The process of selling your online business is not complex. The real challenge lies in achieving a price that satisfies both the seller (you) and the buyer.
In order to emerge victorious in this challenge, it is essential to engage in preliminary preparations. Opting for a spontaneous decision to sell your website will not enable you to attain its utmost value.
In order to attract potential buyers, it is essential to create an exit plan that not only enhances the value of your business but also makes it an appealing prospect.
In my career, I have successfully sold multiple websites. In this post, I will demonstrate the fastest and most effective method to sell your online business at its maximum value.
In this course, you will discover the significance of preparing your exit plan beforehand, methods to evaluate the worth of your online business, techniques to enhance its value, and strategies for selling it effectively through online platforms.
What’s Your Exit Strategy?
Starting an online business is motivated by various factors.
Perhaps you initiated your business as a part-time endeavor. Perhaps it served as the optimal means to transform your hobby into a career on a full-time basis. Perhaps it paved the way for you to leave your job, owing to the consistent earnings your business generated.
If you’re reading this blog, chances are you’ve been contemplating ways to expand your business. However, similar to numerous entrepreneurs I’ve come across, you may have overlooked determining your ultimate objective.
It’s comprehensible that thinking about your exit strategy becomes challenging when you are immersed in the daily routines of your work.
If you’re not involved in mergers and acquisitions, the exit plan for your business is probably not a priority. It may seem like something to consider once your business is running smoothly or when you’re prepared to retire.
Having a clear understanding of your ultimate objective can assist you in strategizing for the most favorable result, particularly when aiming for a triumphant conclusion.
Having the end in mind from the beginning.
The initial step you need to take is to establish your objectives while considering the ultimate outcome. Essentially, this implies that if your aim is to sell your business, you should begin contemplating methods for enhancing your website’s worth in order to attain a sale price that aligns with your anticipated outcomes.
In order to accomplish this, it is essential to have knowledge of the valuation process for online businesses and identify the elements that can enhance their worth.
With this knowledge in hand, you will possess valuable insight that has the potential to impact your business-building decisions. This will allow you to make your business more appealing to online buyers and strategically expand it, while also setting yourself up for a potentially transformative exit in the future.
How to Calculate the Value of Your Online Business
The estimated value of a website is determined by website brokers using a straightforward calculation, which involves multiplying the monthly net profit by a specific multiple.
If a business produces a monthly net profit of $10,000 on average and has a multiple of 36x, its value would be $360,000.
We will now discuss the details of these two variables and provide ways to enhance them in order to boost your business value.
Net Profit
The average net profit over the past 12 months of business operations is typically referred to as the monthly net profit figure.
The standard period for a timeline is 12 months, as it considers seasonal changes and provides a comprehensive overview of the business’s performance that potential buyers can anticipate upon acquisition.
In some cases, a business’s average net profit may be calculated within a shorter time period. For instance, if the business has not been operating for a full year or if there has been a recent significant increase in revenue, a 6-10 month average might be considered. This is particularly relevant if the business is consistently functioning at a new baseline.
It is advisable to accumulate 12 months of operations if you are not in a hurry to sell, as businesses that possess less than 12 months of data are perceived as more risky investments and have lower chances of being sold.
In order to optimize the value of a business, it is most advantageous to sell it during the period when the average net profit reaches its peak.
If there have been sudden revenue increases in the past two years due to a rise in online shopping, it might be wise to consider selling before sales go back to their usual levels.
Multiple
The ‘multiple’ is typically a score ranging from 20 to 50 times, determined by multiple factors, and serves as an indicator of a business’s financial well-being and worth.
When looking at it from the buyer’s point of view, the multiple can be interpreted as the length of time it would require for them to regain the invested capital.
Assuming the business consistently generates the advertised average net profit each month, a buyer would achieve a full return on their investment in 36 months if the multiple is, for example, 36x.
Some online business brokers might use an annual multiplier, meaning a 36x monthly multiple would be the equivalent of a 3x yearly multiple.
Although the method for calculating monthly net profit is evident, the process of determining multiples and strategies to increase them, as well as enhancing the valuation before listing a business on a website broker’s marketplace, remains unclear.
Why you might need to sell your business
There are various reasons why individuals may choose to sell their businesses. Frequently, it is due to a favorable opportunity, such as a thriving business that prompts the desire to capitalize on it. However, there are numerous other circumstances that could encourage one to pursue a sale, such as:
- A change in personal circumstances, like starting a family
- Taking time off to travel
- Readiness for a new business adventure
- Wanting the money to invest elsewhere
If the thought of selling your business has crossed your mind, it is beneficial to have an understanding of your current situation, even though ultimately only you can determine the right timing for it.
How to prepare to sell your online business
In order to sell your business successfully and obtain a favorable price, it is essential to organize your documents, paperwork, and finances to ensure seamless continuity of operations for the new owner. The smoother the transition, the higher the likelihood of a successful sale.
In order to guarantee a seamless sale, it is essential to have efficient systems that are operational, reliable and accurate data, and well-managed, robust finances.
Before even thinking about selling, it is beneficial to have these three elements in place. In fact, they are essential for running a business, and it is always advantageous to have them established and prepared right from the beginning of your trading journey.
Collect accurate data
Having accurate data will provide insights into the non-financial performance of your business, including the level of website traffic, customer demographics, and the effectiveness of your marketing strategies. This information is particularly valuable for potential buyers to assess your business’s overall performance.
When gathering precise data, consider the following:
- Tracking the traffic going to your site (including which pages are the most popular and the source of visits)
- Gathering information about your customers (including where they’re from, their interests, and previous purchasing history)
- Monitoring your conversion rates
- Getting data about your email lists and contacts (including how many people are on your lists and how warm they are as leads or customers)
Keep your finances up to date
Keeping accurate figures relating to your sales and expenses is crucial in determining the value of your business. This is probably the most important thing you’ll need when selling, so tracking your finances and documenting them correctly from the start will save you many headaches.
Instead of waiting until the last minute to gather your figures before selling, make sure to do it correctly from the beginning. This approach will also assist you in keeping track of your expenses and gaining a comprehensive understanding of your business’s performance. If possible, consider hiring an accountant or bookkeeper to ensure that everything is being done accurately. Having a second set of professional eyes on your numbers will also contribute to establishing credibility when the time comes to sell.
How to Increase the Value of Your Business
The multiple of a business will typically rise or fall based on its ability to generate stable revenue and be shielded from external impacts.
Included in this are various variables and metrics that aid in the measurement of this.
- Average Monthly Net Profit
- Age of Business
- Email List Size
- Traffic Diversity
- Owner Involvement
- Revenue Split
Average Monthly Net Profit
If a business has a higher monthly net profit, it indicates that the business model and niche have been validated.
If a business is selling a tangible product, this implies that it has a greater market share compared to its competitors, a larger customer base, and can utilize its reputation to expand even more.
Having a larger net profit enables a new owner to have greater monthly cash flow, which can be utilized to expand the business by either recruiting more staff or investing in advertising.
Age of Business
Despite facing external forces that pose a threat to online businesses, the older business has proven its resilience.
This could be the website that has demonstrated its ability to withstand Google algorithm updates, or an eCommerce business that demonstrates its products’ longevity rather than being a passing trend.
By having a longer history, an established business can offer a buyer additional insights into trends, such as consistent yearly growth or notable fluctuations in revenue.
In the end, it instills a deeper sense of assurance in the new owner that the business will continue to thrive under their ownership.
Email List Size
When it comes to an online business, an email list is seen as one of the rare possessions that a business owner can truly claim, as many other components rely on third-party platforms for generating revenue.
Sending traffic to an eCommerce store or affiliate page can generate revenue through active email lists. More sophisticated email marketing strategies may involve segmentation and automation to regain and engage potential customers.
Traffic Diversity
Another technique for minimizing risk in an online business is by directing specific traffic to your company through various channels, just like maintaining an email list.
By conveying this to a prospective buyer, it signifies that the business is designed to remain operational even if there is a single point of failure.
In the case of a content-based website, this implies that traffic is diversified across multiple pages instead of depending solely on a single popular blog post that may gradually lose significance or be influenced by a Google algorithm modification.
If you have a physical product business, this might involve selling your products across various platforms, including Google Ads, Amazon, Facebook, or even traditional retail stores.
From a marketing standpoint, this could imply generating web traffic by utilizing a mix of search engine optimization, paid advertising, and social media.
Buyers find the organic traffic generated from SEO highly appealing since it is a channel that boosts revenue without incurring extra expenses or requiring extensive upkeep.
Owner Involvement
Buyers typically prefer to acquire businesses that demand a lesser amount of the owner’s time each week, as they are more interested in investments rather than labor-intensive roles.
They will want to ensure that a business can function smoothly without requiring excessive monitoring on their part.
Small business owners may consider implementing business systems to automate tasks that consume a significant amount of time, or hiring freelancers to take over any skill-based responsibilities that the owner cannot personally fulfill.
Having an updated succession plan in place can help a business owner streamline operations, allowing them to step away from the daily tasks, even if they are not fully prepared to sell.
Possible rephrased version: The mentioned components may encompass well-defined standard operating procedures, methodical record keeping, and a comprehensive inventory of all business-related assets.
Revenue Split
Just like traffic diversity, a business demonstrates greater resilience by generating revenue from various sources.
Working with various affiliate marketing programs and utilizing diverse advertising platforms is essential for a content site to mitigate any potential disruptions or alterations in commission structures should some of them cease operations or modify their policies.
In the case of an eCommerce business, expanding the product line is essential to ensure revenue generation from multiple products, particularly when interest in one product diminishes or when inventory issues arise due to supplier delays.
