by Guest Poster
John runs the blog here at eCommerceLift and is a verified Shopify Expert. Interested in an initial growth consultation? Click here
8 years ago
How to Sell your eCommerce Business
Earlier this year eCommerceLift appeared in the popular ‘How to Grow Your E-commerce Business’ blog post by website brokerage company FE International. Since then, we have been keen to find out more about the industry and what exactly they do that sets them apart from their competition when selling e-commerce businesses. We have the pleasure to share this interview with Thomas Smale, the Managing Director of FE International, the business that he grew from scratch into a seven-figure-a-year business in less than 5 years. With a network of over 5,000 qualified buyers and an industry leading 300 transactions behind them, Thomas is certainly has a great source of online business knowledge to share with us.
Why would someone want to sell a profitable eCommerce website?
There is no definitive answer if I’m honest, as every seller has individual circumstances that contribute towards the decision to sell their website. However, we have found that one of the most common reasons that any owner decides to exit a profitable business is the need to release the cash that they have tied up in the asset. This business may well be their most valuable asset and the sale may be needed in order to invest in a new ventures (either online or offline). Other common reasons include a reduction in the amount of time to upkeep the business due to family or work commitments (i.e. running another website). Alternatively, they may have purchased or built a website purely with flipping in mind after a set period of time (Cashing in on their investment to fund other ventures).
What options do eCommerce businesses owners have for selling their site?
The size and profitability of a website is what should be taken into account when deciding if a broker is required when selling an e-commerce business. If your site is turning over less than $500 per month, I would recommend taking a look at a marketplace such as Flippa, here sellers can list their lower value websites without the need for a broker. Alternatively, you could try “We Buy Websites” who look to acquire established sites from sellers.
However, if your website is making between $5k-$1m net a year I would strongly recommend that you consider working with an experienced website broker who will professionally guide you through the sales process and help you maximize the value of your website. At FE International, we provide you with an invaluable level of expertise from over 5 years brokering the sale of websites. We also have the largest full time team in the industry to give you the best support and guidance throughout the sales process to ensure that you receive the highest multiple for your business.
How are eCommerce websites valued?
When we value a website, the multiple is approximately 2-3x annual net profit for businesses in the sub-$5M range. However, to gain an accurate valuation, we don’t just look at net profit as this can lead to inconsistent results. We will use “seller discretionary income” where we ‘add back’ costs that are not requisites for the new owner but the seller may have taken for personal benefit e.g. company car or owner distribution.
One thing I would say is that no online tool can give you an accurate valuation – instead you will simply get an overgeneralised and often inaccurate arbitrary result that doesn’t take into account the individual variables of your business.
Are there any hidden fees to watch out for when selling an eCommerce business?
We are a contingency based brokerage business, which means that we only charge you a fee when your business is successfully sold and you have been paid. This also means that you can be assured that we will only take your business on if we strongly believe it will sell to a qualified buyer.
The seller will be expected to sign a 30-90 day exclusivity period agreement before the sales process begins – this is a time where only we can list your website for sale in order to ensure that only our message is being disseminated in the market (which will maximise the final sale price). The only other costs throughout the process would be a small fee for the use of a third party escrow service for payment (we use escrow.com) and lastly an attorney to review any contracts that we prepare on your behalf.
How does a seller make a website more desirable to buyers?
When a website owners asks me how to increase the value of their business I will talk them through some quick fixes to implement on their site and work out an exit strategy. This process normally takes a few months, so it’s always a good idea to start sooner rather than later. There are many factors that buyers tend to look for when buying an online business, below I have listed a few that can dramatically increase your chances of a speedy sale:
Is there a right or wrong time to sell an eCommerce business?
It is crucial to not underestimate the importance of selling a website at the right time – as the wrong time can be detrimental to the overall value of your website. My advice will always be to sell your website when it has seen a sustained period of steady growth. The worst time to sell would be if your traffic is on a decline or if you have visibly lost interest in managing the site through social media updates etc.
As long as the work load is manageable and worthwhile relative to the revenue and profits of the business, websites with a stable holding pattern tend to gain a lot of interest quickly and sell. 85% of the online businesses that we list at FE International will sell within 60 days.
What are the advantages of using a website broker?
An experienced broker will sell your website quickly by bringing their knowledge and experience to the table - saving you valuable time and money. Your business will be marketed to a select group of pre-qualified buyers while respecting your confidentiality. Brokers take the hard work away from you by getting offers in and closing the deal.
Over the years, some other reasons that clients have chosen to work with us vs. selling themselves include:
How long can I expect the process to take?
This will vary depending upon the niche, size, and complexity of the business model and the individual requirements of the seller. Usually a bigger and more complex website will take longer to sell because of the investment at stake and the higher level of due diligence that will be required. Smaller passive websites with fewer moving parts and higher-levels of automation tend to be sold the quickest.
How should I expect the sale process to go?
This sales process will be conducted differently by every broker, however, the primary goal is always the same – minimise the work and time commitment on your end, whilst maximising the final sales price of your business. At FE International we follow a tried and tested sales process for all deals. In short, a breakdown of our sales process is:
Why would someone want to sell a profitable eCommerce website?
There is no definitive answer if I’m honest, as every seller has individual circumstances that contribute towards the decision to sell their website. However, we have found that one of the most common reasons that any owner decides to exit a profitable business is the need to release the cash that they have tied up in the asset. This business may well be their most valuable asset and the sale may be needed in order to invest in a new ventures (either online or offline). Other common reasons include a reduction in the amount of time to upkeep the business due to family or work commitments (i.e. running another website). Alternatively, they may have purchased or built a website purely with flipping in mind after a set period of time (Cashing in on their investment to fund other ventures).
What options do eCommerce businesses owners have for selling their site?
The size and profitability of a website is what should be taken into account when deciding if a broker is required when selling an e-commerce business. If your site is turning over less than $500 per month, I would recommend taking a look at a marketplace such as Flippa, here sellers can list their lower value websites without the need for a broker. Alternatively, you could try “We Buy Websites” who look to acquire established sites from sellers.
However, if your website is making between $5k-$1m net a year I would strongly recommend that you consider working with an experienced website broker who will professionally guide you through the sales process and help you maximize the value of your website. At FE International, we provide you with an invaluable level of expertise from over 5 years brokering the sale of websites. We also have the largest full time team in the industry to give you the best support and guidance throughout the sales process to ensure that you receive the highest multiple for your business.
How are eCommerce websites valued?
When we value a website, the multiple is approximately 2-3x annual net profit for businesses in the sub-$5M range. However, to gain an accurate valuation, we don’t just look at net profit as this can lead to inconsistent results. We will use “seller discretionary income” where we ‘add back’ costs that are not requisites for the new owner but the seller may have taken for personal benefit e.g. company car or owner distribution.
One thing I would say is that no online tool can give you an accurate valuation – instead you will simply get an overgeneralised and often inaccurate arbitrary result that doesn’t take into account the individual variables of your business.
Are there any hidden fees to watch out for when selling an eCommerce business?
We are a contingency based brokerage business, which means that we only charge you a fee when your business is successfully sold and you have been paid. This also means that you can be assured that we will only take your business on if we strongly believe it will sell to a qualified buyer.
The seller will be expected to sign a 30-90 day exclusivity period agreement before the sales process begins – this is a time where only we can list your website for sale in order to ensure that only our message is being disseminated in the market (which will maximise the final sale price). The only other costs throughout the process would be a small fee for the use of a third party escrow service for payment (we use escrow.com) and lastly an attorney to review any contracts that we prepare on your behalf.
How does a seller make a website more desirable to buyers?
When a website owners asks me how to increase the value of their business I will talk them through some quick fixes to implement on their site and work out an exit strategy. This process normally takes a few months, so it’s always a good idea to start sooner rather than later. There are many factors that buyers tend to look for when buying an online business, below I have listed a few that can dramatically increase your chances of a speedy sale:
- A website that is well optimised for mobile devices.
- Frequent updates to your site and social media over the past 6 months.
- A hands off site with minimal owner input.
- The website is in a growing niche or industry, with upward trends for the specific topic.
- No present legal issues.
- Streamlined and scalable systems and processes.
- An engaged and large (active) mailing list that is being monetised.
- A history of growing or stable revenue.
- A solid backlink profile.
Is there a right or wrong time to sell an eCommerce business?
It is crucial to not underestimate the importance of selling a website at the right time – as the wrong time can be detrimental to the overall value of your website. My advice will always be to sell your website when it has seen a sustained period of steady growth. The worst time to sell would be if your traffic is on a decline or if you have visibly lost interest in managing the site through social media updates etc.
As long as the work load is manageable and worthwhile relative to the revenue and profits of the business, websites with a stable holding pattern tend to gain a lot of interest quickly and sell. 85% of the online businesses that we list at FE International will sell within 60 days.
What are the advantages of using a website broker?
An experienced broker will sell your website quickly by bringing their knowledge and experience to the table - saving you valuable time and money. Your business will be marketed to a select group of pre-qualified buyers while respecting your confidentiality. Brokers take the hard work away from you by getting offers in and closing the deal.
Over the years, some other reasons that clients have chosen to work with us vs. selling themselves include:
- One point of contact – You can take away the hassle of dealing with numerous marketplace listings and unqualified buyers contacting you yourself.
- More inquiries than ever – An established broker who has been around for a number of years will have the compounding effect of a huge list of buyers from relationships established through selling hundreds of businesses.
- Speed – No waiting a year for a buyer to make a decision
- Incentive – Brokers want to get your business sold. They are humans too, they have overheads and bills to pay
- No last minute changes in deal terms – And if the worst does happen, there is more than likely another buyer lined up and interested in the business.
- Buyers pay cash – Not in stock in an unknown “public” company.
- Support and experienced guidance – Our team have years of combined experience selling businesses, this is essential throughout a sales process.
- Fairness – It’s a broker’s job to be fair and balanced and ensure that the deal closes.
How long can I expect the process to take?
This will vary depending upon the niche, size, and complexity of the business model and the individual requirements of the seller. Usually a bigger and more complex website will take longer to sell because of the investment at stake and the higher level of due diligence that will be required. Smaller passive websites with fewer moving parts and higher-levels of automation tend to be sold the quickest.
How should I expect the sale process to go?
This sales process will be conducted differently by every broker, however, the primary goal is always the same – minimise the work and time commitment on your end, whilst maximising the final sales price of your business. At FE International we follow a tried and tested sales process for all deals. In short, a breakdown of our sales process is:
- Assessment and Valuation – The no obligation stage where we find out about your business and your goals for the sale. We will ask you lots of questions to determine an accurate evaluation and decide if it is the right time for you to sell. If you don’t want to sell now or we don’t think it is the right time – we will work together on an exit plan to ensure that your websites value is maximized for the future sale. However, if we both agree that working together will be mutually beneficial, a representation agreement will be signed which outlines our commission (which only gets paid when your site sells) and the exclusivity period.
- Sale Preparation – Next a detailed prospectus will be prepared for buyers that will cover everything they need to know to make an informed decision about putting in an offer on your business. This is typically 25-35 pages long depending on the size and complexity of your business.
- Marketing Your Business – At this point the brokerage and marketing teams work together and identify suitable buyers that should be interested in the business. On top of the 5,000+ buyers already in our database, we will invest into marketing your business (whilst retaining your privacy) where we know the right buyers are looking.
- Sales Negotiations – After discussing your business with a number of potential buyers, our brokers will work on narrowing down a list of the most serious buyers and begin to get offers to you. As the seller, you may at some point be required to join conference calls to discuss the business. Once an offer has been negotiated with the best buyer, a Letter of Intent will be prepared which outlines the term of the offer and sets out the timeline for due diligence and closing the deal.
- Due Diligence – This is a very important part of the sales process that ensures the buyer is well informed about the business they are investing in and the claims being made by the seller. The due diligence process is always overseen by FE International through our secure deal room where you and the broker can answer any questions the buyer may have. Simultaneously, Asset Purchase Agreement (APA) will start to be drafted.
- Closing the Deal – Once we have the contract and the sale terms agreed with the buyer and seller and the contract signed by both parties (facilitated by FE International) then the deal will move into escrow ahead of the transfer. Throughout this process, we will be around to help and ensure it all goes smoothly. Once everything has been transferred according to the asset purchase agreement and the buyer is happy, your funds will be released (this is when we get paid) and the deal is now done.
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