OK, well not always so easy, but not so technically difficult either. And selling my business did not got exactly as I expected…. at all. But the good news was that the sale went pretty fast. It did only take me three weeks to flip my five year old WordPress plugin business. And the funny thing is, I had sold another software business 5 years earlier, so should have known better. But in the process, I learned lots of good lessons which I want to share with others to help you avoid the same mistakes I made. So here we go…
1) Why Are You Selling Anyway?
In my opinion, how you answer this very common question can make or break the sale of your business. Think it through beforehand, and be honest. If there is increasing competition in your niche, and you’ve run out of marketing ideas, just say that to new potential buyers. Maybe you just have lost passion to keep going, or you are looking to start a new business in another niche. Misleading potential buyers will only have them lose trust and also could give you a poor review online somewhere for future. If you just want a change and are moving onto a new business, then great, that is a valid and good reason to sell. Just disclose your intentions so the new buyer also knows that you will not compete with them in the future. You may need to add that to your sale agreement too.
2) What Exactly Are You Really Selling?
So I thought I was just selling my software business.. WordPress plugins. Pretty straightforward to me. But as it turned out, what I was really selling was not just software, but WordPress support. And further to that, it turns out that once potential buyers learned that I had over 2,000 clients, many of whom were Fortune 1000 companies over the past 5 years, they were most interested in my client list. You know, as every self-proclaimed marketing “guru” will tell you, “the money is in the list”. Well, it’s kinda true and my prospective buyers wanted my list. My point here is that what you perceive to be of value in your business may not be what the buyer values. Again, don’t sell the product, sell the “sizzle”… cheesy, but true.
3) Google Analytics Is Key
OK, so if you are going to sell your business in the future, the first thing you must do, if not done already, is to enable Google Analytics. This is the most trusted and reliable way to verify your traffic claims for a prospective buyer. The key metric a buyer wants is unique user visits per month. And they want to see that having an upward trend. Not only that, they want to see a good mix of organic (free) traffic and paid traffic. Being over 50% organic is where you want to be. After 5 years in business and some smart SEO (Search Engine Optimization), if I do say so myself (Yoast WP Plugin, lots of YouTube demos etc), I was established in my targeted long-tail (niche multiple word phrases) keyword phrases… Actually #1 in the most relevant one. Bonus points for me! 🙂 But it took awhile… So, the other great thing about Google Analytics is that you can share your account safely with buyers via a user permissions setting.
4) Net Earnings Do The Talking
OK, time to get down to brass tacks… Net earnings per month is the next key buyer trigger point. Traffic is great, but how it is being monetized is the real nuts and bolts of a business. Most software businesses have some revenue, then expenses that include paid ads, contract labour (coders) and then hosting in that order (biggest to smallest). If you have over 50% organic traffic and can turn off the paid ads, your net earnings can continue at a fairly stable rate… at least until Google scrambles their algorithm again. If you are using Google Adwords or Facebook Ads (which I’m hoping you are to some extent), then you should also be willing to sell your keywords/ad group information and learnings with the sale. This will let the buyer hit the ground running and know what ads worked best. Google Adwords let’s you export all this data easily into a CSV for example.
5) Suggest Other Revenue Streams
New buyers are looking for other ways to monetize your software or website. It’s always a good idea to have other ideas on how they could create these revenue streams, and what kind of offers or affiliate programs already work well with your business. My business was WordPress plugins, and often clients were looking for advice on where to host their sites, and also what recommend themes to use, such as Divi Builder, which is super easy to use and the world’s most popular theme right now. I suggested affiliate programs for both of those, as well as WordPress backup plugins that I know my clients asked me about also. Your unique users per month data from Google Analytics can mean an affiliate stream of income for extra revenue for your buyers, so it’s a good idea to help them out with suggestions. Share A Sale is the Granddaddy of affiliate programs that has been around for 17 years and has over 4,000 merchant offers available. You can search their site for ideas.
6) Know Your Churn Rate
Your churn what now? What does butter have to do with selling your business? Well, this is really typically the rate of how many customers per year you lose. You should know this about your business since it is an indication on how much the new buyer will have to spend on acquiring new customers. It’s also good to know the average lifespan of a customer (sometimes called retention rate), in terms of years. If you need to spend $200 to acquire each new customer, and make $100 per year from each one, then your churn rate better be less than 50% in order to break even.
7) Get An Appraisal
So let’s assume your business may make, say $40,000 net earnings (profit) after revenue and expenses (hosting, ads etc). In my experience, your business will be worth somewhere between 1 and 2 years earnings depending on the niche. It could be more or less depending on assets, and the size and quality of your customer list as well. My suggestion is to get a 3rd party to appraise this value, and any decent business broker or website in this business should offer this for free. Don’t be greedy though… it’s better to get more buyers interested at a lower rate, and have them bid up the price than have no takers at a much higher price.
8) Time To Flip!
So, I used these guys to flip my business. They are a business auction site with a huge amount of traffic and exposure internationally to business buyers. They also offer an appraisal service which is very helpful, and I often quoted the value they gave me to prospective buyers. They have a great Dashboard where you post all the details of your business, and provide an API key for your Google Analytics so that your last year of traffic can be displayed in real-time to clients. Bear in mind that it is important to ensure that you provide all revenues and expense also over the past year, and a proof of revenue. This typically means you will need to create a screencast video of your Paypal or Stripe account showing various details on transactions (and you logging in). You set a reserve price, which should be 10% to 20% below your appraised value.
They have ways to prevent “sniping” in an auction, which is where they extend the auction by 10 to 15 minutes between bids so nobody and win the auction by a dollar in the last few seconds. You can choose a basic listing plan or an auction, and pay various listing fees from $29 for a basic listing package to $300 or so for promoting your site more prominently and in their internal buyer newsletter to 200,000 emails. If you want to sell fast, a likely for a higher price, I suggest the auction and paying the higher full listing package (if your business is $10K or more, it will be well worth it). Once your listing is approved (it may take a week or so), you then set a reserve price, which should be 10% to 20% below your appraised value. They have ways to prevent “sniping” in an auction, which is where they extend the auction by 10 to 15 minutes between bids so nobody can sneak in and win the auction by a dollar in the last few seconds.
9) How To Set Your Price
How it works is that you set a reserve price, which should be 10% to 20% below your appraised value. You also set the duration of the auction (I went for 14 days which is enough time to attract new buyers, and answer questions in the comments of my listing but not too much time to lose momentum of the sale). They have ways to prevent “sniping” in an auction, which is where they extend the auction by 10 to 15 minutes between bids so nobody and win the auction by a dollar in the last few seconds.
So, what happened with me was a little different. My reserve price wasn’t met. I was super bummed at first. But since I had lots of exposure during the auction (thanks to paying the higher auction listing promotion fee), I had four interested buyers contact me afterwards to make a deal. If you get a buyer during the auction, however, you must go through the auction website to close the deal as per their terms and conditions Just know that if you do get your auction price met, and use their escrow service, they take 12% or via Paypal they get 15%. But their broad reach and traffic can make these fees well worth it. And I do highly recommend Escrow if you have any doubts about your buyer. And by the way, if you don’t sell it with them, you can go to Escrow.com and they take only 1% to 2% depending on price.Just sayin! 🙂
10) Be Crystal Clear On The Terms of Sale
This nuts and bolts of making the transaction is critical. Be clear on how longer after the sale you are willing to offer support. Be sure to define what exactly “support” means, and a maximum on hours or days you are willing to commit to. Be sure also to clarify what assets are to be sold, such as your domain, MySQL database, website files, custom list, youtube/facebook acocunts and so on. Put this all in writing and use a proper legal agreement like I used here for your industry.
Just some closing thoughts… above all be patient and don’t rush into any deals too quickly. I found after my auction I was getting follow-up requests just a few hours after the auction close. I was also getting inquiries up to 2 months later as well, probing to see if I actually sold the business yet. Often, if a buyer is interested, and asks enough detailed questions, then they likely will want to at least make a bid or find out if a deal can still happen. And don’t just go for the highest price. Often there will be a catch. And if you suspect something is a little off with a buyer, then just walk away. Have a chat or Skype with buyers to really get to know them and what their background is. If they are not forthcoming on what their business is, and don’t have a history that you can checkup on, then steer clear. Go with your gut, it’s usually right. 🙂