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If you’re looking to sell your website or online business, preparing ahead is essential for maximizing the price and creating a smooth transition. Unfortunately, many sellers don’t prepare ahead of time and wind up leaving money on the table.
This article covers the steps you should take if you’re thinking about selling your business in the not-too-distant future. Having 6-12 months to prepare before listing the business for sale is ideal, but it’s never too early to start.
How Preparation Impacts Your Business’s Value
Average monthly net profit is the most significant factor in determining a website or online business’s value. The average profit may be based on the past six or twelve months, depending on the situation (the trailing twelve months is typically used for more established websites, and the last six months may be used for newer sites or smaller sales).
Planning ahead allows you to take necessary steps to maximize your revenue and profit leading up to the sale of your business, which increases the valuation and likely the selling price.
For example, a business that averages $10,000 monthly profit may be valued at $360,000 (36x monthly profit). If the average profit could be increased to $12,000 per month before listing the business for sale, the same 36x would lead to a valuation of $432,000.
Related reading: How Much Is My Website Worth (Valuation Guide)?
While this is a fictional example, it shows how relatively small improvements can lead to a much bigger payout.
Aside from the valuation, planning ahead also allows you to ensure that your business is as attractive as possible to potential buyers. Buyers want a smooth transaction with minimal risk, and we’ll cover specific steps you can take to make that happen.
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.
How to Prepare to Sell Your Online Business
Here are things you can focus on if you plan to sell a business in the future.
1. Increase Revenue
Before you consider selling, work to increase revenue, which will also increase your business’s valuation. Most websites and online businesses aren’t completely optimized. There are usually some easy ways to make more money without dedicating endless hours to the task. Here are some examples:
- Start using video ad units. Video ads typically produce much higher RPMs than other types of ads.
- Break up long paragraphs. Ad networks like Mediavine and Raptive insert ads based on paragraphs. Using more paragraphs will increase the number of ads in your content.
- Negotiate higher affiliate commissions. Reach out to affiliate managers and ask for an increased payout. You can offer additional promotions or better placements.
- Add product promo boxes. Use Lasso or Affiliatable to promote affiliate products or your own products.
- Add product comparison tables. Use Lasso or Affiliatable to create helpful tables that promote key products.
- Add more calls to action. Start with your highest-traffic pages and promote affiliate products or your own products.
- Create quizzes and surveys. Use a tool like Thrive Quiz Builder to help visitors find the right product for their needs.
Those are just a few options or ways to grow your business. Best of all, these changes have the potential to lead to higher revenue every month based on a one-time effort. You can improve cash flow, increase profits, and make your business more valuable.
2. Streamline Operations
One crucial step when preparing to sell your online business is to streamline your operations. This includes identifying and eliminating inefficiencies in your processes, cutting out tasks that don’t produce results, creating a clear workflow for day-to-day operations, and implementing effective systems.
Potential buyers like to see simple businesses, and they’re often turned off by overly complex businesses. Step back and evaluate what you and your team (if applicable) do to keep the business running. Look for tasks that don’t generate results and can be eliminated. Look for ways to save time, improve efficiency, and simplify.
A well-organized business with streamlined operations is easier to run and has a higher perceived value. Streamlining operations can also increase profit margins. By cutting out unnecessary tasks and improving processes, you can reduce expenses and increase revenue, which ultimately leads to a higher selling price.
3. Remove Yourself from Day-to-Day Operations
Every potential buyer will want to know how much time you, the owner, spend working on the business. It’s essential to remember that buyers are investors. Typically, they’re not looking to buy a full-time job.
Most buyers plan to have employees, contractors, or freelancers handle as much of the work as possible. If you’re working 40 hours per week running the site, they’ll need to hire others to do the work you currently handle, which increases their expenses for running the business.
With this in mind, the amount of time you spend working on the business can have a direct impact on the selling price, and it can also impact the amount of interest you get from potential buyers.
Buyers want to see a team in place that can continue running the business after the sale is complete. For a small online business, it could be as simple as hiring and training a virtual assistant and some freelancers. For a larger business, it may involve having a strong management team in place.
When the business owner isn’t involved, or minimally involved, in the day-to-day operations, it’s a cleaner and more attractive investment for buyers. They won’t have concerns about replacing you or wondering what will happen when you’re no longer involved, because the business already runs without you.
4. Create Standard Operating Procedures
To ensure a smooth transition of ownership, it’s important to create Standard Operating Procedures (SOPs). SOPs are step-by-step instructions that outline how to perform routine tasks in your business. By creating SOPs, you provide a roadmap for the new owner to follow, making the transition easier and less stressful.
SOPs should explain the tasks needed to run the business. For example, if you have an e-commerce business, your SOPs might include how to process and fulfill orders, handle returns, and manage inventory. With detailed instructions, the new owner can quickly get up to speed and start running the business without any hiccups.
When creating SOPs, it’s important to be as detailed as possible. You should also include screenshots or videos to demonstrate how to perform certain tasks.
To get started, identify the key tasks in your business and break them down into smaller steps. Then, create a document for each task that outlines the steps clearly and concisely.
Buyers love businesses that already have SOPs in place because it makes the process smoother for them. They can also train new freelancers and employees quickly if needed.
5. Organize Your Finances
If you want to sell your website or online business, you’ll need organized financials. You can prepare your business for sale by working now to get all the financials in order. At the bare minimum, you’ll need a profit and loss statement (P&L) to show income, expenses, and profit. You’ll use this to calculate the average monthly profit that will influence the valuation.
Brad Wayland, Managing Director and Senior Advisor of Quiet Light suggests having financials for at least the past 24 months, but 36 months is best. He says, “Anything less than 24 months does not work well because you do not have a year-over-year comparable for each month. I’ve found that this means you have to drop the multiple substantially to get the business sold.”
Of course, that means the valuation and multiple may be negatively impacted if your business is less than two years old.
Aside from the P&L, additional documents may be needed depending on the details of your business. For example, an e-commerce business may need to provide sales tax records, inventory management documents, supplier contracts, and more.
Once you’ve reached a preliminary agreement with a buyer and moved into the due diligence stage, they’ll likely want to review your financials in detail. You may also need to provide bank statements, credit card statements, and tax returns.
Having organized financials not only makes the due diligence process easier but also improves buyer confidence.
6. Identify Growth Opportunities for the Buyer
Buyers want to see that there’s room for growth and improvement, leading to a better return on investment (ROI). As Elena Buetler, Director of Marketing at Investors Club points out, “Buyers aren’t just buying your current success; they’re buying potential.”
Showing buyers that there are opportunities for growth can make your business more attractive, create interest, and potentially increase the selling price.
Chances are that you already have some thoughts and ideas about what you’d do to grow the business if you don’t sell it. Explain your thoughts on those opportunities so buyers can see the potential.
You may want to show buyers new products or services that could be offered, potential income streams that could be explored, partnerships that could be expanded, or new platforms and channels that offer potential for growth.
When presenting ideas to potential buyers, it’s helpful to focus on those that are quick, easy, and inexpensive to implement.
Investors Club offers a free valuation tool that only requires a few minutes of your time. Enter details about your site, including traffic, income, and expenses. The tool will provide you with a report showing your site's estimated value. If you like what you see, you can proceed to list it for sale with Investors Club.
7. Make Your Business More Defensible
When it comes to selling your online business, potential buyers will look for a business that’s defensible. In other words, they want to know that your business has a competitive advantage that will make it difficult for competitors to replicate or steal your market share.
Buying a business involves risk, and investors/buyers want to minimize their risks. Jaryd Krause of Buying Online Businesses says “Decreasing risk is huge because the less risk a website has, the more attractive it is. And the more attractive, the more buyers that can create a bidding frenzy.”
George Moulos of Ecommerce Brokers agrees about the importance of making your business more defensible. He says, “This might be getting that verbal exclusivity agreement with your supplier put in writing. It might be getting trademarks for the business name in the US and EU. It might be applying for a patent if your product is unique. This all adds to the business’s value.”
Here are a few possibilities for making your business more defensible:
- Build a strong brand. A strong brand can help you differentiate your business from competitors. By investing in branding, you can make it more difficult for competitors to steal your customers or market share.
- Diversify your revenue streams. Relying on a single revenue stream makes your business vulnerable to changes in the market. By diversifying your revenue streams, you can spread your risk and make it more difficult for competitors to replicate your business model.
- Diversify website traffic sources. If you rely heavily on a single source of traffic (for example, organic search engine traffic), your business is vulnerable. Work to build up other traffic sources to reduce that vulnerability and improve your online presence.
- Develop proprietary technology or intellectual property. If you have a unique product or service protected by patents or trademarks, it can be difficult for competitors to replicate your business model. Additionally, proprietary technology or intellectual property can also be a valuable asset that can increase the value of your business.
- Focus on customer service. Providing excellent customer service can also be a powerful asset for defending your business. By providing a great customer experience, you can build customer loyalty and make it more difficult for competitors to steal your customers.
- Build relationships with suppliers and partners. Having strong relationships with suppliers and partners can also make your business more defensible. Exclusive partnerships or agreements can create barriers for competitors who may try to enter your niche.
- Invest in marketing and SEO. By investing in marketing and SEO, you can increase your visibility and rankings, making it more difficult for competitors to outrank you or steal your customers.
8. Choose Your Method of Selling
As the time to sell your business approaches, you’ll need to choose how you want to find a buyer. Here are the basic options.
Online Business Broker
One option is to work with an online business broker like Quiet Light or Empire Flippers. These professionals specialize in selling online businesses and can help you navigate the sale process from start to finish. They charge a percentage of the sale as their fee, but their professional network and the ability to create demand from buyers may lead to a higher selling price that offsets the fee.
When choosing a broker, look for one with experience selling businesses similar to yours. You should also consider their reputation and track record.
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Another option is to list your business for sale on an online marketplace. There are several marketplaces that specialize in buying and selling online businesses, such as Flippa, Acquire.com, and Motion Invest. These platforms allow you to create a listing for your business and connect with potential buyers.
Marketplace fees are often lower than broker fees. Listing your business on a marketplace can be a good option if you want to reach a wide audience of buyers. However, you don’t get the full assistance you’d get with a broker.
Selling on Your Own
Finally, you can try to find a buyer for your business on your own. This can be a more challenging option, as you must identify potential buyers and negotiate the sale. If you choose to sell on your own, be prepared to invest time and effort into marketing your business and reaching out to potential buyers.
Overall, the method you choose will depend on your goals, resources, and level of expertise. Consider each option carefully and choose the one best suited to your needs.
Generally, I only recommend taking the DIY approach if you have an ideal buyer in mind and you’re confident you’re getting a good price.
Final Thoughts on Preparing to Sell Your Business
Preparation is the cornerstone of a successful business exit. By going through this article step by step you can increase your business’s attractiveness and potential value to buyers when it’s the right time to sell. These efforts not only pay off financially, but they also pave the way for the continued growth and success of the business under its new ownership.