Guest post by Mark Daoust
I was talking to a person today who was asking about my work as an internet business broker. He was wondering what sort of timelines I see in preparing a good website for sale and how quickly it takes for me to sell it. My response to him is the same response I give to every potential client that asks me how long they should expect it will take to sell their business: it depends entirely on the quality of the internet business. Some website businesses sit on the market for a long time while others are snatched up remarkably quickly.
What is the difference between the sites that have to find ‘that right buyer’ and those sites that buyers will trip over to get a chance to buy? It usually isn’t the price point (we’ve had offers on 7 figure businesses within a few days of listing them).
If you were to start an internet business today, what would be the best way to build that internet business to fetch the most money possible in the shortest amount of time?
Here are four principles that you would ideally follow if you were to build an Internet Business today with the intent to eventually sell it as quickly as possible for the best price possible.
Keep Detailed and Clean Financial Records
The biggest mistake people make when selling their Internet business is that they do not have a clean, easy to read, understand, and verify financial history. If you are looking to sell any business for more than $30,000, having a clean financial history is paramount. A clean financial history will inspire confidence (and reduce the invitation for closer scrutiny), put you ahead of other sites looking to sell, and give buyers quick and easy methods to place a value on your business.
Here are a few key things to do to keep your records clean:
- Use Quickbooks! If you don’t know how to use Quickbooks, learn. If you don’t like Quickbooks, figure out another common accounting program that will be able to generate profit and loss statements for you.
- If you absolutely hate doing accounting, then hire a book keeper. If you are building a business to sell, this isn’t ideal, though, as you will want to keep your expenses as low as possible to show a higher cash flow.
- Incorporate the business as its own entity. It can be a huge mess to try and separate the revenues and expenses for two or more businesses. Don’t have your businesses share the same bank account – separate for the sake of clarity.
- File very honest taxes. This may be the most difficult thing for a business owner to do. Don’t take expenses on that you don’t need to. Yes, you’ll probably pay more in taxes, but if you can produce tax returns to verify your financials, buyers will go crazy for it. Plus, if a buyer needs to get an SBA loan (only available at this time on acquisitions below $200,000), those tax returns will be used by the lending bank.
- Don’t mix personal expenses with business expenses. Most business owners do it – those meals with the wife or friends where ‘business’ happens to come up in passing, but 100% of the bill is charged to the business. Most buyers will understand, but if you can avoid doing this it will make verifying your financials quick, easy, and painless.
If I were to offer just one piece of advice to any Internet business owner, this is the bit of advice I would give. Keep your finances clean, easy to read, up to date, and easily verifiable. Buyers will thank you (they rarely see well organized financials).
Keep It Automated
I have a great job I would like to offer you. The salary is $100,000 per year. All I need from you is to have you pay me $300,000 and work 60 hours per week for the next 3 years. After that, you may get a bonus check. Do you want to take it?
(Hint: you are supposed to say no. If you did say yes, call me – really…). Most buyers won’t take this either.
Buyer’s are not interested in buying a job. They want a business, which means you have to build a business. When you can automate part of your business, automate it. Outsource the boring stuff, outsource the specialized stuff, and focus on bringing your total hours as low as possible.
I’m personally not a fan of Tim Ferris’s “Four Hour Work Week Book” (although Tim Ferris is a fantastic author, business person, and thinker), but his principles are ideal for building a business that would sell well. Implement those principles and understand this: the more you are crucial to the day to day operations of your business, the less appealing your business will be to potential buyers.
The ideal business for sale will have buyers imagining themselves walking in on day one and earning money without having to hurdle a significant learning curve or spend 60 hours per week just trying to keep up with the business model.
Jump Some Hurdles and Build Stability
Get familiar with the phrase “low barriers to entry” and learn to avoid business models that are associated with that phrase. A key question many buyers ask when looking at buying an Internet business is “what’s to prevent someone else from starting up the same thing and being just as successful”? Many website business buyers are not technical in nature and feel as if they are a bit behind the Internet curve. This is why they are looking to buy an established Internet business – it takes some of the guess work out of having a successful online business.
Make your business difficult to copy and emulate. In a competitive field this may require having a unique blend of vendors, a core set of keywords that you rank well for, and a blend of partners that drive traffic to your site. Alternatively this may be finding a nice niche without a lot of competition that you can quickly dominate. Even if there is nothing to prevent someone from entering your market, being able to point to a loyal customer base is something that cannot be replicated in a few months.
While assuring that you have entered a market that has some challenges to enter into, be sure to build some stability. If you rely on vendors or suppliers to supply products, don’t rely too heavily on just one vendor. Similarly, if you receive most of your web traffic from a handful of well placed organic ranking keywords, figure out how you can stabilize your market. Always ask yourself what you would do if one key component of your business disappeared tomorrow. Don’t rely on any one person, company, or vendor to be loyal to you or your company.
Know When to Sell
This may be the most difficult thing for an Internet business owner to determine. The fastest selling businesses are growing businesses. However, when you are growing, it is difficult to imagine giving up something that is fun and exciting. Here are a few key tips to keep in mind:
- Not all businesses grow forever. Entrepreneurs especially have a tendency to get their businesses to a certain point, and then find that they are unable to bring it to the ‘next level’. Know your limits and skillset and sell before you hit your limit.
- It’s fun when its growing, it’s not fun when its shrinking. The reason so many Internet business owners miss out on the best time to sell is that they are having too much fun. When times get rough, however, and their businesses are no longer putting charge in their day (and similarly are no longer putting green in their bank accounts), they think it is a good time to sell. Ask yourself why someone else would find your business fun when you no longer find it fun? Chances are, not as many people will be interested.
- Don’t max out your value. Buyers love to see a clear path for continued growth. Few Internet business buyers are in this business to hold a steady asset. This is a high risk, high reward type of acquisition which usually attracts those who want to see big dividends for their investments. Don’t exhaust all the growth potential of your business and paint a clear picture for a new owner so they can see just how easily they can grow what you started.
Does it Make Business Sense?
Building the ideal business to sell involves making a lot of decisions that may not make the best business sense. As always, you need to weigh the potential benefits of selling your business against what is good for your business today. I personally wouldn’t recommend following all of these principles to the letter, but rather follow the spirit of these principles as they can apply best to your individual Internet business.
Buyers are constantly seeking quality online businesses to buy. If you can carry some of these traits, and carry them better than other, similar businesses for sale, you’ll have buyers tripping over themselves to make you a quick, cash offer.
==>> Mark Daoust is the owner of Quiet Light Brokerage, an Internet Business Brokerage firm.