There are many reasons why an entrepreneur ultimately decides to exit a business. Some of the best incentives? Moving on to new opportunities; recapitalization; and, perhaps best of all, an especially lucrative buyout offer.
No matter what the reason, if you’re the one moving on, take the necessary steps to extract the maximum value possible from your sale. With all the blood, sweat and tears you’ve put into building your business, don’t let yourself be shortchanged on the way out.
Here are nine actionable steps you can take to better prepare your business to be sold to a discerning buyer, along with suggested resources to help you accomplish them.
1. Detailed financials
Having strong accounting principles in place, from the beginning, will help put you in a position to succeed.
Industry stalwart Quickbooks provides you with all the tools you need to track your financials and generate detailed reports. It makes the process easy, too — Quickbooks automatically syncs with most bank accounts– drastically cutting down on data entry.
The process isn’t effortless, though. You still need to input accurate data in a timely manner. As with any other software: “garbage in, garbage out.”
2. Verified traffic
Google Analytics is an indispensable tool for monitoring and verifying your website traffic. It’s the first step to knowing who your prospects are, what they want, where they’re coming from and how far they’ve gotten through your conversion funnel. If you have a website and haven’t set up Google Analytics, stop whatever else you’re working on and do it now.
Being able to show verified traffic to a buyer, over as long a time frame as possible, will greatly enhance the salability of your business.
3. Stand-alone branding
Building a brand strongly tethered to a founder’s persona might feel right when you first start. But if that brand becomes successful, it’s preferable that the messaging not be too closely tied to its founder. That can actually become an obstacle when it’s time to sell, particularly if the founder is to have no ongoing role in the business after the exit.
Consider building a stand-alone brand right from the get-go. Your brand should be aligned with your values and your company’s core mission. A smart branding strategy can help you achieve those aims without the founder being the “face” of the business.
Unfortunately, there’s no quick fix for building a brand. But it’s more important than ever.
Branding guru David Lemley’s Retail Voodoo site, while not specifically geared toward online businesses, is a great resource for learning more about the importance of branding strategy and its potential ROI.
4. Keyword analysis
Knowing what keywords your prospects are searching for can help you, and any potential buyer, assess whether your site is built on a solid search engine optimization (SEO) foundation.
To find out what keywords your site should be targeting, use tools like SEMrush to uncover which organic and paid keywords drive traffic to your competitors. The Google Keyword Tool enables you to get the most accurate search volume and PPC (price per click) data for those keywords.
A site that ranks high in search engine result page (SERP) listings on relevant keywords will earn a higher valuation. Prospective buyers can be assured that their acquisition target is ahead of the game for organic traffic and has a clear marketing strategy for both free and paid clicks.
5. Content marketing
ROI in content marketing has a reputation for being slippery to measure. Despite this, content is the foundation of SEO. Having a proven content marketing strategy, with positive search traffic results to back it up, can measurably increase the value of your business.
Content marketing isn’t just about your blog. It applies to many channels: social media, product descriptions, guest posts, Youtube videos, etc. Anything content-related that drives traffic to your site and promotes lead conversion fits under this umbrella.
Once upon a time, all you needed for a solid SEO strategy was to stuff your site with keywords. Google is much too smart for that now, as are your customers. There’s simply no substitute for quality content. Deploy it, using a coherent strategy for improving your search rankings. Your bottom line, and your valuation, will grow.
Outsourcing is an important element in fostering limited owner involvement — a key factor buyers look for in any online business acquisition. While building the right remote team takes work, having it in place, and having your standard operating procedures (SOPs) well documented, will greatly improve the salability of your business.
Make sure you have clear and verifiable rights to all of your intellectual property. This includes any trademarks, copyrights or patents your business might hold. These can be an invaluable asset to your company, and any serious buyer will want to ensure that these are owned (and thus able to be sold) free and clear.
Additionally, make sure to get non-disclosure-agreements (NDA) in place with anyone you enter into negotiations with. Do this before you start talking seriously — and certainly before you reveal any sensitive information, financial or otherwise.
An option here is offshoring, or outsourcing of legal assistance, through legal process outsourcing (LPO). For relatively simple tasks, such as forming an LLC or S-Corp or running a trademark search, LegalZoom may be another viable option.
When it comes to something as important as protecting your IP, however, always employ our own counsel.
8. Know your value.
After you’ve taken all of the steps above, you or a qualified professional should be in a very good position to assess the true value of your business. There are industry standard-valuation methods for this: Typically the seller discretionary earnings (SDE) model is used to value a business worth under $ 5 million, while “earnings before interest, taxes, depreciation and amortization” (EBITDA) is used for companies valued over that amount.
9. Know your buyer.
One of the many reasons to consider approaching an M&A advisor to help with the sale of your business is that he or she will have already done the due diligence required to vet qualified buyers. These professionals will entertain offers only from candidates who have met stringent criteria. If you elect to go it alone, all of this responsibility falls on you, the seller.
Building a successful business, and growing it to the point where it might attract attention from a buyer, is no small feat. Neither is coming to the decision that it’s time to move on. You may be ready to take your foot off the gas on this particular vehicle, but don’t stop before crossing the finish line. Follow the steps outlined above to ensure you get the maximum possible return when selling your online business.