.
There is more that goes into pricing a site than just a multiple (other assets such as how big your email list is, traffic, how diversified your traffic is etc. all contribute to the final sales price), but the longer average you can use, the better multiple you are likely to get.
In this case, a seller might decide they want to wait until they have a full year showing the $6,000 per month average, as they could then potentially get a 30x multiple on that average. This would allow them to list their site for $180,000.
If you’re curious what your site might be worth, you can use our free website valuation tool, and using a service like Bean Ninjas before you do the valuation could be useful to get all your books in order, which will help you get a more accurate valuation.
Just hold onto the business and keep building it up until you have at least a year of profitable data to show to potential buyers, and even then you still should be six months away from listing your business.
What to Do Six Months Out from Selling Your Business
Six months from the selling point is a good time to get all your books in order.
Now, based off what kind of business you are building, there are different priorities when it comes to getting everything ready. If you are not familiar with the different business models that are out there, we have put together an 11-part series that discusses the most popular online business models that entrepreneurs are currently leveraging.
Let’s go through some of what you should be preparing.
It is well known that Google is not a fan of duplicate content on your site. It is important to check all the content on your site. Do you have two blog posts that are basically the same article? Are there two listings for the same product on your e-commerce store?
This is something that you really should pay attention to if you are investing heavily in content, or if your business has been around for a long period of time. The longer you have been working on an authority site powered by content, the more likely it is that you may have accidentally created similar content.
Duplicate content could cause penalties, but similar content with the same keywords could also be cannibalizing your SEO efforts. Keyword cannibalization may be leading to lower traffic, so clearing this up could lead to actual increases in your organic traffic, which could lead to increased net profits for your business (and thus a higher valuation price when you do sell the business).
As with duplicate content, a bad link profile could lead to less organic traffic, which ultimately leads to less sales. You can use tools like Majestic or Ahrefs to see what kind of backlinks you currently have pointed to your website.
Google frowns on links that are:
- From spammy forum posts, blog comments, or untrustworthy and spammy sites.
- Placed in article or link directories that have become defunct or outdated (this is often seen as being part of a content mill, which is not a good thing).
- Sponsored content — this is paid links such as native advertising, which isn’t always bad, but it is in the grey area. If you are paying for these sponsored spots, and not seeing a whole lot of ROI from it, it might be worth taking them down. Unless, of course, you are pointing the sponsored content towards Nofollow pages that also block Google’s robots from crawling the page.
- From blogging networks and link farms. Most commonly referred to as Private Blog Networks (PBN), these CAN lead to penalties. However, if the PBN is built correctly, it can also be an awesome strategy. We recently just did a huge post on the risks and rewards of PBNs, if you would like to become more familiar with them.
- Penalized sites pointing back to your content. The easiest way to see if a site is seriously penalized is by searching for the exact domain that the link is coming from. If the domain is not showing up in Google, then it is likely that domain has a serious penalty afflicting it — something you definitely do not want attached to your website.
- Duplicate anchor text — anchor text is what the actual hyperlink says. So above, when we linked out to our PBN article, the anchor text would be “risks and rewards of PBNs.” You don’t want the same anchor text over and over again (usually). In the case of brand names, for example Empire Flippers, that would be fine, as that’s what we are. If you are trying to rank for Best XYZ in 2017 though, and have a ton of links repeating that anchor text over and over again, that is not good and could result in a penalty.
Google’s update in 2012 led to spammy links or links they considered to be in bad neighborhoods (i.e., porn, gambling sites etc.), to actually have the potential to hurt your website’s ranking in their search engine. This led to a lot of controversy as you might imagine, with spammy SEOs slamming their competition’s websites with bad links.
Because of this, Google came out with the Disavow Tool that allows you to say that link was not created by you and for Google to discount it. Of course, Penguin 4.0 rolled out just a couple of months ago, and a major part of this update was treating bad or spammy links as if they just simply didn’t exist for the most part — a rollback to older algorithms.
Go through this list and clean up anything unsavory pointing to your site. To actually clean them up, you can use Google’s Disavow Tool.
Separate Bank Account, Organize Income Streams
One thing we see pretty commonly in mid-size online businesses is that the entrepreneur is still using their personal bank account for everything related to the business. This is super inconvenient for seeing what the business is actually bringing in versus what it is taking out.
If you haven’t done so already, then six months out from selling is a good time to set up specific bank accounts, just for the business.
You should reign in all of your income streams (such as affiliate income, dropshipping, products you’re sourcing yourself etc.) as well. For some online businesses, such as large content authority sites, you might have five to ten different income streams you need to organize. Make sure they are all going to the same business bank account and that nothing looks awry.
Drop-shipping, Factories, Contracts & Special Deals
If your business is in drop-shipping, sourcing products from factories, filled with contracts or special deals (such as a special deal you get on shipping your products to an Amazon warehouse due to a personal relationship with some logistics company), then you need to make sure these are transferrable.
Some drop-shipping sources might not allow you to transfer the deal over to a new owner. It is better to find this out now rather than later. At least now you can possibly find a new source for your product that will give you a transferrable deal, or have time to negotiate with your current suppliers.
This goes for more than just drop-shipping though. For people sourcing their own products, you want to make sure the factories and shipping company contracts will be able to remain in place for the new owner. If you do have any kind of special deal, you should talk to that vendor, explaining that you are selling the business, and that you want to grandfather the new owner into your contract.
Remember, people are going to buy your business because of its solid business model and unique advantages over the competitors — if one of those advantages is a special deal or good contract, then that is part of the asset a buyer is looking to acquire.
Now is the time to outsource as much as you can. Remember, the more plug-and-play your business is, the more it will appeal to buyers. Buyers are very rarely looking to buy a 40–80 hour per week job; they’re looking to buy a true asset they can leverage. Outsourcing helps create that asset.
Some items to consider outsourcing that many sellers don’t think about are:
- Content creation: One of the most time-consuming aspects of most online businesses is creating content. This should be one of the first things you outsource to a third party or handful of reliable freelancers, whom you can pass on to the new owner. If you have a ton of businesses though, or produce a ton of content on a regular basis, this is one element that could be brought in-house, using a team of writers to lower your expenses relative to what most content agencies would be charging.
- PPC management: Having a team in place or a third party doing this for you successfully will open up the pool of potential buyers significantly, as not everyone is trained enough in Google Adwords or Facebook PPC to feel comfortable purchasing a business whose main source of traffic is paid ads.
- Backlink building: This is time-consuming and often requires specialized knowledge and skill. It can definitely be done by the new owner, but it is more attractive to have a system in place for building out backlinks.
- Customer service: This is a big one, as this is something your business will likely always need, except in certain cases, like content authority sites. Outsourcing this function should be a top priority.
- Product Inspection / Quality Control: Instead of shipping product to yourself to inspect, outsource this to a trusted third party service. By doing this, you open up the pool of potential buyers significantly. Someone who travels the world, living on the beaches of Bali, is unlikely to buy an Amazon FBA business where all the product has to be inspected by him first.
- Bookkeeping: This is another area of your business you will always need. Having a documented process and an outsourced team will be one less activity for the new business owner to worry about. Having accurate financial records will also assist in the sale process. Related: 10 questions to ask before you hire a bookkeeper
For a large portion of your business, there are agencies specifically built to do one part of your business or another (PPC management and content creation for instance; outsourcing that could be as easy as just hiring two different agencies that specialize in it).
While outsourcing will add expenses to your business, it ultimately makes the business more sellable. Remember, people do not want to buy a 40–80 hour per week job when purchasing your business. They are looking for a real asset that has the ability to be leveraged.
Adding in systems and outsourced processes is part of what makes your business a real asset, especially for a buyer who is more interested in investment than operations, i.e., someone looking for a relatively hands-off purchase that brings in revenue, rather than wanting to purchase something they actively work on to grow further.
Now that you know what to do six months out, you will be in a pretty good position to start looking at selling your business. There is still a bit more you can do, though, as you get closer to the actual date you list your online business for sale.
What to Do 3 Months Out from Selling
At this point, you are getting down to the wire.
Everything above should be completed already, and things should be going pretty smooth as far as operations go. Most of this three-month window is used to clear up discrepancies and make sure everything is prepared correctly.
Let’s dive into a few things that are good to check and make sure they are up to snuff.
Hopefully, you followed my advice and have been writing out the SOPs as you go along. If you have yet to do it, do it now! If you have followed my advice, now is the time to review all the SOPs.
Over the period of six months to a year, a lot can change in the online world. You want to make sure your SOPs are up-to-date, still make sense, and are still easy for someone to take over and replicate if need be.
Clear Up Terms of Services
For affiliate authority sites, this is pretty simple. You can usually just use whatever terms of service are used by the affiliate network you are using, such as the templates Amazon Associates use as a disclaimer that they are monetizing the site via the Amazon Associates program.
For others, this can be a bit more tedious process. If you rely on your ToS heavily, it is time to make sure they reflect any changes in your business that have happened over the last few months. It could be worth spending money on a lawyer to look this over, especially for a bigger business, to make sure everything is correct.
Now is a good time to re-open your financials and make everything is going smoothly. Ideally, you want to see a steady upward trend or at least signs of good stability. If you see any big dips or any big spikes, you will want to explain these.
Was the big dip because you ran out of product during that period? Was the big spike because of some kind of seasonality or fire sale you promoted to your customers?
Have these explanations ready to offer to buyers, and try to make them as detailed as possible so the buyer understands what was happening during those time periods.
Review Traffic Trends
As with your financials, it is time to open up whatever analytics service you are using, to review where your traffic stands. Are you getting more visitors month-to-month? Is your bounce rate better? Are there more keywords being indexed organically in Google?
These are great things to find out before listing your business for sale, as they will equip you with more knowledge you can impart to the buyer. Just like you did with your financials, you will want to highlight the reasons for any dips or spikes in the traffic.
A buyer will want to know if you had a dip because of a spam attack that caused a temporary Google penalty, or if you had a large increase in traffic due to a paid ad experiment you ran. Again, the more detail you can give about such instances, the better.
What Support Will You Offer?
Now is a good time to decide what kind of support you would be willing to offer a buyer after the purchase. For affiliate sites, you probably don’t need to offer much as the workload tends to be pretty minimal once they are up and going.
It is worth noting the more complex your business is, the more support you should be willing to offer. For example, over the initial 30-day period following the sale, a Software as a Service business buyer will likely want more support than just one email per week.
Consider that even though you might be selling to a serious and savvy buyer who has purchased other businesses, they might have zero experience with the business model you are running. How could you make the transition easier for them?
On our marketplace, sellers tend to offer 30 days of support with one to three hours of Skype calls per week, and email support throughout the month after purchase. Most businesses will not require more than this, but in more complex businesses we have seen this support stretch out to the 60-day mark.
It is worth outlining your hard limits on what kind of support you would be willing to offer. This support can also be used as leverage in negotiations, i.e., you could add in more support to tip a potential buyer into becoming the actual buyer of your business. Only do this if you are for sure going to be able to offer that support and if it makes sense to do so.
Now it’s time to REALLY get down to the wire.
What to Do 30 Days Out from Selling Your Online Business
You’re just weeks away from listing your site for sale. There are only a few things left to do at this point to give your business the best shot at finding a buyer.
If you already know the target market for your business, why not reach out within those communities to let them know you have an asset you will be selling soon? You don’t want to reveal the URL or the exact specific niche (for instance, if you are selling recliners you might say something vague, such as “in the Home Niche”).
It’s best to be a little vague at this point is to protect you from people copying or stealing your business from you. Some businesses are more defensible than others, so this isn’t always a worry. If you are looking to see which business models tend to be the most defensible, with a fun Game of Thrones twist, you can check out our article here.
Private Deals Versus Working with a Broker
If you decide to sell your business privately, without a broker, be prepared to do a lot of buyer outreach to find someone willing to pay market price for your business.
It will be harder to sell the business at full market value without any help from someone with experience selling these kind of assets. Many sellers who go it on their own can feel burnt out when they keep getting low-ball offers, and end up selling their business for far less than what it is actually worth.
This, and the fact most sellers just simply don’t have a huge list of buyers ready to go, is why we recommend taking the broker route. (And of course, it’s how we make money, as well!)
Obviously we are a bit biased when it comes to private deals. We are a brokerage, after all. That being said, private deals can work for experienced sellers or buyers, but if you want to alleviate a lot of pressure, then you should learn how to research brokers that are going to be able get you a good deal.
Research Different Brokers
There are many brokers out there that specialize in marketing online businesses to potential buyers. Whether you choose us (Empire Flippers) or someone else, we do recommend going with someone who has a track record of selling businesses — specifically, online businesses that match your asset.
For example, we are one of the current leaders when it comes to selling Amazon FBA businesses. This means we have a ton of experience in how to pitch these businesses to potential buyers, and how to successfully migrate the business over to the new buyer.
If you are selling an Amazon FBA business, or even an e-commerce store where you are sourcing your own products, it is very likely we would be a good fit. Of course, you want to make sure you do your own research and due diligence and reach your own conclusions in these matters. You should be 100 percent comfortable with whatever broker you choose.
Another nice thing about using a good broker is that they are going to migrate the business over for you, which can be a really tedious process if you are selling on your own. Their job is to save you lifting a finger, as much as possible,
In addition to migration, you will be able to use a brokerage’s experience to negotiate the best price for your business. They will usually have a large list of people looking to acquire digital assets and can get you a higher price than if you had gone privately with your business. It is likely you will make more money using a brokerage, even after subtracting the commission and fees, than if you sold on your own.
Remember, not all brokers are created equal, so definitely research the one that matches your specific business the best, and one that you can really trust.
It is also recommended that if you go with a brokerage, that you give them at least six months to sell your business to their buyers before going off somewhere else to sell it, as some businesses (especially more complex ones) do require more time and due diligence from buyers before an offer is made.
Submit Your Site
This is a step you only have to do if you decide to go with a broker. Depending on the complexity of your site, the broker will take one to three weeks to vet the business and make sure it is both legitimate and a good fit for their marketplace.
You will need to include several documents or pieces of proof, such as view-only access to Google Analytics to verify traffic, potentially login access to different affiliate accounts, your Profits & Losses (P&L), COGs, and anything else the broker needs to verify that your business is a legitimate potential investment for a buyer.
Make sure you are very present during this process, as you will want to get through it as quickly as possible to get your business in front of potential buyers.
Luckily, if you have followed through on everything we have talked about in this post, you should have this all neatly organized, all ready to hand over to the brokerage of your choice.
Know Your Hard Limits
It is important that you set a few hard limits going forward. In the heat of negotiations, it is very easy to overpromise or undercut the things you really want to get out of selling your business. Right now is a good time to write down on a piece of paper a few things:
- The absolute MINIMUM price you would be willing to sell your business for.
- The absolute MAXIMUM support you would be willing to give to a buyer.
- Whether you will or will not accept earnouts from a buyer looking at your business; if you do accept them you should outline HOW that earnout should look. In other words, would you only accept an earnout where the buyer gave you 80 percent upfront and paid off the 20 percent over three months, for example? What kind of earnout are you willing to accept?
Determine your hard limits, but remember you should also remain flexible. Leave some breathing room between your initial list price and the hard limit of what you are willing to sell the business for. Negotiation is a large portion of selling your asset, so you want to have some room in there to negotiate with buyers.
Be Honest About the Negatives
One thing to point out here: many sellers only talk about the good things about their business. While that is fine, and you do want to put your best foot forward, sometimes the negative aspects of your business are the biggest selling points to potential buyers.
A good example of this is a seller glossing over the fact they couldn’t get any Facebook ads to work for their business and emphasizing how great their organic traffic is. While organic traffic is great, a potential buyer might have extensive experience with Facebook ads; hearing they are totally untapped with your business could be a very exciting prospect for them.
Another example could be a seller who is shipping their products via air to their fulfillment warehouse, mentioning that they never could get the logistics right when they tried shipping by boat. This could be a big plus to a buyer who understands shipping by boat, who would see a way to almost instantly increase their profit margin, simply by using their logistical knowledge.
Our biggest piece of advice is to be honest about the negatives in your business. At the end of the day, they will likely help you find the correct buyer, and can even be a big drawcard to the right buyer.Be honest about the negatives. Your buyer may see them as an opportunity. Click To Tweet
Selling and buying a business is an intimate process, so it is also likely you will have to get on the phone with a buyer before real negotiations start. This is especially true for any business over the $70,000 range, where more negotiations come into play.
If you choose to go with a broker, this can be a pretty smooth experience, as a good broker will have a deal facilitator on the call with you, as well as helping you manage the negotiations.
Don’t Expect to Sell on Potential
Finally, never sell your business on potential.
Telling a potential buyer about all the great places your business is going, and what it will be like in the future, only hurts your ability to negotiate the sale now. If a buyer hears that the business is going to shoot way upwards in income shortly, they might tell you to give them a discount, and in return they will give you a share of that yet-to-be-earned profit.
Selling on potential is never a good idea when you are trying to get the full listing price for your business.
Always sell your business on the merits of what it is currently doing. Let the story of your business, as told through financials, traffic analytics, and other elements, create the potential that makes them eager to buy.
What’s Left to Do?
There’s not that much left for you to do at this point. You should be listing your site for sale if you chose to use a broker, or proactively doing buyer outreach if you decided to go for the private route.
If you followed all the steps above, you will be prepared to share access to your traffic analytics with potential buyers and explain all traffic sources, how they work, and any fluctuations that have happened over the last 12 months.
If you follow everything above, you will have a business that is more prepared than the majority of businesses people try to sell. The process will be as smooth as possible for both you and the buyer. You will also make your business as attractive as possible to buyers looking to acquire digital assets.
Incidentally, whether you sell or not, by now you will have a slick machine of a business, with clear processes and accounts, and smooth and efficient operations.
But at the end of the day, all of your preparations have the potential to be rewarded with the big paycheck for your successful exit. That large lump sum of cash can then be used to either build out a new project, buy real estate, or travel the world in style.
That future is up to you. Just remember, preparation is key.
Originally posted 2017-05-02 22:02:58.