This page may contain links from our sponsors. Here’s how we make money.
Selling a website or online business is a pivotal and exciting point in an entrepreneur’s journey. However, the process of selling an online business can be fraught with costly pitfalls if not navigated carefully.
This article covers common mistakes made by sellers during the process. By understanding these potential missteps, you, as a business owner, can better prepare for a successful, smooth, and profitable exit from your online business.
Common Mistakes When Selling an Online Business
Here are some specific mistakes you’ll want to avoid and prevent.
1. Waiting Too Long (Selling at the Wrong Time)
One of the biggest mistakes you can make when selling your online business is waiting too long. Average monthly profit is the most significant factor in determining a website’s value or selling price. Unfortunately, many online business owners decide to sell after their site starts to decline.
The decline could be due to a loss of interest in the business, a lack of time to grow the site, changes in the industry, Google algorithm updates, or any number of other factors.
You should try to exit while your business is doing well and trending up to get the maximum value from the sale. Sites with upward trends (traffic, revenue, and profit) are much easier to sell and likely to go for higher multiples than a site that’s trending down.
Brad Wayland, Managing Director and Senior Advisor at Quiet Light says, “Most of the time I find that sellers wait until the business has peaked or they’ve become distracted with other interests and then come looking to sell. Many times this means the trends for the business are not ideal and sometimes even make it unsellable.”
Selling at the right time could be the difference in selling your site for 42x your average monthly profit vs. selling for 30x average monthly profit.
2. Not Planning Ahead
Planning ahead is crucial when selling an online business. Ideally, you should begin planning your exit strategy at least 6-12 months in advance, but the more time you have, the better. This will allow you enough time to make any necessary improvements or changes to increase the business’s value.
Because average monthly profit is the biggest factor in the selling price, you can significantly increase the business’s value by increasing the profit before you sell.
Of course, there are many ways you can increase a site’s profit, including:
- Maximizing existing revenue streams
- Increasing conversion rates
- Adding new revenue streams
- Reducing expenses
- Increasing traffic
For a detailed look at this topic, please read our article on how to increase the value of your website.
Planning ahead also gives you time to ensure your financial records are accurate and up-to-date. Additionally, you can work on creating standard operating procedures (SOPs) if you don’t already have them. SOPs show how the business is run, which makes it easier for a new owner to take over and continue operating the site without any major issues.
3. Not Continuing to Run the Site as Usual
Many online business owners make the mistake of neglecting their website or online business once they decide to sell. This can be a costly mistake, as potential buyers want to see a thriving business that’s growing and profitable.
Neglected sites tend to experience drops in traffic and revenue, and these downward trends make it difficult to sell the business.
Sometimes the impact of neglecting a site may take a while before it affects details like traffic or revenue. However, if you stop working on the site and it takes a while to sell, a decline could become evident before the transaction is final. The last thing you want is to lose a deal shortly before closing because the buyer sees the business declining.
Additionally, legal agreements between a buyer and seller usually specify that the seller will continue to run the business as usual until the closing date. If you stop putting in the effort, you could violate the agreement.
Make sure you continue to run your site as usual if you’re considering selling.
4. Guessing On the Price/Valuation
Pricing is crucial when selling your online business, and getting it right from the start is essential.
Overpricing could turn off potential buyers who are interested in the site but unwilling to pay an inflated price. On the other hand, if you underprice your business, you could be leaving money on the table and not getting the full value of your hard work.
George Moulos, Senior Broker at Ecommerce Brokers, says, “A common misconception sellers make is attaching a figure to the value of their business that doesn’t correlate to the industry multiples and corresponding data on similar businesses sold. ” Moulos recommends looking at online businesses in your industry that have sold during the past 12 months to see typical multiples.
Moulos also recommends getting a professional valuation. Most brokers, like Moulos, offer free consultations and valuations. The broker’s professional insight into its value is extremely helpful even if you decide not to list the business for sale with them.
You can also use online valuation calculators that quickly give you a suggested price range. The best calculations include:
- Empire Flippers’s Valuation Tool
- Flippa’s Valuation Tool
- Investors Club’s Valuation Tool
- Motion Invest’s Valuation Tool
It’s also important to remember that every buyer has their own opinion on a business’s value. Elena Buetler, Director of Marketing at Investors Club, points out, “A common slip-up in selling websites or online businesses is overlooking the simple truth that the business is ultimately worth what someone is ready to pay for it. This can be a significant stumbling block because it might lead to overpricing, difficulty finding buyers, and missed opportunities.”
Empire Flippers offers an excellent (and free) website or business valuation tool. It only takes a few minutes to enter the details of your business, and you'll get a report on the estimated value. You don't even have to talk to anyone! It's my favorite tool for online business valuations.
5. Sloppy or Insufficient Financials
Having detailed and accurate financial records is crucial when selling an online business. Buyers want clear and verifiable evidence of revenue, expenses, and profit. If you don’t have these records available or are not organized, it could hurt your ability to sell the business.
This is another aspect where you can benefit by working with a broker. They have experience collecting and presenting financial records to buyers, so they know what documents are typically needed.
The documents that a buyer wants to see will vary depending on the details of the sale, including the selling price. For example, a $50 million sale will require much more detailed financial records than a $50,000 sale. An experienced broker can help you determine what financial records are likely needed based on your business’s value.
6. Building a Business That’s Too Reliant on the Owner
Buyers want to see that a business can operate without the current owner’s direct involvement. If you’re like most entrepreneurs, you’ve built and operated your business from top to bottom. However, when it comes time to sell, buyers want to be confident that the business can continue running smoothly without you.
Mark Woodbury, Partner at Raincatcher, says, “If you’re still working 40-hour weeks, you’re drastically limiting the number of people interested in buying the business. Scale the business to the point where you have a strong management team under you before looking at an exit.”
For a smaller website or online business, the process may be as simple as hiring freelancers or a virtual assistant to handle everyday tasks. For larger businesses, you may need to build a team of employees.
It’s essential to remember that buyers are investors. They’re not looking to buy a full-time job. Buyers want to see processes and systems in place so they can easily take over and continue operating the site without major interruptions.
Document critical processes, systems, and contacts so a new owner can seamlessly transition into ownership. If these processes aren’t in place or rely on you as the owner, it could be a red flag for potential buyers.
7. Avoiding Brokers
Some online business owners try to sell on their own without the help of a broker. The most common reason for avoiding brokers is to save money on fees. While this approach may sometimes work, it can backfire in others.
What really matters is the amount of money you, the seller, walk away with at the end of the deal. An experienced broker may be able to more than cover their fee by getting a higher selling price. Brokers have access to a huge audience of potential buyers, so they can usually create much more interest and demand than you could on your own.
You could be missing out if you avoid brokers simply because of the fee. Additionally, brokers help in many other ways and can save you many headaches and hours of work.
Note: I’ve sold online businesses on my own and through a broker. Both times I used a broker (Brad Wayland of Quiet Light), I walked away with more money than I would have if I sold the site on my own. My advice is to work with a broker unless you have an ideal buyer in mind and you’re confident that you’re getting a great price.
Best for Sites Making at Least $5k Per Month
Best for Sites Making at Least $2k Per Month
Best for Sites Making Less Than $2k Per Month
8. Ignoring Tax Implications
Selling a business has significant tax implications, so planning for them is crucial. You don’t want to be hit with a bigger tax bill than you expect.
There are many variables to consider, including your personal financial situation. It’s best to speak to a CPA or tax expert who can provide personalized advice based on your situation.
9. Choosing the Wrong Buyer
It’s important to vet potential buyers when selling your online business. You want to find someone who’s a good fit for the business and has the resources and expertise to continue its success. Look for buyers with experience in your industry, a good track record, and financial capability. You can also ask for references.
If you’re working with a broker, they’ll probably require buyers to provide some sort of financial verification to ensure they can make the purchase. But if you’re selling on your own, you’ll need to handle this.
Selling an online business can be a complex process, and it’s important to avoid these common mistakes in order to have a smooth and profitable exit. If you need assistance, be sure to seek out the services of a qualified broker.