Whether you’re selling a Bricks & Mortar business, an eCommerce business, a Service-based website, a Software Application or some other digital asset, it can be a daunting, somewhat scary concept. Our brokers have been trained to ensure that our clients are made comfortable with the entire process; sometimes this means taking a step back from the mindset of selling, to a mindset of preparing a strategy to sell. Obviously the key is to maximize the value of the business to the extent possible, and thus strike price – and that’s where we excel.
What we have found in our experience is that a properly followed exit strategy is what propels a business to a successful sale, and thus, happy parties. The more effort spent on strategy to prepare for an eventual sale, and understanding the factors that make a business sellable, the more attractive your business will be to prospective buyers. And this also oftentimes helps put a Buyer in a position to be successful upon transfer of assets.
To help Sellers begin thinking about exit and how to sell an Internet business, we’ve created a line of thoughts as follows:
1. Understand the Company’s Pros and Cons. It might seem like common sense, but we recommend that our clients sit down for a few minutes and put into words all the great things about their company, especially the things that make it stand out from the competition. But just as important is to understand and be upfront about issues with the company – or rather – issues a Buyer might have when acquiring the business. Good Business Brokers are upfront and transparent about these potentially negative points because they will eventually come out sooner or later anyway, and if they aren’t explained up front, it can give potential Buyers a cause for concern. The vast majority of our deals are bank deals, and even if the negative aspects were to slip through the cracks, the bank would find it anyway, so there’s just no reason to hold back facts. We recommend bringing everything to the table – pros AND cons – and find solutions to help minimize the impact of the cons on the new Buyer.
2. Will Seasonality Impact the Sale? If a business’s sales flow has seasonality to it, the timing of a sale can be important. The best time to sale can be identified by reviewing the year over year financials and looking at trends. Once a closing period has been identified, then one can back-plan accordingly to identify the right time to list the business for sale.
3. When is the best time to Sell? What are your sales and profits trends year over year? In order to achieve the very best multiple for a business, you want to sell when it is on the upswing – and the bigger that upswing – the bigger the multiple. Many of our clients come to us asking to sell at a certain strike price, but if the market will not support such a price, they will often state that they will take some time to work harder and increase sales. While this can be a good strategy, the risk is that if sales plateau, or worse, begin to show negative trends, then the multiple can fall very fast. While there is a science to timing, it is best to speak with the brokers at Website Closers – they’ve closed many businesses – and they will help you identify whether it’s the right time to sell, and if so, an idea of marketplace comparables to get an idea of what the market will bear.
4. Think about post-Closing. Some sellers get burnt out running their business and/or get so focused on selling their business that they don’t think about what they are going to do after the business sells. This is also another good reason to contact us at WebsiteClosers.com. We can help you strategize. Sometimes post-Closing activity can include continuing as a consultant for your business, and sometimes it means starting a new business and leaving you current one behind. It is best to get your arms around what you will do after your business sells as soon as possible because failing to do so can make you less flexible in transaction negotiations and less committed to the overall process. A truly committed seller is the best teammate we can have for maximizing the sales price and achieving success.
5. Think about a Strike Price. When an entrepreneur focuses on a company and begins the process of thinking about selling, it is inevitable that they have a certain purchase price in mind. Sometimes that is within the range of what the market with bear – sometimes it is not. Our goal at Website Closers is to listen to our client’s needs and to create a sales strategy around those needs. In other words, we help create strategies that maximize the cash at the closing table. A properly priced business in the Internet Sector will usually go under contract very quickly, but if the object is price, rather than time, then sometimes it makes sense to a/b test pricing models and take a little time to feel out the marketplace. Many different factors go into how to value an ecommerce website or other digital asset, so it would be a good move to contact us for a valuation. We are a success-based firm – meaning that there’s no upfront fees of any kind – we only earn a commission if you sell your business.
6. Capital Gains and Other Tax Matters. This is a big one. Not only do you want to ensure that you are paid up on all taxes, but you want to work with tax professionals that will help guide you through the sale of your business. Taxes associated with a business sale can be highly confusing, so we recommend that you discuss your potential sale with tax advisors. If you don’t have an advisor – we have third parties that we can refer you to that will help in tax preparation for the sale of your company. This issue can kill deals, so let’s start talking about it from the beginning.
7. What happens to the business when you leave? Another big one – especially for weary Buyers. It is wise to begin thinking about this issue at least 1 year before you are ready to exit. Oftentimes in website sales, a Buyer has little or no past experience with the particular business; and thus, the buyer wants to ensure that when the Seller leaves, there will be no negative impacts to the business, including with respect to sales, supply chain or marketing campaigns. When a Seller is too in control of a business that requires a specific background, then it narrows the Buyer pool from which candidates can be found. But when there are employees or third parties in place that can continue operations seamlessly upon the sale of the business, it puts Buyers at ease. If the business does not require technical skills and can be trained, then this tends to not be an issue.
8. Document your Processes. While it can be time consuming, it will save you and a Buyer a lot of heartache down the road if you ensure that business operation processes are written down in an organized manual that can help lead a Buyer along the path as they learn the ins and outs of the business. This doesn’t need to take any specific form, but should be informative enough that someone fresh to the industry would easily be able to pick up the manual and run the company.
9. Be aware of your financials. Some business owners focus their operational activities on their customers and growing their businesses, and they leave the financials to their accountants. While this isn’t necessarily a bad way to operate, when it comes time to selling the business, they should take some time to sit down with their accountants and advisors to fully understand the company’s financial trends, where they can cut and opportunities available in preparing to exit. This understanding will be key when it comes time to discuss the valuation and what Buyers will be looking for on the financials front.
10. Prepare to Deal. Good, savvy buyers will usually find a number of ways to structure a deal, usually in a method that best suits his/her business model. We coach Sellers to prepare to be negotiated with – prepare to get into acute minutiae of the business because Buyers want to ensure that the information you’re providing is true. Sometimes this process can be hard to swallow for Sellers, so it’s wise to have the brokerage team at Website Closers help prepare you for the process, making it easier to swallow for all parties.