More entrepreneurs than ever have been finding success in building businesses online in recent years, which is great news. If you’re in this position, congratulations on succeeding in a competitive environment. Now, let’s talk about what to consider before capitalizing on that success and selling the business. This article focuses on what to consider when selling an online business.
When to Sell
What to consider when selling an online business? The first thing to consider is how to tell it’s time to sell your online business. Online businesses are different from brick-and-mortar businesses. For instance, if you own a brick-and-mortar business near Washington, D.C., check out our page on whether to sell your business in Washington DC. However, like brick-and-mortar companies, online businesses get sold every day for all kinds of reasons. Unfortunately, entrepreneurs who rush into the process often miss out on opportunities to make the business look more attractive and make more money off its sale.
Business owners who want to maximize their profits and are in a position to do so should start planning at least a few years in advance. Some motivations to sell, such as serious illness, death, and partner disputes can all make advanced planning a challenge. However, if business owners are simply bored, ready to retire, or feeling overworked, they should know that it’s still worth putting in some extra legwork.
Any good business broker will tell you that qualified buyers are more likely to express interest in any business, including online businesses that appears to have plenty of room for growth. They look for things like:
- Consistent income
- A large and regular customer base
- Increasing profits
- Major contracts with clients
Of course, every business is different. Just keep in mind that you stand to make a significantly greater profit if you take a year or two to prepare financial records, improve the business structure, and make sure your customer base is consistent.
How to Sell
Selling an online business is just as much of a challenge as finding a buyer for a brick-and-mortar store, and it almost always takes the help of a qualified broker. If you want to sell the business without any professional help, the options will be limited. Websites aimed at small business owners tend to be predatory and charge hidden fees, instead of completion or success fees. In the end, you may wind up paying more to do all of the work yourself than to pay a broker’s commission.
There are some situations where it’s appropriate to sell an online business without professional help, but only if price and terms are not the chief concern. Business owners who are ready to sell and receive promising offers from family members, employees, or even competitors sometimes opt to accept less-than-amazing deals because the timing happens to be right. It’s up to you to decide whether that sounds like a reasonable strategy given the value of the business and the specifics of the situation.
What the Business Is Worth
Most business owners think they know what their companies are worth. However, if you’ve never undergone a professional business valuation, that’s simply not true. The only way to get an accurate idea of what you might be able to get for an online company is to find a professional business analyst or appraiser who can offer an accurate valuation.
The problem is that not all appraisers can offer accurate valuations for online businesses. There are unique factors to consider that don’t come into play when valuing brick-and-mortar companies, and not all financial analysts have the right background to ensure accuracy.
Website traffic, for example, is significantly more important for online-only businesses, and an accurate valuation will need to consider everything from whether the major traffic sources are organic or paid to how many backlinks the site has. Factors like website traffic simply aren’t as relevant to a physical store or restaurant that derives most of its business from local customers, and many traditional analysts have difficulty assigning an accurate financial value to these kinds of online-only assets.
Whether to Hire a Broker
As a general rule, if you have to stop to wonder whether it’s worth hiring a business broker, the answer is yes. Unless you plan to sell to a family member or trusted employee, working with an industry professional is by far the best way to maximize profits and ensure that the deal gets closed. Brokers can:
- Provide an initial assessment and get an accurate valuation.
- Help clients map out exit strategies.
- Perform discovery and prepare initial memorandums.
- Evaluate every potential risk.
- Find qualified, credible buyers.
- Ensure that buyer conversations and negotiations remain confidential.
- Negotiate the best deal for the seller.
- Assist with closing.
Working with a broker will give you access to an industry expert who can answer questions, market the business, find qualified buyers, and help with all aspects of preparing for the sale. That way, you’ll be able to focus on continuing to run the business in the meantime to make sure it continues to be profitable.
How to Handle Proceeds From the Sale
Some people have a hard time figuring out how to handle proceeds from a business sale responsibly, so creating a financial strategy should be part of an online business owner’s exit planning. Take the time to learn about the tax consequences of suddenly acquired wealth now, and try to figure out what to do with all of that hard-earned cash.
In most cases, business owners’ motivations to sell are the primary driving factors behind financial planning. If you’re selling because you’re ready to retire, that will take the help of an investment planner, whereas getting bored with the current business may be a better incentive to put the money into a new entrepreneurial opportunity in another industry. Either way, it’s better to give thought to what to do with the profits before you have the money in hand.
The Next Steps
Once you’ve decided that it’s time to sell and pinned down your motivation for doing so, reach out to a qualified broker. You don’t need to have every duck in a row to start investigating options. An expert broker can help with things like getting an accurate business valuation and understanding how to make an online business look more appealing to potential buyers. These points in this article were what to consider when selling an online business.