Greg Elfrink lays out the blueprint for creating a streamlined business that will sell for the maximum price in the minimum time
This post is by Greg Elfrink, Content Manager at Empire Flippers, a broker specializing in online businesses. Empire Flippers has sold dozens of FBA businesses, and earlier this year completed its largest ever sale: a $1.7 million Amazon FBA business.
It can be an intense, stressful but rewarding process building up your ecommerce store to a level of profitability. However, the reward shouldn’t be focused on the profit you earn every month, as there is a much bigger reward waiting for you: your ecommerce store’s exit plan.
In other words, you could take all of the sweat equity you put into your business and sell it for a large lump sum of money. That capital can be leveraged into all kinds of new projects. You could choose to invest in new ecommerce businesses, buy physical real estate or even pay off debts.
But selling a business takes preparation. Buyers are looking for well-run, streamlined, predictable businesses. If yours is profitable, but chaotic, then it’s going to be much harder to sell.
In this article, you are going to learn exactly how to build your business so it can be sold quickly and at the best price possible. We are going to cover what you need set up right away, how your business should look six months out from being sold, and the final tweaks you need to make in the three months before you sell it.
Preparing for a Big Exit From the Start
There are a few things that should always be part of the business you build. Most of these are pretty common sense items, but just because they are common sense, don’t make the mistake of thinking that means they are “common”. Many ecommerce store owners miss out on some of the elements below.
Also, doing these things right will help you build a better, more profitable business overall because you’ll have a better grasp of where your business is going. When it comes time to sell the store, buyers will want this information anyhow, so you might as well set it up for success from the start.
Each of these actions are easy to set up; they just take some time. Trust me when I say it is time well spent.
Create a profit and loss (P&L) statement
Every ecommerce business should have a profit and loss statement. Start your business on the right foot by keeping one from the beginning.
A profit and loss statement documents your revenue every month. You can always create quarterly and annual P&Ls, but you should definitely track month-by-month. Buyers will study these P&Ls; anything that makes them feel the books are even slightly inaccurate will be a huge problem.
Your P&L statement can be as simple as a spreadsheet, or you can use more complex systems like QuickBooks. Larger ecommerce stores might also benefit from hiring an actual bookkeeper or accountant to handle the P&L later on.
Use traffic analytics software
The first thing you need for your ecommerce business is a way to track traffic. Outside of verifying revenue, the number one thing potential buyers will be looking for is to make sure your traffic is real and verified.
Typically, Google Analytics will be your best bet. It’s free, highly informative, and most people looking to buy an online business will be fairly familiar with Analytics. For those doing SEO who are afraid of having Google products attached to their site, Clicky is a good alternative that is also respected as a traffic tracking software.
The more data you can show a buyer, the better off you will be. Make sure you have some kind of analytics installed from day one. Every month, look at your traffic and create a traffic journal. When you see a big dip or a big traffic spike, make a note of that. At some point, maybe years, down the road, when you need to answer a buyer’s question about your traffic, you’ll have all the answers at your fingertips.
Create standard operating procedures
Standard operating procedures (SOP) are the instruction manual for your ecommerce business. These procedures should be so detailed that you can hand this operating manual over to anyone, and they will be able to run your business the same as you would, more or less.
Ecommerce store buyers are interested in purchasing a system, not a job.
Ecommerce store buyers are interested in purchasing a system, not a job. With good SOPs, you’re showing buyers that you’re giving them a system to operate.
Writing good SOPs (or better yet, doing video tutorials) takes time, which is why you should start right away. Every time you do something, ask yourself how you can create an SOP to outline that process. It could be how you select new products, do effective keyword research, or format a blog post. If you start early, then by the time you sell your business you will have a good book of SOPs for the buyer to look at, and you won’t have to create all the SOPs in a rush.
Plus, when you have these SOPs, you can hand off entire portions of your business to your team and start working “on” your business instead of “in” it. SOPs can be the key to positively leveraging your time even if you never sell your business.
Below are three areas for which you definitely need SOPs.
Your products are your business, so this process is a critical one. When you outline your process for picking products, ask yourself some of the following questions:
- Do you look at your supplier’s best selling lists?
- Are you creating unique products with your own designs?
- How do you come up with those designs?
- Are you using multiple suppliers for the same product? (Because you should be.)
- How do you select which suppliers to work with?
- How are you shipping your products to a fulfillment warehouse?
- How did you select your fulfillment warehouse?
Keyword research and content creation
SEO can be one of the most profitable marketing tools, but it’s not as easy as simply buying an ad on Facebook and letting it fly. The trick is actually ranking and getting that traffic. You need to think strategically about how you approach content creation.
SEO can be lucrative for an ecommerce business, but it’s also a moving target, so you need to write down your procedure and continuously update it as the algorithm changes.
For ecommerce stores focusing heavily on SEO:
- What is your process for keyword research?
- What tools are you using?
- What do you look for with each keyword?
- Then, how do you go about optimizing that keyword?
- Do you have writers for your content? (You should if you want to sell your business.)
- How did you train those writers?
- How do you format your content or product listings?
Advertising is the lifeblood of most ecommerce businesses. A large swathe of ecommerce stores are getting 100 percent of their traffic either from Facebook or Google AdWords. You need to have more strategy in place than just a “gut feeling” here.
One mistake in paid advertising can be the difference between makings tens of thousands of dollars in product sales… or losing thousands from bad traffic clicking on your ads.
Paid advertising can make potential buyers nervous because they will be responsible for actively managing any ad campaigns you’ve put in place. Alleviate this anxiety by giving them your detailed SOP.
Here are some questions you should ask yourself when creating this SOP:
- Are you using paid marketing funnels like Facebook or AdWords? If so, how are you doing it? Outline your process.
- Are you using multiple campaigns and or a certain number of ad sets within each campaign?
- Are you doing any re-targeting and what do you focus on with re-targeting versus cold traffic?
One note: if you can, make all your SOPs into video tutorials so they are easier to understand and simpler for you to teach. Since ad platform designs such as Facebook can change fairly frequently, make sure the videos are continually updated.
6 Months Out From Selling
Six months out from selling is a good time to check in on how your ecommerce store is really doing. If you’re not planning to sell the business, then look at these actions as your biannual checkup and some necessary general housekeeping. Refreshing the items below every six months is a good idea to make sure you’re on top of everything.
Right now, you also have a big enough window to make significant changes that could influence your profit, and thus your valuation price, in a positive (or negative) way. Look for easy wins here that could lead to a big change in your average net profit. For example, now is the time to kill paid traffic channels with a bad return on investment, or optimize profitable channels, so they produce even more revenue.
Do these common sense things and you’ll be on top, whether you sell the business or not.
If you are getting a special deal with your supplier that gives you extra profit margin, you want to make sure these special terms are transferrable. Call up your suppliers and get it in writing that they are willing to give the new owner the same deal that they gave you.
The last thing you want is to go through the entire process of listing your site, negotiating a deal with a buyer, and transferring the domain over, only to have to reverse everything because your contracts are non-transferable to the new owner.
Start aggressively outsourcing everything
At the six month mark, you should already have a big SOP manual that guides how you operate the business. Look for ways to minimize how much time you are personally spending working in the business.
Many entrepreneurs underestimate how much time they’re spending on things such as product inventory management, customer service, and content creation. Use a tool like Time Doctor to see how much time you are spending on specific tasks. When you see you’re actually spending 10+ hours per week on customer service, it’s time to outsource that function. The more you can create a hands-off business, the more attractive your business is going to be to a buyer.
While outsourcing may add expenses resulting in a lower overall value, it actually increases your likelihood of selling the business. No one wants to buy a job. Everyone wants to buy a system. Turn your business into a well-oiled machine and you open up your pool of potential buyers by a significant amount.
Even if you don’t sell your business, you are going to open up your most valuable asset by doing this: time.
Check for duplicate content
Duplicate content has a way of creeping into sites, especially if your ecommerce site focuses heavily on content. Reproducing content can harm your SEO because when Google sees duplicate content, they instantly think of spam. And that is the last thing you want Google thinking when they crawl your ecommerce store!
If you find duplicate posts, consolidate them into an ultimate guide.
Look through your blog and make sure you’re not saying the same things over and over again in several different posts.
If you find duplicate posts, consolidate them into an ultimate guide. Use the URL with the most power from the multiple posts (figure that out using a tool like Ahrefs) for the guide, and then you can use 301 redirects from the old posts to lead to it.
Another form of duplicate content happens when you upload hundreds of product listings, a problem that people who do dropshipping often face. These product listings might spill over in weird ways through your category pages, or appear in other parts of the website where you didn’t mean for them to appear.
Look for duplicate content by typing “site:your e-commercestore.com [Insert Content Title Here]” into Google. If you see multiple pages being indexed with different URLs all showing the same content, that is a red flag and a good place to start getting rid of the duplicate pages. Remove these duplicate posts and your SEO is likely to improve.
Clean up link profile
Buyers will look into your backlink history, so it is important to remain aware of what kind of backlink profile you’ve created. You can use Ahrefs to check your profile for any seedy links pointing to your website.
These links are usually in what we call “bad neighborhoods,” that is, porn, gambling, and other spammy or irrelevant sites. If Google finds a lot of bad neighborhoods in your profile, they trust your site less, which could hurt your SEO. Buyers seeing these links can feel a bit uneasy about purchasing your ecommerce store.
While Ahrefs will tell you where these backlinks are, the easiest way to get rid of them is by using the Google Disavow Tool.
Cleaning up your backlink profile will often increase your SEO; it will also make buyers feel a lot more comfortable spending six-figures plus on your ecommerce store.
3 Months Out from Selling
At this point, you do not want to be making any huge changes to your business. Stop doing exploratory marketing of any kind and stick to what is working to make sure you maintain your earnings.
Most of this period is spent revisiting processes and procedures. Since your business may have changed, update everything to make sure it reflects what your current business is.
Updating your SOPs is super important. If you’ve kept them current, then the majority of the work is done and you’re in a great position. If you haven’t kept them current, now is the time to get them in shape.
For example, if your old video marketing procedure was to only upload everything to YouTube, but now you also upload the video natively to Facebook, you will want to make sure your SOP reflects this new process.
Look through everything and then consult the people who are using your SOPs right now. Are they following it to a T? Or have they improved the SOP in a way that makes their job much easier? If so, update the SOP to reflect their improvements.
Clean up terms of service (ToS)
Make sure your ToS is updated. You may need to consult with your lawyer here just to make sure everything is on the up-and-up. Does it still reflect how you operate your business? For example, your initial terms may have included free shipping all the time, but now you only give free shipping on $100+ orders.
Updating your ToS can be a pretty tedious task but it is crucial. You want to make sure you are 100 percent right with anything related to legalities.
Review your financials and traffic
Remember that P&L you created way back when you started the business? Well… hopefully, you kept it updated! If you did, then this is a simple process of just reviewing your net monthly profits, and your quarterly and annual trends.
Some investors love distressed businesses, others will not touch them.
If you didn’t keep your P&L updated, now is the time to hire a bookkeeper to help make sure your books are right. While your business is using a 12 month average for your multiple, buyers will still be interested in how your business was doing before that 12 months. If you own an ecommerce business that’s been running for six years, buyers will be expecting to at least see quarterly or annual P&Ls for the other five years your business has been in existence.
The reason? Because your business might be trending downward, or exploding upwards, year-over-year.
Investors want to know that. Some investors love distressed businesses, others will not touch them. Either way, you don’t want them to find out at the end of the sales process just to have them back out completely, which wastes everyone’s time.
Outside of your P&L, you also want to review your traffic trends. Likewise, this should be a simple process of reviewing the traffic journal you created where you marked what happened during any noticeable traffic dips or spikes.
Anything left to outsource?
By now, everything in your business should be pretty much systemized and preferably operated by other people.
However, many ecommerce store owners will still fulfill and ship sold products themselves. If you don’t do this, it limits a HUGE pool of buyers. Someone who is living a “digital nomad” lifestyle in Bali is not going to want to buy an ecommerce business where they need to physically ship out the product to clients.
There are a ton of third-party services and warehouses you can use to handle all fulfillment options for you. Take advantage of them, as they can provide you with an easy win!
Is there anything else to outsource? Look again at your Time Doctor tracking. Are there any repetitive tasks you are still doing on a weekly basis that could have an SOP created and a virtual assistant to take your place? If so, now is the time to do it.
30 Days Out From Selling
The last 30 days before you list your ecommerce store for sale is all about prepping the business for the different types of buyers that will be looking at it. But first, you need to decide which of the two methods you are going use to sell your business: a private sale or using a brokerage. Let’s briefly go over those two options before diving into the final prepping details.
Doing a private sale
A private sale is exactly what it sounds like. You find the buyer, do all the negotiations yourself, and ultimately migrate the business over to the new owner yourself.
The advantage to a private sale is that you don’t need to pay anyone commission for the sale of your business. If you have solid, trusted contacts, or if you’ve sold an online business before and are familiar with the process, this option might work for you.
But if you’re brand new to selling an ecommerce business, I wouldn’t recommend a private sale. There’s too much that can go wrong. For example, even if you use an escrow service to hold the money from the buyer, you and the escrow service may have different views of when the deal’s terms are met, meaning the money gets released later than you think it should.
You may also have issues with migrating the site if product listings don’t transfer over correctly (most reputable brokers will migrate the site for the seller and buyer).
Plus, if you’re not an experienced negotiator of these types of deals, you could end up with less than favorable terms on your side, leading to a price that is far less than what your store is truly worth.
Using a brokerage
The only real disadvantage to using a brokerage is that you will need to pay a commission fee based on the sale price of your business. For us at Empire Flippers, this fee is 15 percent of the sales price.
Look for a brokerage that has a team behind them rather than a one-man show.
Other than that, almost all of the heavy lifting is done by the brokerage. They procure buyers, get rid of timewasters, field questions on your behalf, and help negotiate the sale. Since brokers are creating deals day after day, they often can command a higher sales price for your business than if you go it alone.
The time and effort you’ll save using a brokerage service will often make up for the 15 percent commision that you pay.
Before you pick a brokerage, you should research the different players. Firstly, you want one that specializes in online businesses. Preferably look for a brokerage that has a team behind them rather than a one-man show. Also, look through their previous listings. Have they ever sold a business similar to yours in a similar price range?
When you’re checking their previous listings, make sure you subtract their commission fee from the sales prices and if after doing that, you see numbers that excite you, go with that brokerage.
Build a list of strategic buyers
If you’re going for a private sale, I highly recommend building a list of potential buyers. Look at other people within your niche or in related niches. Build a list in a spreadsheet and reach out to each of them to see if they’re open to acquiring a business that is similar to their own.
For example, if you run an ecommerce store selling jump ropes, you might reach out to a website that does fitness training via digital video courses. They’re not direct competitors, but they could see the added value of cross-promoting your ecommerce store that sells jump ropes with their fitness brand.
Of course, direct competitors can also be great buyers. This fact is especially true if you have really good SEO rankings because then they can just dominate multiple positions in Google that all lead back to them.
Be careful opening up your books too much to these competitors. Some unscrupulous ones may use their due diligence as a way to just copy your business, so it pays to be a bit wary. As always, you will eventually need to open up everything, just vet the people first before you reveal all of your secrets.
Create a hard minimum sales price and be flexible
Once your ecommerce store is up for sale, things can get heated. During negotiations, you might do something you wish you hadn’t, like lowering your price significantly. We all want to avoid these kinds of regrets.
During negotiations, you might do something you wish you hadn’t.
The easiest way to avoid this mistake is by setting yourself a hard minimum sales price. It’s not the ideal sales price or your actual list price; it’s the lowest amount you would be willing to take for your business. Having a hard minimum lets you be flexible in your deal structuring and gives you breathing room during negotiations. It also ensures you won’t make the mistake of agreeing to a price that is too low.
You should also consider the maximum amount of support you are willing to offer a buyer. You might offer a lower amount of support during negotiations and then raise it to help you secure a higher sales price or larger upfront payment.
Speaking of upfront payments, any ecommerce business listed for over $100,000 rarely gets the full amount upfront. Instead, there is usually an earn-out situation of some kind, where the buyer pays an initial amount, then pays off the remainder over weeks, months, or even years. There are many ways to structure earn-outs. What kind would you be comfortable with? If a business is worth $100,000 would you take $70,000 upfront with $30,000 paid out over a two month period?
Setting these kinds of expectations upfront will help you be happier with the outcome when you sell your business.
If you decide to use a broker, make sure you tell the business advisor working on your deal about your hard minimums. The broker’s job is to get the best deal possible for both the seller and the buyer, and if a broker knows where you’re flexible, then it helps them to facilitate a better deal.
Brokers have a vetting period
If you decide to use a brokerage, know that any reputable brokerage is going to have a one to four-week vetting period where you submit your business for sale and open up everything to the brokerage.
The brokerage will verify your traffic, your earnings, and make sure everything is legitimate. There might be problems you overlooked that the broker will ask you to fix. During this period, it is extremely important to by hyperactive in your responses so that your vetting is completed within a quick time frame.
When You Are Ready to Sell
There are only a few things left to do at this point. If you’re using a broker, it’s time to list your site for sale. If you’re doing a private sale, it is time to start talks in earnest with your list of strategic buyers.
Make sure you are prepared to share access to your Google Analytics or Clicky account with potential buyers. They will probably want to see your actual back end versus just screenshots at this point. You will also want to be able to explain all of your traffic sources and exactly how they work – lucky for you, you have good SOPs.
Frame the potential of your business by talking about the negatives.
It is also important to be honest about any negatives in your business. Sure, you want to show the business in the best light and maybe even emphasize the positive potential of the business. But if you sell on potential only, you may get bad offers. Possible buyers will ask: “If the potential of the business is so good, why wouldn’t you keep it and build it yourself?”
Instead, frame the potential of your business by talking about the negatives, or places you’ve failed. If you highlight the negatives, you create a scenario in the buyer’s mind where they see opportunity – they can make more profit by turning those negatives around and succeeding where you failed. Plus, being transparent about negatives builds trust with your potential buyer.
You need to also prepare to get on the phone with buyers. Most businesses are not sold automatically just via a few emails. It takes a few phone calls where you get to know each other and hash out the terms of your agreement. If you’re using a broker, there will be a business advisor on this phone call with you to make sure you get the best possible deal from the buyer.
Now, there’s nothing left to do but be hyper-responsive to buyer questions. That goes for whether you’re using a broker or doing a private deal. Slow responses have led to the death of many deals, don’t allow your ecommerce store to become one of them!
You’ve done everything to make your business as attractive as possible. You’ve organized it, so a buyer isn’t a purchasing a job, but rather a system they can leverage and scale. Now it is up to your negotiation skills (or your broker’s) to get the best deal possible.
When that deal is struck, you will be getting the real reward of building a highly profitable ecommerce business: a large, upfront sum of capital that you can inject into all kinds of new projects and investments.
Selling your ecommerce business and getting that capital can be one of the fastest ways for you to level up your overall business portfolio. Half of the battle is preparation, and you now have the blueprint for that.
Empire Flippers has helped people buy and sell over $35 million dollars worth of online businesses. Their buyers and sellers span the globe and they have fine-tuned their process to ensure you have a safe and secure experience. Find out more about selling your site with Empire Flippers.