10 Tips to Sell any Online, eCommerce, or Mobile App Business for Top $
In a series of weekly videos titled Tips & Tools to Start the Right Business for You, once a month I include the interview of a subject-matter expert who shares their business knowledge to help you succeed in your entrepreneurial journey.
Recently, I interviewed Eric Owens, from appbusinessbrokers.com. Eric is a business broker who specializes in selling online and eCommerce businesses and mobile apps.
A question for you, crazy and non-conforming souls who have caught the entrepreneurial bug and are thinking of starting a business: Why? Why are you doing this? Have no doubt: there will be times when you will ask yourself this question while also wondering about your sanity. And the earlier you answer it, the better for you and your business success.
Most of us have a very personal “why” we want to start a business. Typically it involves several of the following: the lifestyle, not answering to a boss(es), the freedom of choosing time and location of our work, the ability to directly influence our income, choosing whom we work with and what we work on, making an impact, etc… Many of us also want to grow something big that we will sell someday and cash in to either retire or build something even bigger. Yet, when starting our business research, our vision of the terms and conditions of that exit day is usually fuzzy at best. I have yet to meet a first-time entrepreneur who, before we work together, initially tells me: I want to start a business and sell it in x years for y $$$. This month’s discussion with our Subject Matter Expert, Eric Owens who specializes in brokering eCommerce and digital businesses, prompts you to begin with that end in mind.
Many first-time entrepreneurs don’t think of the day they will exit. Yet the reality, for any business owner, is not IF but WHEN you will exit. There are several ways this will happen:
- You simply close it – usually because it is not sellable and you are ready to move-on.
- You pass it on to your children assuming they want to take it over.
- Or you sell it, hopefully for maximum equity that you cash in as you move on to a new life chapter or a new business.
When considering starting any business, think of which type of business you will choose, and how you will grow it for a most successful, painless and profitable transaction when you are ready to sell. Below are a few considerations. Some of them are true for any type of business, and a few are more specific to online, e-commerce, or mobile app businesses. While I will interview other experts including brokers in the future, here a few tips useful now and that Eric Owens and I share with you.
1 – If you have a number to sell someday, verify that the business you choose has the ability to deliver this number. Research similar types of businesses that are currently for sale and then understand how you will need to structure and build that business in order to get that price. Your business coach or advisor, if you have one, can help you. [Admitting shameless plug-in for my coaching services and courses here.]
2 – Identify your monetary goals and time-frame when you will cash in the equity that you intend to build. Typically a business that has an EBITDA (Earnings Before Interest Taxes Depreciation Amortization) of $100K (not accounting for adjustments) will sell for 1 time to 1.5 times that amount. A business that nets $1 to $1.3 Million could multiply 4-5 times that amount. Of course, there are external factors such as the economic climate at the time you sell and the type of buyer you will attract (strategic buyers are often willing to pay more.) This exercise will give you a reality check in determining if and under what conditions the type of business you are considering starting has the potential to sell for your target price.
3- Before you start any business, think of the most adequate business entity that you should set up in order to minimize liability and optimize the tax advantages of business ownership and capital gain when you will sell it. Your tax and business attorney or CPA will help you here.
4 – Keep your business finances in order and separated from your personal finances, even if you start as a sole-proprietor. Clean bookkeeping might not be top of your mind but it will pay in the short and long term. One of your first outsourced tasks should be to hire a bookkeeper and especially if this is not your zone of genius. Even you are good with the tediousness of bookkeeping, but you want to save money by not hiring a bookkeeper, consider the opportunity cost of your time not spent doing something more impactful in your business, like drumming up sales. That said, always review and interpret your financials regularly.
5 – You will need at least three years of documented financials and business tax returns before you put your business on the market. An upward growth trend in revenues and profit (or at least plateau) is more attractive to buyers and to the financial organizations they might need to finance their purchase.
6 – Build rock-solid systems in your business. S.Y.S.T.E.M.S not only Save Yourselves Significant Time Energy Money and Sanity. They also make a business more attractive to any buyer hence more lucrative for you at selling time.
7- Don’t be the bottleneck. Build a team as soon as possible, so that you are not the one and only direct producer of revenues. A team will allow you to grow and scale your business.
8 – Consider the pros and cons of using your personal name as your business name versus a company name. In the days of influencers’ marketing, your name and good reputation might a defensible asset that allows for faster initial recognition and growth of your business. But when you sell the business, it will require a longer transition to a new owner. You might even need to anticipate the sale several years in advance and change the branding of your company before you put it on the market.
9 – Recurring revenues such as subscriptions and memberships are very attractive to buyers and often yield a higher multiplier. Online businesses and Apps lend themselves very well to that model. And some traditional offline businesses can do that too. Having affiliates might become part of this trend too, although this is still speculative at this point in the history of digital marketing.
10 – For e-Commerce businesses (selling other people’s products online) consider the defensibility of your business. If you sell products that are accessible to anyone, your business might not be unique enough unless you have built a very strong and sticky brand.
Especially at the beginning of your entrepreneurial journey, think long term, but act short term. If you have been considering business ownership recently or forever, now is the best time to begin your strategic research. My strongest recommendation is not to just start a business that you think will make a profit. Your greatest privilege as a (future) small business owner, as opposed to a Venture Capital (VC) funded business, is that you get to make 100% of the decisions in regards to what the business will do for your life (and your family’s life.) That is the greatest advantage of small business ownership! A business is a vehicle to get you, the owner, to the life you desire including the equity you will build and hopefully cash in when you exit. Think carefully about which business you pick. Think carefully about what kind of life you want this business to help you build.
For extra love and red carpet, let them know that you found them through our community at OPEN FOR BUSINESS.
LinkedIn Profile: Eric Owens – Business Broker for Online, eCommerce and App Businesses.
Hello, I am Patricia Bottero St-Jean Founder of OPEN FOR BUSINESS. I help employees successfully transition from their job in corporate America or government, to entrepreneurship by starting the right business for them so that they can build a life that suits them and their families. If you would like to discuss your plans of business ownership I invite you to schedule a Strategy Call (no cost) with me. We will discuss the next steps you can take now, and also how I might support you in your journey.
For more information on finding the right business for you, connect with me.
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Patricia Bottero St-Jean, MBA – Founder, Business Research Strategist, OPEN FOR BUSINESS