Choosing the Right Time to Sell Your eCommerce Business
Deciding to sell your eCommerce business is a significant decision, one that involves careful consideration of multiple factors. While there's no universal formula to determine the perfect time to sell, there are common considerations and patterns that can guide you in making this decision for you and your business. In this post, we'll explore these considerations, touching on both founder-related and market-related factors.
FOUNDER CONSIDERATIONS
Timing is Everything
Optimism is a driving force for eCommerce entrepreneurs, but it can sometimes clash with the idea of selling a business. It's crucial to remember that tomorrow isn't guaranteed, and exiting after a flat or down year can impact valuation multiples negatively. In our experience, it's often better to exit a year too soon than a year too late.
Additionally, the future buyer's belief in your business's potential for growth is crucial. Leaving some opportunities unexplored can be acceptable, as a good exit partner - such as us - can help demonstrate their value, potentially increasing the deal's value. We know how important your business is to you, so we put in the work that is necessary to connect you with the right buyers in order to ensure your passion project is taken care of.
For many acquirers, having the founder or current owner remain actively involved in the business for a period ranging from 6 months to 5 years is an important step in the takeover. This arrangement often includes the possibility of an earn-out, allowing for cash benefits immediately upon exit, with additional potential upside tied to future success. On the other hand, personal or family needs can sometimes dictate the timing of your exit. While it's ideal to plan these transitions in advance, sometimes unexpected circumstances require immediate action. Balancing your business and personal life is essential for a smooth transition.
Money Today vs. Money Tomorrow
Many of the founders we work with have achieved remarkable financial success by building enterprises that generate substantial free cash flow, which they can take as distributions. This financial prowess is a testament to their exceptional work and underscores why their businesses are highly appealing to potential buyers. In our conversations, we often encounter entrepreneurs who are consistently drawing in annual earnings ranging from $500k to $1 million over a span of 3 to 5 years. This level of financial achievement provides them with an enviable lifestyle, and they have every intention of sustaining it.
However, it's essential to acknowledge the unpredictability of the eCommerce landscape. We've witnessed numerous brands encounter unforeseen internal or market-driven challenges that disrupt cash flow or, in some cases, lead to permanent declines. Given the volatile nature of this space, it's crucial to weigh the benefits of an exit against the potential risks and rewards.
To make an informed decision, it's valuable to perform a rough discounted cash flow analysis. We can assist in determining the appropriate discount rate to apply to future year cash flows, considering the inherent risk associated with their availability to founders in the coming years.
Energy and Passion
Passion and energy play a significant role in the success of eCommerce businesses. When founders start feeling less excited or motivated, it can affect the business's performance. Exiting while you're still passionate can lead to a smoother transition and better results.
Many of the founders we engage with find themselves in an unexpected position of significant success, only to realize that their enthusiasm is waning with each passing week. This feeling is pretty common, especially among the creative types who crave new challenges instead of dealing with the same old business stuff year in and year out. It's crucial to recognize that a significant portion of the allure and "magic" of eCommerce businesses comes from the founder's personal passion for the brand and their connection with customers. If and when your enthusiasm starts to wane, it may have a ripple effect on revenue results, customer engagement, and overall business performance.
Choosing to exit while you're still enthusiastic and energized about your eCommerce venture is an ideal scenario. The process of securing a deal can take anywhere from 6 to 12 months, and many exit agreements may require your continued involvement with the business for a period of 1 to 5 years. In an ideal world, you'll relish this transition period, leveraging your expertise and passion to ensure a smooth handover, rather than running on fumes and risking burnout before the exit process even begins. This approach not only maximizes your chances of a successful exit, but also preserves the legacy and value of your online business.
MARKET CONSIDERATIONS
Market dynamics are ever-changing, and certain times and cycles are more favorable for an exit than others. While timing the market with precision is an impossible feat, being astute about industry trends can pay dividends. By making informed decisions and moving strategically, you can position yourself to exit before the competition fills their portfolios or finds their dance partners, so to speak. A seasoned advisor can be your compass in this ever-shifting landscape. They'll help you decipher whether deals are currently happening, their approximate values, and the level of urgency in the market. With their guidance, you can navigate the complexities of timing your exit and seize opportunities when they align with your goals.
Deciding when to sell your eCommerce business is no simple feat. By carefully evaluating your business and the market, you can make a well-informed decision that aligns with your goals and sets you up for a successful transition. Remember, there is no one-size-fits-all answer; the right time to sell is unique to your situation. We are ready to partner with you to sell your business in a way that works best for your needs, without disrupting operations. Let’s find you an exit.
