There are many reasons for selling a business some of which include retirement, death or ill health, divorce, moving from the area or simply “You’ve had enough”. Whatever the reason for selling, please make sure it is the right decision and not a decision made hastily.
Determine if you really want to sell the business or perhaps you just need a break, could put in someone to manage the business or pass it on to family and still draw an income.
If your decision is firmly set on selling the business then there are some exit strategies that can be applied to make sure you get a good and fair price.
- Give yourself about 12 – 24 months to get the business ready for sale.
- Review your business to find any weaknesses that can be addressed and fixed before the sale.
- Profile the business with a report outlining the strengths of the business for a potential buyer.
- Develop a strategic plan for the future of the business which potential buyers can look over. Highlight the potential growth of the business.
- Build on the business’ current reputation – don’t neglect the marketing aspect when you decide to sell.
- Determine the selling price of your business. Your accountant or business advisor can help here. There are four main methods usually used to determine the price of a business.
The Return on Investment (ROI) This measures the net profit (before the owners salary) received from an investment (purchase price) and is calculated by the following formula:
ROI = Net Annual Profit x 100
The Going Concern (Book Value Price) This method involves calculating the tangible and intangible assets of the business to come up with the sale price. Inventory, tools, vehicles, plant and equipment and other assets that can be transferred in the sale are totaled with the intangible assets which can include intellectual property such as goodwill, trademarks, email lists etc.
Market Value Market value is determined by multiplying the turnover of the business by it’s industry multiple.
Creating the same business This method is calculated using the same costs it would take to start the business today. Businesses that don’t have years of financial records can be priced this way. Include things like stock, equipment, development costs etc.
The larger your business is, the more detailed the exit strategy will be. The need to consider staff and the financial implications and requirements concerning them must also be considered.
SELLING YOUR ONLINE BUSINESS
Many of us start a website business and then for one reason or another decide to stop working it. Many people at this stage simply stop and shut down their website. This could be the wrong decision.
If you have built up a good website business then it is quite possible you can sell it!
Many people don’t want the hassle of getting a website business up and running but they do want a website business! These are the people that are willing to buy your website. Many small websites change hands around the world every day. If you aren’t sure about the whole process then contact your hosting company who can do it for you. However, it can be done very simply and if you want to sell your website then take note of these tips:
1. You need to gather all the information:
- Do you have Google analytics of the site?
- Your hosting service provider details
- The domain name server information
- The Autoresponders and mailing lists
- Social media accounts
- Account details for an eCommerce site (Paypal etc)
- ABN and Business Name Registration information
- All the passwords/login details for the site
- Stock details if applicable
2. How much is your site worth?
- Most mumpreneur websites sell for a multiple of the owner’s income. For instance, the multiple is typically in the range of 2.5x – 3x what you made in the previous 12 months as long as the site has at least a 3 year track record. If income is declining or if the site is less than 3 years old, the multiple will obviously be less. If you have been in business for more than 3 years and can show that your income is increasing, you might be able to try the 3x multiple.
- Of course the price you pick is up to you – you might just want enough back to cover the costs you have put into the site or even just some of it back.
3. Would you buy your site?
- If the roles were reversed, would you like the look of your website? Consider how the site looks online, do you use any copywriters, freelancers etc to keep your site running? If so you must tell any prospective buyers as this will influence their decision. Where do you get your stock? If you make all the stock yourself then how will this affect them, will you still be supplying all the stock? If so, for how long? Will this be in a contract?
- If you use venders are they willing to supply a new owner?
Be prepared for these questions as buyers do not like unexpected surprises and will exit a deal if problems occur.
4. Make the sale a smooth transition
It can be scary entering into an agreement to transfer your website to a person you don’t know. It’s a good idea to get to know the person interested in buying your site before agreeing to the sale. Exchange emails and even speak to the person if possible. This way if there are any questions they can be answered promptly.
When you are ready you can then arrange to transfer the property and receive the payment. Ensure you have both agreed on the payment method before agreeing to the sale.
Here are some further tips:
- If the property price is significant to you, consider using Escrow.
- Use a written contract or agreement of sale if you feel it necessary and have all parties sign it.
- If the sale is very important to you, consider seeking legal advice.
- Agree on a transition plan.
I suggest an upfront partial payment (50%) and a final payment once the transfer has been made. Are you going to accept a cheque? Direct bank deposit? Cash in hand?
- Agree to have the seller transfer the domain name to the buyer first, then receive partial payment before transferring the site. This way, both parties have some leverage during the transfer.
- The buyer should change all the login details and passwords after the transaction has been completed.
- Ensure the seller will provide at least seven days of support and guidance.
- Agree on a 24-hour refund policy.