Chances are your e-commerce business is riding the spike in online buying because of the pandemic, and experts predict the upward trend will continue post-pandemic. If that’s the case, you have something worth selling.

There has never been a better time for e-commerce businesses than now and no better time to sell. E-commerce accounted for 18 percent of global retail sales in 2020. In 2019, that share was a mere 13.5 percent, but it represented $3.5 trillion in sales, and it’s only getting better. Conservative forecasts for 2024 put the share at 21.8 percent.

However, you must understand that selling an e-commerce store isn’t the same as selling a physical store. It’s simpler in some ways, especially if you use an e-commerce platform with a marketplace for selling businesses.

Search Store for Sale Image
Source: Shopify Exchange

However, it’s also complex in others, particularly when trying to value it. Consider the following questions before you start listing your store on marketplaces or offering it to private buyers.

Why Are You Selling Your E-Commerce Business?

The endgame for most entrepreneurs is to sell the business they’ve grown for a profit so they can move on to something else. Some people consider making a successful exit as the ultimate in bragging rights as an entrepreneur.

Another common reason for selling an e-commerce business is boredom. Doing the same thing for years on end can get monotonous. If the company has lost its spark for you, even if you’re turning a profit, it would make sense to sell it while the going is good.

However, if you’re selling your e-commerce business because you want a big payout, you might want to think a bit more about it. Sure, you might get a pile of cash after the sale, but then what? What will you do instead? Are you ready to let go of the excitement and challenge of running a business?

So, make sure you’re selling your e-commerce business for the right reasons. Otherwise, you might regret it.

How Much Is Your E-Commerce Business Worth?

Assuming you are selling your e-commerce business for the right reasons, the next step is finding out how to value it. You can use standard valuation methods designed for small businesses, but most e-commerce businesses use a particular method that considers two things: Seller earnings and inventory.

Seller Earnings

A big part of the value of an e-commerce business is its capacity for earning money. Fortunately, you can use multiples of the Seller’s Discretionary Earnings (SDE). Typically, you multiply the SDE by between 1.5x to 3x to get the value of the business.

So, how do you get the SDE? You add the profits you made in the previous year before taxes and add whatever salary you paid to yourself: SDE = profits + owner salary.

For example, if your profit for last year were $350,000, not including your salary of $50,000, the SDE would be $400,000. If you multiply it on the low side (1.5x), the value of the business is $400,000 x 1.5 = $600,000.

The SDE is useful for sellers because it allows them to get an idea of the value of their businesses before going into negotiations with buyers. But how do you decide what multiplier to use?

That’ll depend on several factors, such as the size of the business, level of organization, market size, and historical performance. Using a multiplier of two or more would be safe if you have a relatively large operation with steadily increasing profits in the last five years and a large customer base.

Inventory

Not all e-commerce businesses have inventory but, if you do, it’ll add to the company’s value. In general, you can add the value of merchandise (at cost) to the selling price. For example, if your selling price is $600,000 and you have $150,000 in stocks, your total price would be $750,000.

However, in some cases, buyers might argue that if inventory is necessary to operate the business, the selling price should be inclusive of it. In such situations, an excellent way to reach a compromise is to use a lower SDE multiple and offer inventory at a discount, especially if it hasn’t moved in several months.

When Should You Sell Your E-Commerce Business?

The answer to that question will depend entirely on your needs. If you’re eyeing another business or a big-ticket item to buy, you should start looking around for a buyer.

It’s also a good time to sell when you have become overwhelmed with the demands of the business and would rather not deal with it any longer. The demand for viable e-commerce businesses is high at the moment, so if you’re thinking of quitting the business, now is a good time to do it.

How Do You Prepare the Business for Sale?

Selling your e-commerce business is like selling a house: you want it to be appealing to the buyer. With that in mind, do the following.

  1. Make sure your e-commerce store or website is attractive, easy to navigate, and free of clutter.
  2. Have just enough inventory on hand so that few or none of your products are “out of stock.”
  3. Have a professional organize and update your financial records. If you’re doing them yourself, use accounting software. Your financials are the first things a prospective buyer will go through, usually with a fine-tooth comb. Have at least three years’ worth of records available for inspection.
  4. Update and organize your customer database. Buyers will want to look at those almost as closely as your financial records because customers represent the continuity of the business.
  5. Continue with business as usual to ensure your revenues and site traffic don’t drop while waiting for a buyer to commit. A sharp drop in either will be a serious concern for buyers.

What Are The Steps To Selling Your E-Commerce business?

While you’re making sure that your e-commerce business is ready for a sale, you should also be taking steps to start the sales process itself. Here are the basic steps for selling your e-commerce business.

Get a Valuation

The SDE is a good way to know what you should expect from selling your business. However, you might be a little out of your depth when choosing the correct multiple, given the many factors that affect it. Obtain a proper valuation from a third-party appraiser that specializes in e-commerce businesses.

Find a Market for Your E-Commerce Business

You don’t have to go trolling for a buyer for your e-commerce business. Quite a few marketplaces specialize in buying and selling e-commerce sites, so you only need to choose. Some will even value your business for you, for a fee, of course.

Make a Sales Prospectus

When you buy a big-ticket item, you want to get all the information you can before putting down your money. The same thing applies to potential buyers for your business. The sales prospectus is a detailed description of your business that includes:

  • History
  • Reason for the sale
  • Product line
  • Financial information
  • Site traffic and analytics
  • Business operations
  • Competitive strengths

Evaluate Offers

You’ll go through many offers that vary widely, but the purchase price isn’t the only thing you must consider. You should also consider the financing method. If it’s all cash, then you can rest easy.

However, you might get less than desirable offers such as owner financing (installments), bank loans, or earnouts, which means holding back a portion of the purchase price contingent on the business generating a certain level of revenue.

You can consider these options provided you like and trust the buyer. If you believe the buyer will work with you in good faith, you can afford to be a little more flexible.

Sign a Letter of Intent

If you have decided on a buyer, the next order of business is to sign a letter of intent. This document is a nonbinding agreement between you and the buyer on the basic terms of the sale. It’ll cover:

  • Purchase price and financing
  • The length of time to conduct diligence and close the deal
  • Contingencies for terminating the deal
  • Inclusions like trademarks and inventory
  • Post-sale details
  • Exclusivity
  • Earnest money

The letter of intent doesn’t guarantee a sale. Both parties can decide to end the deal at any time.

Conduct Due Diligence

This is on the buyer’s part, which involves taking a deep dive into the business. Your part is to make sure everything is ready for inspection, including financials, software, and standard operating procedures.

The diligence period will depend on the size of the business. For a small e-commerce business with no inventory, it can be as short as 30 days. For bigger concerns, it can take up to six months.

Draft the Asset Purchase Agreement

The second to last step is to have a lawyer draft an asset purchase agreement. This legally binding document officially seals the deal and transfers ownership of the business to the buyer. You can draft this yourself, but that’s probably not a good idea.

Closing

The final step in the selling process is the closing, which means you and the buyer sign the asset purchase agreement. The buyer then transfers the funds to you in an agreed-upon manner, signifying the end of the deal.

How Long Does It Take to Sell Your E-Commerce Business?

The time it takes to bring your e-commerce business sale from listing to closing will depend on the size of the business and transaction. On average, the selling process takes about 90 days. However, larger enterprises involving higher amounts will take much longer to complete, primarily because of the diligence period.

What Are Common Mistakes to Avoid When Selling Your E-Commerce Business?

It’s easy to make a mistake when you’re a first-time seller, and even one mistake can result in less than an ideal sale. Avoid making the following mistakes.

Selling on Impulse

Many people have days when nothing seems to be going right. Frustration and stress can lead you to decide to sell your e-commerce business as an emotional response.

Take a deep breath if you feel particularly upset over a specific incident and consider the big picture before deciding that you’ve had enough. Not only might you live to regret it, but you’ll most likely not get the best value for your business.

Not Getting Paid Upfront and in Full

Unless you’re absolutely sure about your buyer, reject any offer, no matter how large, that will compel you to wait for payment over an extended period. Many things can happen to keep you from getting the full amount.

Having No Exit Plan

You should always have an exit plan the minute you start your e-commerce business. You don’t want to be in a position where you have no choice but to sell at a loss. Have contingencies for every possible situation.

Summary

Selling a profitable e-commerce business is a good idea if you know what you’re getting into. It’s not something you should decide to do without serious consideration. Even if it’s a seller’s market, the process is long and complex, so you need to be ready for it. It can be extremely profitable and an excellent way to earn your “entrepreneur’s bragging rights.”

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