Selling my business was one of the hardest decisions of my life. I spent a lot of time thinking about how to maximize the value of my business, and I'd like to share some of that thought process.
Most people sell their businesses because they're retiring or burned out. Neither reason applied to me.
I sold the business because I planned it from the beginning, and found myself ready to move onto bigger, better opportunities. Those opportunities required me to get the maximum value from the sale of the business, and not put myself in a position where I could potentially be forced to accept less than the business was worth.
I'm going to break down how to put a value on your business that's attractive to investors and how to ensure they're willing to pay a premium price tag for the baby you've nurtured for so long. I'll also show you the types of people and organizations that will buy your business so you know what to expect, and where you can sell your business for the maximum value:
What's your website worth?
There's often a gap between what you feel the business is worth and what the market is willing to pay. Here are several factors that went into assessing my website when it was sold:
- Yearly profits
- Business growth trends
- How are you getting new customers
- Scalability of the business
- Breakdown of your customer acquisition channels
- How the business is positioned in the market
- The time you're spending running the business
- The systems and processes like within the business
Investors will look at these areas when they're deciding whether to buy the business and how much to pay for it. They'll also consider what other comparable businesses sold for in the past.
The two biggest factors are your yearly net profits and whether your business is on a growth trend. Most investors will look at the earnings-multiple to determine how much the business is actually worth.
Why do buyers pay a premium?
To maximize what investors are willing to offer you, you need to focus on two key areas: return-on-investment and relative risk.
Businesses that offer lower risk will fetch higher premiums on the open market. Risky businesses with lower profit margins will fall lower on the earnings-multiple scale and be harder to sell.
To do that, you need to focus on some key areas:
- Predictably driving new sales to the business
- Diversifying your traffic sources and showing stable growth
- Providing a long history of detailed traffic stats
- Generating a high percentage of repeat visitors
- Showing the business has a clean legal history
- Positioning your branding in the market
- Establishing documented systems and processes
- Showing growth potential after the business is sold
The market is getting bigger, and when you're ready to sell you are going to have to focus on the areas that investors will look at to ensure that your offer stands out in a crowded marketplace where it's competing against other businesses that are currently being sold.
Where can you sell your website?
Where you sell your website depends largely on how much the website is actually worth and how much revenue and profit it generates.
1. Auction. This is a platform on which potential buyers can place bids for your business. I recommend Flippa. This is usually best for startup projects and smaller websites under $20,000.
2. Marketplace. These platforms allow business owners to post listings similar to classified ads. I recommend the largest marketplace to sell websites which is BizBuySell. This is usually best for smaller businesses under $100,000 as you have to list the business yourself.
3. Broker. Have the professionals handle the deal. Brokers will help you find investors, negotiating your asking price, and structuring the deal through finalizing the sale. Generally, they are best for deals valued between $250,000 and $20 million. That means profit between $100,000 per year and $5 million per year. I recommend Digital Exits.
4. Investment bank. This for larger deals generally over $20 million dollars, which means the business does over $5 million per year in profit. I recommend Foundersib.com as the best investment bank to sell your large website.
Who will buy your business?
- First-time buyers. This is typically someone who is looking to purchase their first business, and are generally higher paid employees or C-level executives with disposable cash reserves, access to an SBA loan, or their IRA.
- Internet entrepreneurs. Investors that have been in the internet industry for long periods of time have a good understanding of what it takes to run a digital business and are typically looking to add another business to their portfolio.
- Brick-and-mortar entrepreneurs. Many brick-and-mortar entrepreneurs are looking to get into internet businesses after recently selling their own company or because they want to scale their existing company through the purchase of your business.
- Private equity companies. Private equity firms will typically purchase larger businesses and want to keep the management in place to continue growing the business.
Selling your website or digital business for maximum value requires you to know what the market will bear, and then ensure you've positioned the site to fetch a premium price.