Selling an online business can be a tough decision for some business owners, after all that time spent creating your online presence. To be able to do so, however, it’s a prerequisite for you to take good care of your online business from day one.
Today’s guide will cover essential advice on how to prepare and sell your online business. But, first, let’s take a close look at the factors that dictate which online businesses are profitable and the analytics, finances, and other assets that stand behind them.
Overview of the Website Selling Process
You might be surprised to learn just how much work there is behind selling an online business. If not done correctly, the process can easily take months (if not years), with no potential buyer on the horizon.
Here’s a short overview of the whole procedure.
6 Steps for How to Prepare and Sell Your Online Business:
1. Collecting Information
The first step is to gather all the essential documents that make up the backbone of your online business selling process. These include financial records, due diligence papers, key performance indicators (KPIs), traffic, etc. You can use our Selling Your Business checklist to help you work through this.
2. Finding a Broker
This step is optional (but highly recommended). You can choose to hire a broker, a third party that will help sell your website and get the best deal. The other way is to list the business for sale on platforms like Flippa but this will have you doing most of the work.
Moreover, suppose you want to be totally stress-free in the process of selling your online business. In that case, it is advisable to hire a professional broker who knows the market and place where potential buyers can see the potential in the sale of your business as valuable. They can fully overtake the whole steps and give you a comprehensive report about the progress in selling your business.
3. Online Business Evaluation
Whether you opt for selling your website with or without a broker, you will need to get a valuation done which will determine how valuable the online business is. Some mergers and acquisitions companies (M&As) will offer free valuation services, which can save you a lot of time. Flippa offers a free valuation tool which you can use.
4. Marketing for Sale
Once you have the valuation and platform to sell the website on, it’s time to polish everything and get it ready to attract potential buyers. The broker will pull all of your information together into an information memorandum or you can do this yourself if not using a broker. This document contains all of the information a buyer wants to see when assessing the business. See this article on LinkedIn for advice on preparing an information memorandum.
To better attract potential buyers and open up the visibility of your online business, you can consider online advertising, working with social media celebrities, giving away customized promotional gifts with your brand logo, etc. Choosing to work with a well-known advertising solutions team and promotional gift manufacturer in the market will be a reliable and beneficial decision for your sales marketing. There are many such partners, such as BPS.com, a well-known manufacturer specializing in custom promotional gifts, through which you can get promotional gifts with your brand logo to further attract potential customers and broaden your business.
5. Negotiations
Once the business listing goes live, chances are, there will be more than one buyer interested in your website. At this point, it’s essential to negotiate the offers and decide who is the most appropriate buyer for your online business.
6. Closing
Once the buyer is confirmed, you’ll settle all the legal requirements with your broker or on the selling platform. Most of the time, both the seller and the buyer sign a contract to initiate the transfer.
Get Started Right Away
One of the key things to focus on when considering how to prepare and sell your online business is starting early. Some of the essential assets to selling a website include meticulously gathered data from the very birth of your online business.
Once a buyer gets their hands on the information memorandum, they’re going to want to see your historical data, get an insight into the health of your finances, and so on.
To make sure all is ready, you want to use effective systems for daily operations, organize and manage your data, and keep track of your finances. These can be your winning lottery tickets that may help negotiate a better price later.
Collect Your Online Business Analytics
One of the first things that buyers will want to learn about their new online business is traffic. That’s why it’s essential to not only invest in generating leads and boosting organic traffic but also in documenting everything.
A helpful tool that most buyers will want to look at is Google Analytics. This app tells the other party (and you too!) the sources of the website traffic. The investor must know you’re getting legit traffic rather than from questionable servers in some distant country. This is free software so connect your website to it from day one.
Ultimately, seeing where you generate the most leads can be the make-or-break point of selling your website.
Why Web Analytics are Essential Both for You and the Buyer
- Collect meaningful data about your online business traffic
- Let you analyze the data and get actionable advice on things that need fine-tuning
- Help start new online business growth strategies
Data That Will Benefit Potential Sellers
Unique Visitors
This is the number of distinct individuals who visited one or more pages of your website.
Referrals
Knowing where your website visitors come from can have a significant impact on the buyer’s decision. Therefore, it’s essential to keep track of whether they find you on a search engine, social media, or other sites.
Keywords
These phrases tell you what people search for on the internet that makes them land on your page. Each business should build its content around keywords, and buyers will love it if many people use those exact keywords to reach you.
Top Content
Knowing your best-performing content and pages will give a clear indication of what keeps your target audience engaged the most.
Conversion Rate
If you’re running an e-commerce or membership site, a buyer will consider this one of the most important factors. It tells how many visitors perform an action on your website, such as making a purchase, signing up for an email list, completing a survey, and similar.
Bounce Rate
This factor tells you how often visitors leave the website quickly. A high bounce rate usually means that visitors didn’t find what they wanted.
Take Care of Your Online Business Finances
What better way to assess whether an online business is profitable than by looking at its finances? Whether you’re planning to sell your online business or not, keeping track of profit margins, expenses, and other numbers is essential in ensuring the company’s long-term health.
Here is our advice on how to take care of finances so that both you and the buyer can benefit from it.
Have Separate Bank Accounts
It’s essential to separate your personal account from that of your online business. You and the buyer need to have a clear understanding of whether your business is profitable and how much. Also, you’ll save yourself the hassle of separating your transactions every month.
Having an online bank account can really help your online business because the transactions are quicker and cheaper than traditional bricks and mortar banks. Some suggestions you might want to look into are:
Use an Accounting Software
Thankfully, there are dozens of decently priced (and even free) accounting software's on the market. Not only will your books and accounts be neatly organized, but it’ll also save you time from doing all the work manually.
Some of the leading accounting software for small online businesses include: Xero, FreshBooks, QuickBooks, and Sage.
Make a Budget
Once a business plan has been formed then you can set up a budget to help manage the businesses finances. This will keep you on track financially and ensure that you are assessing this aspect of the business regularly.
Read Income Statements
The income statement is one of the three basic financial statements that can give you a summary of any company’s finance. An income statement shows the revenue sources and expenses of an online business. The profit or income is calculated by subtracting costs from revenue. You should do this monthly to ensure that the business remains profitable, remembering that some months may make a loss and some a profit so read this taking into account a 6 month average to blend out the ups and downs.
Implement Financial Forecasting
Financial forecasting gives your insight into how your business will perform during a projected period depending on the market trends. You can do monthly, quarterly, or even annual projections.
Not only will financial forecasting help you implement better business growth strategies, but the potential buyer will also have a clear picture of where the business is going.
Pay Your Debts
Don’t transfer one year’s debts to the next. Always make sure to repay your debts (if you have them.) The last thing your online business buyer looks forward to is inheriting your long-forgotten debts.
Keep a Steady Cash Flow Management
Keeping track of your business’s cash flow is essential for overall financial health. Cash flow management allows prompt salary payment, helps avoid overspending, and ensures stability.
An online business can have positive or negative cash flow. Positive cash flow means that more money enters the company than leaving it, which should be your ultimate goal.
Understand Your Balance Sheet
Next to the income and the cash flow statement, the balance sheet is the other basic financial statement and an essential tool for investors to learn about your online business’s financial operations. A balance sheet encompasses the following:
Assets
These are things of value, such as cash on hand.
Liabilities
Debts or any other payments owed.
Equity
This is the difference between total assets and liabilities.
Get Your Systems in Place
Ever heard of SOPs? Standard operating procedures (SOPs) are detailed instructions created by a business owner to help streamline all operational processes. This means having a system for every task and position in your online business and well documenting this in an easy to follow step by step process.
Sure, kickstarting the procedure takes some time, but it will save you hours of work in the future. The main goal here is to enhance performance, boost efficiency, and reduce miscommunication between employees.
There are three simple steps to creating an SOP:
1. Making Tasks Lists
You want to start by making a list of all tasks performed in your online business management. You can begin by jotting down things such as social media management, writing new blog posts, answering customer emails, launching a new product, etc.
Once you got a draft of all tasks, organize them into groups. For example, social media and blog posts could go under ‘marketing.’
2. Organizing
You want to share the SOP with all employees and freelancers so everyone can get a hold of it when needed. The best way to do so is cloud storage. Some of the best cloud solutions for online businesses include Google Drive and Dropbox. You can create a folder for each group of tasks, insert subfolders, add new categories, and then set different access permissions for anyone you want to share it with.
3. Documenting
This is an ongoing process that involves documenting every completed task. You can have the whole team check off duties as they complete them so that you don’t have to do so independently.
A potential buyer will appreciate a well-thought-out SOP as it will make it much easier to continue from where the previous owner left off.
Here’s how a document structure should look like:
- Each project should have its specific document with a clear title.
- You should write the project description at the top. Be concise, write short sentences, and use numbered lists and bullet points. You also want to include what tools are needed to get the task done.
- Use graphics. Use any images or videos that can help employees better understand the task. If needed, record your own screen for specific explanations.
- Delegate tasks to individual members and format them as checkable boxes. Everyone should be in charge of specific tasks.
- Have everyone check off the box once they complete the task
Work Automation
Maybe you’re the sole employee of your small online business. Unfortunately, managing it all by yourself can get complicated. With tons of things to keep track of, an average business owner can easily spend a good amount of their workday calculating and checking simple things. Fortunately, there’s a way to reduce the amount of work you must deal with as a business owner.
Automating processes is a must for every online business owner. After checking your online business analytics and finances, buyers will be looking into how much actual work they will have to do once they purchase your online business—the less work for them, the better.
Automating your workflow has numerous benefits for you as well:
- Maximizes operational efficacy
- Facilitates error identification and correction
- Streamlines document management
- Enhances customer experience
- Makes it easier to track Key Performance Indicators (KPIs)
- Boosts employee morale
Preparing your business for sale is critical to a successful result. Preparing it from day one is even better! Check our my article on FE International's website for How to Prepare your Business for Sale from Day One
Blair
FAQ
How to Value an Online Business?
Valuing an online business is probably one of the most challenging aspects of selling a business. Due to the lack of physical assets, valuations can get complicated. Most of the information you’ll be dealing with is data collected over time.
Here are some proven methods that help value an online business:
Discounted Cashflow Analysis
This method is mainly used to measure an online business’s intrinsic value. The main reason it’s called ‘discounted’ is the ‘time value of money’ principle that states that money today is worth more than tomorrow. This analysis values current cash flow value based on the money it could make to future investors.
Precedent Transactions
This method values an online business depending on its past acquisitions.
Earnings-Multiple
This method multiplies the seller’s discretionary cash flow by a multiple specific to each business and is calculated from several valuation drivers. This is the most commonly used method to evaluate small businesses.
Here are some of the most common valuation drivers most M&A advisors consider when calculating the earnings multiple:
- Business age
- Financial aspects (net profit)
- Website traffic
- Operations management
- Degree of owner involvement
- Streamlined workflow and logistics
- Customer service
- Traffic valuation. This is a method beneficial for yet-to-be monetized websites. The buyer will research the top keywords that drive traffic to the website and analyze their CPC (cost-per-click) value.
There are two types of valuations buyers usually perform – ‘projection’ and ‘as-is’ valuations. Projection valuations are more about where the company will be in the future rather than where it is now. This is mainly a method of choice for big companies that don’t generate a lot of net profit (such as Uber).
Most companies will undergo what’s referred to as ‘as-is’ valuation. It’s the current state of a business and its current net profit.
Depending on the age of the online business you’re selling, the buyers will make evaluations through three, six, or 12 month-windows. Usually, they’ll go with the six-month window for young businesses or those in decline or rapid growth.
Another measure of profitability that some buyers will consider is Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). This is another overall financial performance measure, but it’s not the most reliable one since it doesn’t include the capital investment costs such as equipment or property.
Should I Use a Broker to Sell My Online Business?
Unless you’re a serial entrepreneur, chances are you have little to no experience in online business sales. So it’s natural to consider hiring a broker to help you out with the process, just as you’d hire a real estate agent when selling a house.
Is hiring a broker necessary? Not at all. You can always sell your business face-to-face, but unless it’s some of your friends or family who are interested in purchasing your website, you’d be taking on some added risk and workload. An example of when a broker may not be a good fit, is if you're looking to sell your Amazon business as they tend to steer clear of this model. This article shows you how to sell an Amazon business.
After all, we recommend hiring a third party, but only after thoroughly researching their services. There are many brokers out there that can’t wait to put their hands on your cash. You can check our recommendations section for some reliable third-party M&A advisors.
When is the Right Time to Sell an Online Business?
To answer this question, you need to consider several factors. First and foremost, the time will depend on your current business valuation. Will the buyer benefit from their purchase? The main thing buyers will care about is growth.
You don’t want to sell your online business in its post-growth stage when most of the profits have already been earned.
Selling a website also depends on the niche. What’s the overall condition of the target markets? Has there been an increasing demand for specific services you’re offering?
Here are some general factors that make an excellent online business selling environment:
- In a growth period
- Stable or increasing transactions record over the past year
- Low taxes and interest rates
- High strategic buyer activity
You should also consider your emotions. How do you feel about selling your business? Do you see yourself in the niche in the following years? And what about the long-term projects? If you’re starting to doubt your online business possibilities and motivation to keep going, it might be better to sell it while it’s still worth the money.
Thinking of selling up? Start 12 months out with my tips on setting up a roadmap to selling your business featured on Flippa.com
Blair
Recommendations – Our Top Choices
After months (and maybe years) of sweat spent making your online business succeed, you want to sell it to the right person and at the right place. We have some excellent recommendations.
If you’ve never heard of Flippa before, know that it’s often described as the Amazon of website selling. With over 1.5 million buyers, Flippa is the leading marketplace for everyone interested in selling an online business, no matter how big or small. They help you set the best price for your website based on its performance and connect your asset to relevant buyers.
Why We Like Flippa
Over two million completed transactions
- Strong online reputation
- Beginner-friendly
- Thousands of professional buyers
- Secure payments with the escrow service
Empire Flippers is one of the top marketplaces for selling online businesses. With an overall score of 86% and more than 250 million dollars in sales, things can hardly go any better for these guys. They even offer a valuation tool that will help you set the right price for your online business.
Note: Your online business should have a six-month record of generating at least $500 and used Google Analytics for the same amount of time to sell a website with Empire Flippers.
Why We Like Empire Flippers
- Great place for selling small online businesses
- Detailed vetting process preventing scams and money loss
- Transparent pricing so you know where each dollar goes
- Surprisingly high success rate
- No software purchase or hosting management needed – all the work’s done by the company
Cons
The listing fees might be a deal-breaker for certain sellers
FE International has quickly become one of the most trusted Mergers and Acquisitions (M&A) advisers on the market. Its international team has an incredible 94.1% acquisition success rate and has sold more than a thousand online businesses. There are both first-time buyers and serious investors doing business on this platform so that every online business can get sold here.
Why We Like FE International
- Free online business valuation
- Extremely high success rate compared to competitors
- Full-Service M&A, including exit planning, valuation analysis, due diligence, legal structuring, etc.
Cons
Mainly deals with mid-market online businesses
Prepare and Sell Your Online Business Wisely
Selling an online business can be one of the most challenging decisions of a lifetime, especially for entrepreneurs who never saw it coming. However, what’s most important is for the whole process to flow as smoothly as possible once the time comes.
Hopefully, this guide has provided you with enough information on how to prepare and sell your online business.
Remember that this is an ongoing process, and the more you take care of your online business, the more you’ll profit from selling it. So take care of your analytics, finances, and workflow systems, and don’t resist hiring a reliable broker if it makes sense to do so.
