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GOLD! Selling my Ecommerce Business

amp0193

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If everything goes as planned, this will be a short progress thread that will document the process of selling my first ecommerce business. I hope it is of some interest to those with ecommerce businesses, and that I can shed some insight into the process.


Progress so far:

I decided in October 2016 that I wanted to sell this business. I interviewed several website brokers that specialized in ecommerce and found one that I liked and trusted and that charged a reasonable commission rate.

The next step to move forward was to provide the broker with current financials and P&L (profit and loss) statements for the previous two years. This is where I hit a snag.


Getting the books done

I had no books whatsoever. Not for lack of trying… At the time, I was working with bookkeeper #3, starting all over again from scratch (#1 and #2 didn’t pan out). If you are reading this post, and you are not doing solid, regular bookkeeping, for the love of God, START NOW.

For the next 6 months I went back and forth with bookkeeper #3 trying to urge her to get these done. Long story short, I should have fired her after the first month of action-faking on my account, but I let her lead me on and on and on. I had too much trust in her, and should have just gone with my gut and ditched her, before things got all dramatic.

Out of desperation, I ended up connecting with @CareCPA through another forum, as he struck me as a young, hungry guy looking to hustle. It took him 35 days to complete two years of books from scratch, and he did it right. Communication was smooth, frequent, and he just “got it”.


Growing the Business

In the meantime, while sorting out all of my bookkeeping woes, I decided to actively avoid @JAJT ’s mistake of letting his ecommerce business drop revenue going into the sale process. Even though I am, in a sense, “checked out” from the business, once I decided to sell, I made a conscious effort to try and grow every month.

My ecommerce sales in March and April of this year were by far the best months ever, surpassing December 2016. I also focused on a wholesale strategy in March with the intent of creating a path to “automatic wholesale growth” for the buyer of the business. My hope is that this will secure a higher multiple for which the business will be sold for. I shed some light into some of that wholesale growth process here: Notable! - [STEP BY STEP] How I Got Picked Up by 5 U.S. Distributors… With 6 Hours of Work


Moving Forward

Which brings me to a week ago.

After 7 months, I reconnected with my broker, sent him the P&Ls, and we started the process for real this time. The first step, and what I am currently working on, is an exhaustive 96 question interview picking apart every detail of my business and its financials. I am having to explain every decision/strategy made in the last 2 years, account for my successes and failures, and most importantly, show the potential the business has for future growth.

The last 3 questions I answered on this questionnaire took me an hour each to complete, to give you an idea of the level of detail and research required to answer these questions that really dig into the core of my business.

I hope to have this business profile done in the next couple of days, and then we’ll move on from there. The plan is to have the business listed for sale beginning of June.


Thanks for following along!
 

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ZeroTo100

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If everything goes as planned, this will be a short progress thread that will document the process of selling my first ecommerce business. I hope it is of some interest to those with ecommerce businesses, and that I can shed some insight into the process.


Progress so far:

I decided in October 2016 that I wanted to sell this business. I interviewed several website brokers that specialized in ecommerce and found one that I liked and trusted and that charged a reasonable commission rate.

The next step to move forward was to provide the broker with current financials and P&L (profit and loss) statements for the previous two years. This is where I hit a snag.


Getting the books done

I had no books whatsoever. Not for lack of trying… At the time, I was working with bookkeeper #3, starting all over again from scratch (#1 and #2 didn’t pan out). If you are reading this post, and you are not doing solid, regular bookkeeping, for the love of God, START NOW.

For the next 6 months I went back and forth with bookkeeper #3 trying to urge her to get these done. Long story short, I should have fired her after the first month of action-faking on my account, but I let her lead me on and on and on. I had too much trust in her, and should have just gone with my gut and ditched her, before things got all dramatic.

Out of desperation, I ended up connecting with @CareCPA through another forum, as he struck me as a young, hungry guy looking to hustle. It took him 35 days to complete two years of books from scratch, and he did it right. Communication was smooth, frequent, and he just “got it”.


Growing the Business

In the meantime, while sorting out all of my bookkeeping woes, I decided to actively avoid @JAJT ’s mistake of letting his ecommerce business drop revenue going into the sale process. Even though I was, in a sense, “checked out” from the business, once I decided to sell, I made a conscious effort to try and grow every month.

My ecommerce sales in March and April of this year were by far the best months ever, surpassing December 2016. I also focused on a wholesale strategy in March with the intent of creating a path to “automatic wholesale growth” for the buyer of the business. My hope is that this will secure a higher multiple for which the business will be sold for. I shed some light into some of that wholesale growth process here: Notable! - [STEP BY STEP] How I Got Picked Up by 5 U.S. Distributors… With 6 Hours of Work


Moving Forward

Which brings me to a week ago.

After 7 months, I reconnected with my broker, sent him the P&Ls, and we started the process for real this time. The first step, and what I am currently working on, is an exhaustive 96 question interview picking apart every detail of my business and its financials. I am having to explain every decision/strategy made in the last 2 years, account for my successes and failures, and most importantly, show the potential the business has for future growth.

The last 3 questions I answered on this questionnaire took me an hour each to complete, to give you an idea of the level of detail and research required to answer these questions that really dig into the core of my business.

I hope to have this business profile done in the next couple of days, and then we’ll move on from there. The plan is to have the business listed for sale beginning of June.


Thanks for following along!
Hey Bud,

Can you PM me - I'd like to talk to you about this business. I tried to message you but for some reason I can't seem to find a message button on my phone.
 

JasonR

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I recently successfully exited my ecommerce business one month ago. It was a long process, and I hit similar snags with you with accounting. I had to fire my bookkeepers and create the P&Ls myself. Long story short, I got it done and had a deal about 30 days after listing.

If you need any help or insight feel free to PM me or post here.
 

CareCPA

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Thanks for the shoutout @amp0193 .
I'm obviously following along to see how it plays out for you.
 
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amp0193

amp0193

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Long story short, I got it done and had a deal about 30 days after listing.

If you need any help or insight feel free to PM me or post here.
A 30-day sale would be incredible. I hope I can close a deal as quickly.

We already chat a bunch on slack, you just didn't know my FLF username ;)
 

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Also interested in how this goes for you. Best luck on a quick and lucrative sale.
 

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Hey this thread looks interesting, Keep us up to date about whats going onright now, Also share your eCommerce website for us to have hints.
 
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amp0193

amp0193

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JAJT

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Somehow missed this thread despite 2 posts tagging me, haha. The volume of activity in this place is crazy at times :)

Awesome to hear you've been avoiding my mistakes. That one stupid mistake of letting my biz slip seriously took my exit from "decent sized life event" to merely "a blip on the path" so I'm super, super happy to hear you've been putting the pedal to the floor!

Sounds like you are going through more of a wringer than I did when I sold my business. I had a bunch of interview-style questions to answer of course but nothing as crazy as you're going through from the sounds of it. Hopefully that means the quality of your broker far surpasses the one I used and you'll have less resistance to the selling process :)

Honestly, if I had to pick 2 metrics that seemed to matter most out of everything it was revenue/profit trend and having a really good reason for selling. Those were the first two questions out of everyone's mouth. There were some other nitpicks and follow-ups like seasonality, inventory turn-over, factory location, marketing efforts, etc.... but really those first two were the two biggest ones.

Something that surprised me was how little anyone cared about future opportunity. I genuinely thought buyers would be really, really interested in low hanging fruit to improve the business but truthfully all the cared about was "how has it worked in the past", "does it still work today" and "will it keep working in the future".

I was also surprised how easily the money/asset transfer went once the decision to buy was made. I figured it would be a slog of details and questions and hold-ups but honestly once we got to escrow it just flew forward without a hitch.

Good luck man, hope it goes smoothly for you!
 

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amp0193

amp0193

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Honestly, if I had to pick 2 metrics that seemed to matter most out of everything it was revenue/profit trend and having a really good reason for selling. Those were the first two questions out of everyone's mouth. There were some other nitpicks and follow-ups like seasonality, inventory turn-over, factory location, marketing efforts, etc.... but really those first two were the two biggest ones.
I have my reasons, and then I have my reasons.

My stated reason for selling the business will be to dedicate my full attention and resources to the new business (which should have products in production and a professional website online by the time this business is listed). It's true, and I hope that will be satisfactory enough.

Amazon revenue peaked in March/April, but I've got some new SKUs on the way, that will hopefully reverse, or at least maintain that trend in June.

Off-line wholesale revenue is set for explosive growth, so I'm going to try to play that up at every opportunity.

Something that surprised me was how little anyone cared about future opportunity. I genuinely thought buyers would be really, really interested in low hanging fruit to improve the business but truthfully all the cared about was "how has it worked in the past", "does it still work today" and "will it keep working in the future".
Thanks for this insight. I think I'm covered here too, as my best selling product has had a BSR of 1000 or less, for 2 years running now, and I've got the #1 organics locked down on all my keywords.

I was also surprised how easily the money/asset transfer went once the decision to buy was made. I figured it would be a slog of details and questions and hold-ups but honestly once we got to escrow it just flew forward without a hitch.
I can only hope for an easy all-cash deal. I really would rather not do any seller financing, and I think that my price will be low enough that I won't need to.
 

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I can only hope for an easy all-cash deal. I really would rather not do any seller financing, and I think that my price will be low enough that I won't need to.
...
As a general rule (and not @amp0193 -specific because I don't have his details):
If you don't need the cash right away, an installment sale can help you out tremendously at tax time(US-specific example ahead).

The year you sell, you're probably going to have a huge increase in income, and I'm making the assumption that at least some of it will be capital gains (selling price minus inventory will be capital gains - highly simplified for the sake of discussion).
If you can push some of that capital gains out to a non-sale year with a seller-financed installment sale, you can bring that capital gains tax rate down from 20% to 15%, or 15% to 0% depending on which brackets you are straddling.

Sorry if this derails, but it seemed relevant to others who may be looking to sell.
 

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Something that surprised me was how little anyone cared about future opportunity. I genuinely thought buyers would be really, really interested in low hanging fruit to improve the business but truthfully all the cared about was "how has it worked in the past", "does it still work today" and "will it keep working in the future".
If you don't mind, could you expand?

From previous dealings in person, the future opportunity was really the ONLY thing discussed, which, to me, makes perfect sense.

I get the aspect of a "well oiled machine" and the whole idea of as much "hands off" as possible, but it just seems a future growth potential would not only make it largely appealing, but significantly more valuable. Especially so for a person looking to buy, build, and resell.

From a cash flow standpoint, who wouldn't want their money back sooner than later, if cash flow was the reason for purchase?
 

JAJT

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If you don't mind, could you expand?
I really only have one sale under my belt, which is a terrible statistic to work with, so honestly the best I can elaborate is that nobody cared about future opportunity with my individual sale.

I'd be on a call and talking about how Canada is a great market to get into and very turn-key, for example, and they'd say "oh, sure, I guess, anyway tell me more about march of 2015 from your P&L..."
 

CareCPA

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My hunch is that the people interested in buying your website are buying it because they have no interest in growing their own. They aren't interested in growing the business into new markets and channels. They want to know that it is proven and doing well in its current channels, and they want to know how long they can expect the gravy train to last.
 
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amp0193

amp0193

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From previous dealings in person, the future opportunity was really the ONLY thing discussed, which, to me, makes perfect sense.
My broker said that having a very clear path to growth was the main thing that helped businesses sell faster.
 
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Just recorded a 15min back and forth NPR style conversation with me and the broker. He asked me general questions about the business, and about me, and it will be provided as part of the marketing materials available to prospective buyers.

It went very well, and I hope that it helps to build some trust with buyers.


Also, we're going to have to tweak the books a bit. I had a bookkeeper do things on a strictly cash basis, which has given me some really funky numbers because of when supplier orders happened to take place. The broker said he has a plan that involves COGS compared to sales percentages, and we'll work through it next week. I'm not excited to dive back into the numbers again, but I'll do what it takes to get this business sold at a good price.
 

JAJT

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COGS is huge for making your numbers look good.

When I first started the process of selling my business my numbers looked ridiculous bad because I was entering all inventory as an expense. Switched to COGS and suddenly it looked much, much more attractive since it was only measuring the cost of the units sold in the period instead of these weird months with $16k in expenses dragging the numbers down.
 

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Also a good way to get on the wrong side of the tax man. :clench:
Unless you fit the small taxpayer exemption ;)
 

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quanttastic

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Unless you fit the small taxpayer exemption ;)
What exemption is that? Serious question as I have looked into this in the past but was under the impression that you can only deduct inventory costs when it is sold. But would be super happy if I was wrong!
 

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@amp0193 I would be interested to hear if your broker has other comments on the financials. I've heard from other individuals that they don't know what the brokers will be looking for. Other than tracking inventory for COGS purposes, did he have other suggestions for what makes the cleanest numbers for a buyer?
 
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amp0193

amp0193

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@amp0193 I would be interested to hear if your broker has other comments on the financials. I've heard from other individuals that they don't know what the brokers will be looking for. Other than tracking inventory for COGS purposes, did he have other suggestions for what makes the cleanest numbers for a buyer?
Pretty much just tracking inventory for COGS purposes.

And having all personal/non-relevant expenses not being run through that bank account of course.

We're going to get into it more next week.
 

JAJT

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And having all personal/non-relevant expenses not being run through that bank account of course.
My accountant told me the second any money passes through my personal accounts it makes my personal accounts "fair game" for business audit purposes (in Canada). Other than for the purposes of paying me, anyway.

I had a weird banking setup where the card I used for business purposes could only be paid off by my personal account, so whenever I got paid into my biz checking I transferred to my personal, then paid off the card. This extra step was what opened me up to risk.

Sadly my bank couldn't just make it easy for me since they didn't offer the solution I was asking for to solve this problem, which basically sums up my lifetime banking experience.
 

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@JAJT @DaveC

Willing to share anything?
I've done more buying than selling on web businesses but it sounds like you are on the right path. Find a way to extract yourself as much as possible from the day to day and get your books in order for sure, this is especially important if you are burned out. Getting a VA/assistant will dig into your profits but showing that the business is "hands-off" will increase the value.

Most buyers for web businesses want to know:

1) Is this a scam or else why is he/she selling?
2) Can profits continue, at least long enough to get my investment out?

Most entrepreneurs have their own ideas on growth and so selling the future won't get you very far.

I'm not sure the reasons for selling but if its not a need to sell situation, you'll get a better price. Hopefully you have a better place for the money/time once it sells, otherwise, why not hang on to it?

Feel free to PM me if you want to chat as I'm always looking to buy.
 
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amp0193

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I've done more buying than selling on web businesses but it sounds like you are on the right path. Find a way to extract yourself as much as possible from the day to day and get your books in order for sure, this is especially important if you are burned out. Getting a VA/assistant will dig into your profits but showing that the business is "hands-off" will increase the value.
Biz is pretty hands off. Maybe 6 hours a week of work.

1) Is this a scam or else why is he/she selling?
2) Can profits continue, at least long enough to get my investment out?
Thanks for these, I'll be prepared.

I'm not sure the reasons for selling but if its not a need to sell situation, you'll get a better price. Hopefully you have a better place for the money/time once it sells, otherwise, why not hang on to it?

Why would that get a higher price? Just from being able to wait it out until the right offer comes along?


It's not a need to sell. It's an I'd like to sell, but wouldn't be the end of the world if it didn't. Next business is pretty capital intensive, and it would just be able to get going a little faster with some extra cash. It's happening either way though. I also am pretty bored with the current business and don't really feel like working on it anymore, and want to turn my full attention to the next project.
 

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Just recorded a 15min back and forth NPR style conversation with me and the broker. He asked me general questions about the business, and about me, and it will be provided as part of the marketing materials available to prospective buyers.

It went very well, and I hope that it helps to build some trust with buyers.


Also, we're going to have to tweak the books a bit. I had a bookkeeper do things on a strictly cash basis, which has given me some really funky numbers because of when supplier orders happened to take place. The broker said he has a plan that involves COGS compared to sales percentages, and we'll work through it next week. I'm not excited to dive back into the numbers again, but I'll do what it takes to get this business sold at a good price.
I did an hour long version before. Many potential buyers said it really helped them understand the business.

Second issue sounds very familiar!
 
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amp0193

amp0193

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I did an hour long version before. Many potential buyers said it really helped them understand the business.
I'm glad you got that feedback. I definitely think it'll help, I spoke pretty naturally for 95% of it, and it just humanizes the whole thing.

Second issue sounds very familiar!

Haha, yeah.

Oct 2016 - negative
Nov 2016 - negative
Dec 2016 - huge profits

Among other weird stuff.

It's definitely off-putting to look at it "as is", even though logically, you know why.
 

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