There has always been something exciting to me about building up a business and selling it to a new owner. It gives me a sense of accomplishment. It’s not the end all be all, and it’s not always my goal, but I do find it exciting.
Between myself and many friends and business partners, I’ve been involved in many businesses that were sold, some of which for quite substantial sums.
I get questions all the time from entrepreneurs who want to know how to build a business that they can sell in the future. I’ve learned a few things that have helped me along the way. I’m going to show you in this post exactly how to sell an online business for maximum dollar.
How to get the highest selling price for your business:
These are things to keep in mind while you are building the business. If you get these right you could have a real gold mine on your hands.
- High Net Profit – The higher your net profit the more someone is willing to pay. Your gross revenue is a factor but not nearly as big a factor as your profit, in most cases.
- Diversified Income – If your entire client based business hinges on having 1 big client, it may not be considered as stable as having 10+ clients.
- Show Future Potential – If your business is growing at 25% per quarter and you can show that, it could help you get more for your business. Someone might be willing to pay a lot more if they see a clear and provable positive future projection. Also, having past records is very important. Save all your financials and data.
- Dependence – Nunzio Presta, Founder of BizON points out: “One way to get more for your business that nobody thinks of, is to create a business that is not dependent on one person. You need to build a strong team with strong culture. If a potential buyer can walk in and buy a business that is not hurt by the transition, the business can demand more during the selling process. Buyers do not want to see clients leave, employees leave and revenue tank. They want a strong existing business!”
- No Third Party Kill Switch – Don’t build a business that has an external kill switch that is out of your control. For example, if your entire business is based on a partnership that can terminate at any time, maybe think about getting some other partnerships to spread out the risk of that kill switch. This will also come up when selling, and a buyer may argue that it’s worth only a minimal amount because if that kill switch was executed for any reason, they would no longer have a business.
How much should you ask for your business?
This varies wildly depending on a lot of factors. A general rule of thumb is anywhere from 1-5 years times the revenue or profit.
Things that will be taken into consideration are stability, diversification, future projections and difficulty to operate the business.
Keep in mind that people like to negotiate, you can almost be sure that no matter what price you come up with someone will try to negotiate for less.
How and where do you sell your business?
There are many options and ways to do this. I’ll go through them and give you some pros and cons.
First decide if you want to sell just your website or your entire legal entity such as an LLC. Often times website owners just sell their website in what’s called an asset sale, and keep their LLC.
Flippa – A good option for small-medium sized websites. There are a lot of buyers there willing to spend up to $50,000. Beyond that price I think it’s better to go elsewhere as there are more higher priced buyers elsewhere.
Quiet Light Broker – An excellent choice for more of a discrete and customized selling experience. They email select buyers depending on the particular business for sale and have businesses listed all the way up to the millions of dollars.
BizON – BizON is an online marketplace where people can buy, sell and grow businesses or franchises. This is a great option and offers more privacy than something like Flippa.
Have a strategy on what to do with the proceeds
Cash is just a bad investment. Sitting on a pile of cash is going to lose money in the long run due to inflation, and savings accounts don’t make enough interest.
Make sure to have a sound investment strategy before you sell your business, so you aren’t sitting on the pile of cash for years.
Here are some suggestions on what to do with your proceeds:
- Start a new business! – Clearly if you got to this point then you have a knack for creating successful businesses that others want to buy. Start something new with your business building skills and try your hand again.
- Buy real estate – Always a solid investment strategy.
- Invest in a diversified investment portfolio that tracks the S&P 500 – You can look into Wealth Front or other tools to help you build a balanced portfolio if you want to spread it out even further beyond funds that track the S&P 500. There are international equivalents as well.
Offer support for the new owner
Offering support to a new owner might be beneficial to help make the deal go through. A new owner may feel more comfortable if you are willing to provide a little bit of support after the sale is complete.
However, performance guarantees are not recommended as you don’t want to be responsible if the mess things up. Just make sure that you know what you are signing if you offer any guarantees on that support.
Make sure you know what you are signing
This has happened to me and countless others I know that have sold businesses, they didn’t know what they were signing.
I would strongly recommend consulting with a lawyer before you sign anything, Aaron Kelly from Kelly Warner Law is a great choice, specializing in online business law.
In fact, most of the time the buyer is going to write a contract that greatly favors them. It’s rare to see a mutually fair contract. You usually have to get a lawyer involved and negotiate back and forth.
I’ve seen some really dodgy contracts that basically have you give up all of your rights, guarantee performance indefinitely, ridiculous indirect non-competes and personal guarantees and other ways that they can later sue you and try to take the sale money back.
Will your team get fired?
Often times during a merger or acquisition, employees, freelancers and consultants can get fired. Sometimes the acquiring company has the resources that they trust and will use them instead. It doesn’t mean this is a smart decision, but it does happen. Sometimes your team will be given a transition period where they are essentially training others on how to do their job.
A smart buyer will keep the team and the culture if it’s working, instead of taking a chance on something unproven that may not work or may not be the right blend of people.
There’s no guarantee of employment for merged employees
Another point to keep in mind is that even with a guarantee of employment, they could potentially break it if they don’t feel the employee is performing up to their standards.
Why should you sell your business?
- You want a lump sum of money all at one time that could be used for a large purchase such as a car or home.
- You want to do something else and don’t want to “throw away” all your hard work.
- You have a partner that you don’t see eye to eye with and want out.
- You want to start a different business altogether.
- You are sick or have other personal obligations.
- Having kids or other life events that restrict you from focusing as much as is needed.
Selling a business is not always the right decision
First of all, selling is not always the right decision. You have to look at a several things to determine if it’s a good or bad decision for you and your business.