Preparing e-commerce stores for sale
By Josh Foo, Senior Partner
Updated 6:00pm AEST, October 07, 2020
(Onwardbull.com.au) - COVID-19 has pushed unemployment rates sky-high. In the last 9 months, there has been an unprecedented number of people wanting to buy businesses.
COVID-19 has wounded most traditional brick & mortar businesses and there is a chronic shortage of good businesses for sale. A profitable fruit shop in Sydney's north was asking for A$350,000 before COVID-19. During COVID-19, 2-3 different buyers were pushing it past A$400,000. These cases are not isolated.
Given the huge number of mainstream "Mum-and-pop" buyers seeking help from traditional broking agencies, it surprises me to see very few e-commerce businesses for sale through traditional agencies. There appears to be a misalignment because mainstream buyers have the money and are often very willing to pay top dollars for e-commerce businesses they perceived as "better" than brick-and-mortar businesses.
For some unknown reasons, owners of e-commerce businesses loath selling to mainstream buyers. They prefer to be lost on some Shopify marketplace where no buyers will ever find them.
Buyers who search online for a Shopify store or for an e-commerce business are typically much savvier and they often are looking for bargain prices.
However mainstream buyers see e-commerce businesses as exotic and rare, and because there are so few of them on the mainstream marketplace, they can fetch a lot more.
A client of mine paid AUD$1 million for an online store from North America that I privately valued at around AUD$200,000. Of course, valuation is an art and I can't be absolutely sure. But I do feel that mainstream buyers have a romantic view of the internet entrepreneurial lifestyle - the freedom, the sipping on a Pina Coladas by the beach, and watching their bank account swell from the resorts of Switzerland. Savvy buyers searching on Shopify Exchange are more cognizant to the reality of operating an e-commerce business and far less likely to have these "delusions".
Well, if you consider the alternatives for mainstream buyers - the "pains" of working in a cafe, restaurant, florist, fruit shop, or in any kind of brick & mortar businesses, with unyielding early morning starts, and having to deal with broken equipment and problematic employees, you will start to appreciate why they might have a romantic view of online businesses.
However, to sell your e-commerce business to mainstream buyers at top prices, the basic rules of preparing a business for sale still apply, with a few nuances.
1. Easy Product Fulfillment
Mainstream buyers are usually not technologically-savvy.
The first thing you'd need to do is to simplify the business and make it a 'no-brainer' for these buyers. This is true of any business actually. You want to have as few moving parts as possible.
Complexities will kill the sale, but this is especially true of internet businesses.
Dropshipping and fulfillment of products can be complex. And when it comes to fulfillment, buyers want a simple solution where they do next to nothing, if possible.
Yes, it is possible. There are specialist fulfillment agencies who can handle your end-to-end dropshipping for less than what you pay at Aliexpress.com. It is really a no-brainer. Don't complicate the business and save on cost-of-goods at the same time.
But if you start spraying 101 step instructions about using Oberlo.com to "do-it-yourself", you will scare the buyers off because chances are, they have no idea.
Buyers of e-commerce businesses want the fulfillment done-for-them. PHOTO: Pexels.com
2. Secure Your Intellectual Property (IP)
When it comes to brands and trademarks for Shopify businesses and e-commerce stores, it's the Wild Wild West. You've got copycats using very similar or even exact brand-names on the internet traversing across different countries.
You've got people who bought the domain names but they don't own the trademark. And you've got people funnel-hacking other people's websites and mimicking products and websites, so they look almost identical. It's a mess.
Suffice to say, if you have any real or perceived IP and trademarks issues, mainstream buyers won't touch it.
If you have a good brand name, check if anyone else has registered that name. If not, then trademark the name in your own country, and also in the country where most of your customers are (for example, the United States)
If somebody else has trademarked your brand name in the relevant countries, then you may have to rebrand your business and secure all the rights to the new brand name by registering your IP before you put your e-commerce business on the market for sale.
3. Keep Clean Financials
Like any other business, you have to keep transparent and clean financial records.
You should ensure that all your revenue and expenses are routed from the same account so that it is easily understood by prospective buyers. In this way, you will appear trustworthy and transparent to prospective buyers. Also, avoid using your personal Paypal account for Facebook Ads, as this will appear suspicious.
And if you have more than one e-commerce business, do not mix the customer orders and funds into the same account.
Mainstream "mum-and-pop" buyers typically are less savvy with technology. If they don't understand anything they see, they will not give you the benefit of the doubt. They may think that you have something to hide and walk away.
I know that it is tempting to mix your personal Paypal account with your business Paypal account, especially when Paypal starts to hold all your funds on 'pending'. Or you might be tempted to open 20 Facebook Ads Account using different alias to scale your ads quickly. If you are guilty of doing any of these, you should consolidate all your accounts for at least 6-12 months before putting your e-commerce business on the market.
While you might think that there is a method to your madness, mainstream buyers will not "buy" into any of this mania. If it looks "mad", opaque or complex to them, they will not buy.
Mainstream buyers love mainstream reports they can understand, such as Profit & Loss Statements, Balance Sheets, Cashflow Statements, Tax Returns, and Bank Statements. You should have these financial reports ready and make sure they match up to your other internet-based reports (such as Shopify CSV files and reports from Facebook Business Manager).
4. Have an Email List
If you have been trading for some time, you should have a database of customers. Or an email list.
While mainstream buyers may not know technology, they do know email. Your email list is proof that your customers exist. The bigger your email list, the better it looks to prospective buyers.
If possible, automate your email communication with a mail-service such as Mailchimp, Getresponse, Convertkit, or Klaviyo. Buyers love anything that is "automated" because it sounds easy and "done-for-you".
An email list is a powerful proof that your customers exist. PHOTO: Pexels.com
5. Outsource Your Marketing
Other than fulfillment, the next biggest moving part of an e-commerce business is lead generation and marketing.
Whether you are using Facebook, Instagram, YouTube, TikTok, or Google Ads (or on any other digital media for that matter) to generate sales, you need to outsource this function to somebody that can do it for at least 12 months after the new owner takes over. This person could be from an agency or it could well be you.
If the prospective buyer (who isn't tech-savvy) sees the complexities of the Facebook Ad campaign, for example, they may get spooked and walk away from the sale. These buyers need some hand-holding. After all, if they are paying top dollars for your e-commerce business, they deserve to have somebody holding their hands until they get familiar with the business.
Even if your business has a steady stream of organic clients through email-automation, affiliate marketing, Search-Engine-Optimization (SEO), collaboration with influencers, and what-not, mainstream buyers can still be easily overwhelmed by these.
So, please ensure that you outsource this function to somebody who can do it for the new, incoming owners, at least in the interim. Otherwise, this may be a deal-breaker, or you will get a lower valuation for your business.
6. Clean Up Bad Reviews
Nothing scares prospective buyers off more than bad customer reviews anywhere on the internet.
If you have bad reviews on Google, Facebook, Trustpilot, Yahoo, Yelp (or wherever), you'd need to boost your good reviews to counteract the bad, as you can't really delete the bad reviews. There are marketing agencies that specialize in this. Seek them out, or do it yourself.
7. Create Short Explainer Videos
If you want to ease buyers into paying the price you want for your e-commerce business, then you should make it as easy as possible for them to operate your business. One of the best ways to do that is to prepare short explainer videos about different aspects of operating the business.
These are not training videos for Udemy, Teachable, Kajabi, and the likes. They don't have to be perfect or beautifully done. These explainer videos are only for your buyers. You can host them on YouTube or on some easily accessible platform.
These videos reassure buyers that you have given thoughts about preparing for the transition. Once you have the videos, don't keep it a secret to prospective buyers. When prospective buyers see from the videos how easy it is to operate your business, the mystery around internet businesses will disappear and they will be more likely to pay the price you want.
A specialist who knows the e-commerce industry is required to bridge a "newbie" buyer and the seller of an e-commerce business. PHOTO: Pexels.com
8. Hire a Go-Betweener That Understands
This is in my view, one of the most important considerations if you wish to take your e-commerce business to mainstream "mum-and-pop" buyers.
Most broking agencies and their consultants are clueless about e-commerce businesses. They typically deal with cafes, restaurants, retail stores, supermarkets, the "brick-and-mortars" and the more "traditional" businesses.
This is perhaps one of the reasons why owners of e-commerce businesses hesitate to engage a mainstream broking agency.
However, if you hire a good go-betweener agent that understands your business and speak your industry lingo, ah-hem from Oberlo, Shopify, Facebook Ad Campaign, Alexa Ranking, ROAS, Pixels, Retargeting, Zapier & Zaps, API Integrations, ClickFunnels, Leadpages, Upviral, UX, UI, CTR, CTA, CPC, PPC, CPM, to Ad Rank, (have I missed any?), then you will get to the wallets of these buyers.
The go-betweener is key because they are the trusted-figure in the sale.
Buyers will inadvertently ask the go-betweener agent to explain your business. If the agent-consultant doesn't have much of a clue, then you haven't got much of a chance to sell it, let alone get the price you want.*