Of all the possible deals a digital entrepreneur might negotiate over the course of their career, few will be as important as the sale of their business.

While most business owners have a wealth of experience in their respective industries, only a small percentage of entrepreneurs have a full grasp of the nuances involved in the sale of an online business.

From establishing buyer credibility, to performing an accurate valuation, to dealing with the legal requirements for the transfer of ownership, the sale process is a minefield of potential risk for the seller.

In this article, we look at the different options a business owner has when it comes to selling, the benefits of involving an M&A advisor from the start of the sale process, and share the dangers of attempting a sale without one.

Ways to Sell an Online Business

There are essentially four ways to sell an online business: direct, on a marketplace, auction, and using a broker or M&A advisor.

In a direct sale, the business owner explores their professional network to find a buyer. Typically, this will involve approaching suppliers, partners, customers, or competitors. Building a network can be done over many years by attending top digital conferences and staying up to date in social groups, but requires significant time, networking and contacts to effectively market to.

When using this option, all aspects of the sale, including performing the valuation; negotiating the agreement; drawing up legal documentation, and facilitating the financial transaction, happens without mediation and is dependent on the two parties establishing sufficient trust and a thorough process.

Direct sales typically want for expertise, experience, and general understanding of the process. It is also often expensive for both parties once all the consulting and legal work is completed.

An online business marketplace makes the process of finding a buyer easier than trying to do it yourself, but the unregulated nature of the platform means that a sale is far from guaranteed. In fact, a recent study by the International Business Brokers Association showed that 90% of businesses advertised on such platforms don’t sell. Commission structures vary based on the marketplace, but a 15% sales commission on top of a listing fee—both payable by the seller—is common practice when listing on a marketplace.

Auction sites are similar to marketplaces and allow buyers to bid on an overwhelming number of online businesses. These sites also typically charge the seller both a listing fee and a commission of up to 15%. While it may be tempting to simply sell through an auction site for something like, say, an app, each online business requires expertise to weigh each unique consideration to arrive at an accurate valuation, even when it comes to how to value an app.

The fourth way to sell your business is through an M&A advisor. Fees charged are comparable to those for online marketplaces and auction sites, but commission paid to an M&A advisor covers the expert support and legal fees the seller will be afforded throughout the sale process. It’s important to note that the fee charged by advisors can vary greatly depending on their reputation and the spectrum of services they offer.

Let’s take a look at the ways that an advisor limits the risk for both parties and increases the chances of the deal being finalized.

The Advantages of Using an M&A Advisor

Sufficient Preparation

There are few things that simplify the sale of a business—and guarantee a good selling price—as sufficient preparation. A vital aspect of this is ensuring that your business has detailed and accurate records. This means a thorough record of all financial transactions, sources of paid and organic traffic, and data on customer acquisition and retention.

Solid record-keeping will not only facilitate a sale, it is key to the success of any business.

Other key steps involved in creating sufficient proof of value include ensuring that the business is logistically transferable, and has a positive outlook for growth. Typically, a business needs a minimum 12 months of well-documented, and successful, history to be considered ripe for acquisition.

Be wary of entering into a partnership with an advisor who rushes to list your business without advocating preparation. One of the most valuable services an advisor can provide is to guide the seller on how best to prepare in order to earn the highest valuation.

Buyer Credibility

One of the greatest risks a seller faces is the possibility of dealing with a buyer who is not serious or has no real intention to buy. The latter usually enters into negotiations in order to obtain sensitive information as part of their “due diligence.”

A reputable M&A advisor only deals with buyers they have pre-vetted to ensure they pose neither of these threats to the seller. At FE International, many of our buyers are individuals with whom we have done business before, establishing buyer credibility. We also take particular care not to release sensitive information too soon, requiring a signed letter of intent and proof of funds from a potential buyer before any access to due diligence information is granted.

Healthy Competition

An M&A advisor’s extended network of buyers means that your business will be visible to numerous investors simultaneously.

Having more than one party interested in your business is a very healthy position to find yourself in, since buyer offers can be played off each other.

Establishing Trust

A good M&A advisor will vet both buyers and sellers thoroughly and help to establish trust between all parties. An M&A advisor will also ensure that the due diligence of valuation data is completed with sufficient care – something from which both buyer and seller derive a great advantage.

Legal Support

Contracts that stipulate the terms of sale and transfer ownership of a business are complex and costly to draw up. M&A advisors are experts in this critical aspect of the sale and have access to, and experience with, the legal expertise necessary to ensure that all legal and regulatory requirements are met.

An Accurate Valuation

There are several ways by which one might determine how to value an online business and doing so is dependent on a comprehensive understanding of the M&A industry and the various niches it encompasses. This is a point that simply cannot be overstated.

The stakes are remarkably high when establishing the selling price of your business. Almost every other aspect of the sale hinges on this being done correctly.

A seasoned M&A advisor will have both the tools and experience to provide the most accurate valuation of the business. They help set a sale price that delivers both value for the buyer and the best return for the seller.

Conclusion

Ultimately, the process of selling your business shouldn’t be so stressful that you accept an offer in haste. Neither should it pose so much risk that you are likely to lose the value you created with all your hard work.

An M&A advisor will typically only take on a business they are sure is going to be a worthwhile investment of everyone’s time and effort. Not only that, they are highly incentivized to ensure that the deal is finalized within a reasonable timeframe and without causing undue stress on both parties.

You can learn more about the acquisition process from the perspective of Brian Casel, a digital entrepreneur who built and recently sold his online business, here.

You can also listen to my interview on Chad Pytel’s popular podcast Giant Robots Smashing Into Other Giant Robots.

If you’d like more information on how an M&A Advisor can help limit the risk you face and maximize the value from selling your business, or to request a free valuation, contact FE International by clicking here.