With Latona’s, selling your online business is simple and straightforward. Our dedicated brokers will help you land the best possible deal.
No matter whether you’re running a content website, an eCommerce site or a SaaS business, our experts can help you sell your business for the highest possible multiple.
But, if you’re new to selling online assets (like many of our clients), then you may be concerned about getting the best price in a fast-moving market. The good news is that you’re not alone. Many of our buyers are daunted by the prospect of selling their online business and they’re unsure where to begin. That’s where we come in. In this blog post, we’ll provide you with advice about preparing your business for sale. We’ll also discuss the best possible timing and provide some information on how our experts can help guide you through the sales process. With this in mind, let’s take a look at how to sell a business for the highest possible multiple.
Practical advice for selling a business
Before you sell your business, you’ll need to do some preparation work. In fact, preparing your business for sale is the most important thing you can do. This is because, by doing so, not only will you find it easier to sell your online business, but you’ll also receive the highest possible multiple.
Although most online businesses sell for around 3x their annual net, yours could be worth a lot more if you can demonstrate that your business is successful, stable and a low-risk proposition. By following our practical advice, you’ll be able to do just that.
So, consider how you can demonstrate that your business meets all (or as many as possible) of the following criteria:
A fair and reasonable valuation
As a seller, you can attract buyers by listing your business for a fair and reasonable price. Sadly, many sellers list their business at a price that is simply too high and this undermines the likelihood of a sale.
As a result, you should ask one of our experienced brokers to comprehensively review your business model and financial information in order to determine the best sale options.
As a general guideline, the majority of online businesses sell for between 2x and 10x their annual net profit, with many sales falling towards the bottom end of this scale. However, speculative outliers are not uncommon; especially when the right business model is linked to the ideal buyer.
By setting your expectations accordingly and receiving expert advice, you’ll understand what your business is actually worth and gain an understanding of how you can unlock its full potential before you list it for sale. Get in touch with us today for a free valuation.
You’re not central to the success of the business
Many buyers look to purchase online businesses because they generate passive income. However, if you’re overly involved in the running of your business and the business actively relies on you for its success, then this is not the case. As a result, before you sell your business, you’ll need to distance yourself from it. This may involve hiring new staff to take on some of your roles or delegating responsibility to other members of the team.
Overall, the less time you spend managing and running your business, the more attractive it will be. So, if you’re putting in long hours, then you may need to outsource before you sell.
The best way of calculating your time is to keep a diary and track your movements. From here, you can make a list of the processes and procedures you’re involved with on a daily, weekly and monthly basis. Then, you can work out which of these can be delegated or outsourced.
If your business remains reliant on you for some aspects, then this isn’t an issue. However, you’ll then need to consider whether you’d be willing to stay on after the sale to provide onboarding and training instructions to the new owner so they can take on the responsibilities.
The business doesn’t rely on hero products
If you’re running an eCommerce business and one product massively outsells the other products on your site, then prospective buyers may see your business as a risk. After all, if the majority of your sales come from one item, then you’ll be viewed as a single-product business. This means that if trends change or your product is no longer viewed as the superior item on the market, your business may struggle to reach its current profit levels in the future.
So, if you’re currently overly-reliant on a hero product, focus on adding new items to your range and diversifying your income streams so that no singular product accounts for more than 70% of your business’s revenue.
All the data and analytics information is available
As an online business, you’ll rely on web traffic for income. Due to this, buyers will expect you to show detailed analytics statistics that verify the performance of your website over time. In addition, you’ll need to demonstrate how you use this information to inform your business strategy.
As part of this, you’ll also be expected to explain how you drive external traffic to your website. You could be doing this through advertising on Facebook, making the most of your emailing list, optimizing your website for SEO, using influencers to promote your goods or paying for PPC adverts.
All of these methods can enhance the reach of your site and draw more traffic, but you’ll be expected to explain the return on investment you’re receiving and how these methods factor into your business’s growth plans. After all, by documenting where your site’s traffic comes from and when, you’ll be able to show how diverse your business is and how it can withstand market pressures.
Your financial data is in order
In order to sell your business, it’s vital that all your financial information is in order. Serious potential buyers will expect to be provided with up-to-date financial information when they ask for it.
The exact financial data you’ll need to show a potential buyer will depend on whether you’re running a business that sells products or software, so it’s worth discussing everything you’ll need to show with one of our expert brokers. However, on a basic level, you’ll be expected to know and have proof of your business’:
Initially, your revenue will be used to help decide a value for your business, but buyers will use this to assess how diverse your revenue streams are, the sales volumes required to reach your revenue and trend information that shows whether your income is stable or seasonal.
Cost of goods sold
If applicable, your buyers will also want to know how much you pay for your goods and where you buy them from. They’ll also want to know whether you have agreements in place with suppliers and whether these can be transferred to new owners.
Lifetime value and churn
If you’re running a SaaS business, potential buyers will want to know about your business’s churn rate (how long it takes for a new customer to stop using your software) and the lifetime value of a customer (the average amount of revenue that is earned from a customer during the time they are paying for your product).
This will show prospective buyers how much it costs to run your business. However, you need to make sure you exclude any personal expenses from this calculation. Unsure which expenses are allowable? Our experienced and knowledgeable brokers can help you.
Prospective buyers may also wish to inspect your tax returns to see whether they match your profit and loss statements. As well as verifying this information, your buyer can also use this information to obtain bank financing for the purchase of your business.
When you should think about selling a business
There are a number of reasons why you may be considering selling your online business. From cashing out for retirement to raising capital for your next passion project, we understand that many business owners have different needs and requirements. For this reason, a number of factors will determine when the time is right for you to sell your online business.
Although many business owners choose to sell their online business when their revenue and profitability are at their highest, it’s not uncommon for business owners to sell their businesses while they’re in a downward spiral. After all, some entrepreneurs are experts at brand development and scalability, so they’re looking to purchase businesses with high profits and large growth potential. However, other entrepreneurs are specialists at turning a business around and transforming its fortunes.
However, the age of your business will play a vital role in the sale. If your business is too young, you may be better off waiting before you attempt to sell it. This is because many buyers value a business where they can accurately analyze its stability and how it’s impacted by seasonality. For this reason, buyers usually like to purchase businesses that are 2-3 years old because then they can gain a good understanding of the business’s history and profit record. By using this data, they can make calculations about how long it will take for them to earn their money back.
To sell for the highest possible value, your business will need to have annual profits of between $20,000 and $100,000,000. On top of this, it needs to have been established for at least one year of positive trading. Due to this, if your business is only 6-12 months old, you may be better waiting before you sell because you’re likely to attract a higher multiple this way. That said, if you’re thinking of selling, then we recommend that you stay in touch with us. Then, when the time comes, we can provide you with more information about how to sell a business and conduct an in-depth analysis of how we can add real value.
How Latona’s can help
With so much to consider about timing and practical considerations for selling a business, we advise you to speak to our dedicated brokers before you begin the process.
Most of our clients have never sold a business before. To make the process less intimidating, we will provide you with a dedicated broker who will be with you at every stage of the process, offering insight and experience along the way.
We’ll start the process of selling your business by providing you with a comprehensive and free valuation that can be used to determine a multiple for your business. To do this, we’ll analyze:
- The sales volumes required to reach your revenue
- Your revenue distribution patterns
- Your ongoing cost base, including current marketing spend
- Earnings before interest, taxes, depreciation and amortization (EBITDA)
- Multiples achieved in comparable deals
If you’re happy with this valuation, we can then provide you with instant access to our large and active network of buyers. With more than 20,000 globally vetted buyers available, we’re confident that we can find the right buyer for your business.
Once we’ve helped find a buyer, we can guide you through the sales process. We’ll never place you in a pressurized situation and we’ll always make sure your data is safe. NDAs are signed for your protection and sale information is handled in strict confidence. In addition to this, we always adhere to strict and safe escrow policies, giving you continual access and influence over your ongoing sales and negotiations processes. When the sale has been agreed, we’ll also help manage the seamless transfer of your business assets and inventory over to the buyer.Here at Latona’s, we frequently close 5, 6, 7 and 8-digit deals on behalf of our clients. So, if you’d like to learn more about how to sell a business or discover more about why you should sell your business with Latona’s, reach out to our team today. We’ll happily provide you with a free valuation.