So much time and energy goes into building and growing an online business that many eCommerce entrepreneurs avoid thinking about how they will exit the company. But taking the time to outline an exit strategy and its implementation will help you better organize your strategy moving forward while also maximizing your company’s value when the time does come to put it on the market.
The lack of preparation by small business owners for what they will do when they want to step away is somewhat troubling. Eric Snider of the Exit Planning Institute spoke to Forbes about the state of exit planning in today’s business world, stating that very few individuals actually have a plan, despite tying up some 80-90 percent of their assets in the business.
Selling your eCommerce business is first and foremost a process. It’s not something you can do without planning properly. Yet entrepreneurs frequently underestimate this process. A survey by BizBuySell found that most business owners expect their business to sell in less than five months, but the whole process can take up to a year.
Clearly, planning and timing are important aspects of successfully selling your eCommerce business. Here are some other things you need to know before putting your company on the market:
There’s demand for your business
One of the things that keeps people from properly preparing to sell their business is underestimating the possibility of finding a buyer. It’s easy to think that because you have a small operation, or because you operate in a very specific niche, there might not be many people out there looking to take over your operation.
But if your business is profitable and runs well, you’re likely to find a buyer, especially in today’s market. This graphic from BizBuySell indicates how closed small business transactions have been steadily rising over the past few years.
There are a variety of factors that affect this, but most cite a healthy economic climate and a favorable regulatory environment as the reasons for this climb in business transactions.
And eCommerce is rapidly becoming a bigger player in the small business world. Led by Amazon, but supported by the large industry that surrounds it, eCommerce takes a larger share of retail sales every year. We can expect this trend to remain as the digital revolution continues to unfold, and this will just mean that there will be more people looking to make you an offer for your business.
Knowing this, it’s important you take the valuation process seriously. If you own something that is in high demand, make sure you are doing everything you can to get what it’s worth. Do a full audit of your company so that you don’t end up selling yourself short when it comes time to sit down at the negotiating table.
But you’re probably not doing enough to prepare
However, despite the growing demand and transaction volume for small enterprises, business owners are not playing along. A study by UBS produced the following numbers to showcase the shortcomings of entrepreneurs in preparing their business to be sold. Of the business owners that participated in the survey, UBS found that:
- 58 percent have never had an appraisal
- 48 percent have no formal exit strategy
- 37 percent do not have structures in place to protect sales proceeds
If you fall into one or more of these categories—and there’s a good chance you do—know that you are not doing everything you could be doing to prepare for the sale of your business.
Note, however, that these are things you should be doing anyway. Getting an appraisal will help you identify areas of opportunity and concern, developing an exit strategy will get you thinking long-term, and protecting your sales proceeds can only help the financial health of your company.
Chances are that you will sell your business someday, so it’s time to start thinking about it now before it’s too late.
Those around you aren’t always the best option
Part of the reason small businesses don’t worry as much about developing a formal exit strategy is because they think they already have an informal one in place. People have been passing down their businesses to relatives or friends forever, but nowadays, people are less interested in inheriting a business. The same UBS study found that 82 percent of potential heirs said they’d rather have the money from the business than the company itself.
Yet even for those who do have a chosen successor, this process is a source of anxiety, as entrepreneurs worry what will happen to the company and their own personal legacy.
Top Concerns for Business Owners Planning to Transfer Their Business to a Friend or Relative
While it’s easy to think you can just hand the business over to someone when it’s time for you to walk away, this probably isn’t the best option. It’s true, however, that you can benefit from having a relationship with the new owner. It will be easier to set up an annuity program to serve as a retirement income.
But the better option for both your wallet and peace of mind is to find an interested buyer you don’t know who is interested in making an offer that reflects the true value of the company.
You can and should be preparing now
So, knowing all of this, it should become clear that the time is now to start preparing for the sale of your eCommerce business. When you look at what makes a business valuable, you will see many things that you can be doing right now, even if the potential sale is still a long way off.
One of the first things you can is to actually choose an exit strategy. Are you going to try and offer the company publicly? Or will you look for an individual buyer? IPOs can be more profitable, but they are also much less likely to occur.
You’ll also want to take some time to gather your financials and do a full audit. Understanding exactly how much cash you have, how much money is tied up in inventory and how much you owe to creditors will help you understand the value of your business, but it will also give you a snapshot of the company that will help sharpen your planning focus.
It may be a good idea to take this one step further and do a full appraisal on your company. This will include a risk assessment so that you can see where you are most vulnerable, and it will also force you to take a look at your systems and processes. Being as efficient and productive as possible will make you more profitable now and more valuable later.
You might not be thinking about it right now, but the day will come for selling your eCommerce business. You may decide to move onto another project, or you might just receive an offer that’s too good to refuse. No matter what it is, though, there’s a good chance you aren’t prepared for it yet. Take some time now to consider this important part of owning a business and it will help you be more successful both now and in the future.