Selling Your Ecommerce Business
Preparing to Sell Your Ecommerce Business
Selling a business is similar to selling any other type of asset in that you want your business to be in the best shape possible in order to attract the most attention from buyers.
For e-commerce businesses this means making sure all of your operating procedures have been written down or recorded and you are able to display to the buyers how the business is run. Additionally, you should think about automating as many operations as possible to make the buyers work load as small as possible. You should also have documentation to show your current inventory and you should have financial statements are clean and easy to understand.
In addition, if you have your ecommerce business setup as it’s own legal entity, it is great to have the business tax returns to accompany the other items. This helps the buyer to see how much the business is truly making and can also help them get acquisition financing in some situations.
To get the best valuation for your e-commerce business, you should ideally have financial statements for at least the last two years of the businesses life. This is easiest if you have paid an accountant to clean up your books since inception. However, it is not impossible to consolidate your records and make financial statements looking back at your businesses performance.
For e-commerce retailers that sell their products through multiple channels, the income statements can be quite a task. However, large omnichannel retailers with clean financial statements can be very desirable from a business buyers perspective. At a minimum, your ecommerce financial statements should include:
- Revenue from each sales channel. This means that wholesale, amazon, walmart.com, etc. are all broken out into their own line.
- Product expenses can be shown as one line item or broken out into a new line for each supplier you utilize. You should ideally have some receipts or invoices so that we can justify this line item to the buyers. They will need to see a couple of invoices to justify these costs during the due diligence period anyways.
- Expenses for each employee should be broker out into their own line item.
- Software, hosting and other ancillary expenses should each be broken out into their own item on the income statement.
- Here is a more encompassing guide to Income statements to double check your work.
Standard Operating Procedures
Aside from having a clean and easy to understand financial statement, having clearly documented operating procedures for all business employees is the most important document for a buyer to review. This could be as simple as a screen recording of the procedure or list of steps it takes to execute the procedure. Anything to paint a clear picture of how the business is operated.
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Number of Products
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What channels represent more than 20% of your website traffic?
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How much net profit did the business make in the last calendar year?
Listing Your Ecommerce Business For Sale
Sales Packet Creation
Once your books and records are consolidated, we’ll gather all of your documents, create a valuation and put together a sales packet for your business. This sales packet, often called a prospectus or “CIM” (confidential information memorandum) will contain not just the business financial statements and operation documents but will include product summaries, SEO information, supply chain information, a short Q&A document that we prepare with you, a summary of how a new owner could grow the business, who the business is a fit for and more.
This is the level of due diligence that legitimate buyers expect for the businesses they look at. Because ecommerce businesses, especially omnichannel retailers have so many moving pieces, it is important to paint a brief but clear picture of how they are operated and why they are a worthwhile investment.
Sample sales packet cover
Presenting the Business
Once a completed sales packet has been created and approved by you, we’ll email a teaser for the business to our buyer list. This teaser will only have the high level details such as category or products sold, number of employees, revenue and net profit. They will not have access to your exact listings at this stage.
If the business does not get any suitable offers from our current buyer list, we will put the business on our website, third party listing sites and advertise it to potential buyers to drum up more interest.
Before any buyer is able to access the sales packet, we ask that they complete a non-disclosure agreement, tell us a bit about themselves, the type of businesses they are interested in and their financial capabilities. This admittedly is not a perfect system, but it is the best process that we have found to weed out the tire kickers.
If you’d like more information on who buys ecommerce businesses, have a look at our article dedicated to the subject here.
If you are entertaining the idea of selling your ecommerce business and would like to real more about valuations and request one on your business, have a look at our article on ecommerce valuation multiples here.
Offers, Negotiation and Close
We always do our best to give our clients a reasonable expectation of the compensation and deal structure that they can expect to receive for their business. However, it is the buyers on the market that will ultimately determine the value of the business based on what they are willing to offer for it.
Ecommerce businesses that stock a large amount of inventory may be asked by the buyer to holdback a portion of the inventory cost. This means that the cost of inventory at time of deal closing won’t be paid until that inventory actually sells through. Some buyers may even request that the inventory cost be paid after the first calendar year. This helps them with their cash flow and bankrolling future inventory and expansion efforts.
Deal structures including seller financing and royalties are also somewhat common with ecommerce business sales.
A seller financed business is when the buyer pays the seller a portion of the purchase price over a set period of time. This means that the seller is assuming some risk for the buyer and can typically ask for a higher purchase price in exchange.
Royalties for ecommerce transactions businesses are typically structured as a fixed percentage of revenue paid to the seller on a quarterly basis for a set period of time.
Once a buyer comes forward with an acceptable offer, we will negotiate the exact terms of the deal with you and on your behalf with the criteria that you have requested beforehand. Many sellers have a bias towards receiving cash at time of close so we are accustomed to requesting buyers bring a hefty check to the transaction. We would rarely advise you to accept a deal with less than 50% cash due at close.
The seller may request that you stay on for a period of time to train them or even sign a contract to consult with them ongoing for a salary or monthly fee moving forward. In most situations this is so that the buyer can rest assured that they have help in running the business for a period of time and that they are not biting off more than they can chew.
Close & Migration
Once final deal terms have agreed upon, it is time to transfer the capital and business assets. Being as though most business acquisitions are for assets and not equity, the corporate entity you used to run your business can typically stay with you, while all other business assets are typically purchased by the new buyer.
We will oversee the migration of the website(s), 3PL account, wholesale relationships, seller central account, trademarks, product patents and any other purchased asset as well as assisting the buyer in moving their money into a secure escrow account.
Most sellers will chose to get legal council before accepting a final offer. This is not included in our fee and business sellers should allocate $2K – $5K for an attorney to advise them on the asset purchase agreement.