The Serious Entrepreneur Has an Exit Strategy
You’ve opened your store and filled it with products. Your marketing machine is churning along, and sales are trickling in. Your ecommerce journey is finally underway.
Now’s the perfect time to think about your exit strategy.
An ecommerce exit strategy can mean many things, but it’s basically a way to separate yourself from your business. In most cases, this means selling most or all of your business. It could mean hiring someone (or a team) to run your business in your absence. Or it might involve a unique arrangement that works for you.
Why should an ecommerce entrepreneur have an exit strategy?
That’s a more complex question because it depends on your store, your industry, potential business buyers, your customers, and your circumstances and lifestyle.
Even if you don’t have any immediate plans to leave your business, here are some reasons you might want to consider stepping away:
- Medical issues that make it impossible to work
- Family issues that distract you from work or force you to seek employment
- Unexpected offers for the business from entrepreneurs or companies who want to expand their market share through acquisitions
- You reach a point where you want to retire.
- An economic shift in the area you sell products to or the area you buy products in affects your business (for better or worse).
- A technological development affects your business (for better or worse).
- You become tired of the ecommerce lifestyle and want to move onto other things.
What would you do if you got sick tomorrow and couldn’t summon the strength to reply to your emails? How would you respond to a sudden offer for your business from someone you’ve just met?
You may have to make hard decisions about your role in your business at a moment’s notice. That’s why it’s critical to outline an exit strategy, so you know the exact steps to take if you have to get out.
Planning Your Exit
It seems silly to already start thinking about how you’ll get out of your business when you’ve just begun to build it. If you like the idea of being a business owner, you might not think you need an exit plan at all.
That’s actually how many entrepreneurs think.
According to a study by BMO Wealth Management, 65% of small business owners lack an exit plan.
The goal of your exit strategy is to put all the pieces in place, so the business can operate without your presence.
“If anybody is considering selling their businesses, there are a number of things you need to think about and hopefully you’ve thought about it in advance,” says Dale Traxler, an ecommerce entrepreneur who’s built and sold four online stores. “We actually had the thought of an exit strategy many years ago when we started the business.”
Plus, as your store grows bigger and more complex, even those platforms won’t get you the best deal.
You may have to hire a broker to manage the sale. (Brokers take a cut of the sale, but they’re worth the price because they handle all the details and try to get you the best deal possible.)
In many ways, selling a business is similar to selling anything else.
Before you put it on the market, you want to spruce it up so it’s attractive to potential buyers. Unlike most things you sell, however, you can’t spruce up your business over a weekend. It may take months or years to position your business for a sale.
If you expect to put someone else in charge so you can cash checks forever (steady passive income is a great plan), you need a process in place for the manager (or team) to take over the day-to-day operations and run it smoothly, without having to bother you.
So, to exit your business without losing it, you must take the necessary steps today to make your business attractive to buyers, and make it easy for managers to run it down the road.
Step 1: Identify Deal Breakers
Certain problems make your business entirely unsellable. Your job is to identify and compensate for these deal breakers as best you can, so would-be buyers aren’t turned off instantly.
According to business broker Mark Daoust, deal breakers fall into four main categories:
- Growth Potential: A declining business isn’t unsellable unless the decline is rapid, sudden, long-lasting, or irreversible.
- Transferability: If you’re the only person who can run your business (maybe you possess a unique skill or license that isn’t easily transferable), new owners can’t take over smoothly.
- Verifiability: Buyers need a lot of documentation and evidence of your business’ financial health. If your record keeping is messy, incomplete, or mingled with your personal finances, they won’t feel comfortable with the sale.
- Risk: Risks are any factors that can force a change in your business, like laws and regulations or reliance on a single vendor. Buyers don’t want to get themselves into a precarious situation.
If any of these deal breakers apply to you, take the necessary steps to fix them right away.
Step 2: Optimize Your Store
Once you’ve fixed your deal breakers, find ways to optimize your business to make it as valuable as possible to potential buyers (and as streamlined as possible for managers).
For example, you might…
a) Set up Google Analytics so you can track your web metrics.
More data means more information to glean insights and identify problems, find ways to optimize your store, and make buyers comfortable with the sale. (You’ll need Google Analytics for marketing.)
b) Write standard operating procedures.
Buyers want well-documented procedures they can repeat without requiring your oversight.
“Even if you have zero employees, having SOPs in place makes your business more attractive because it has a ready-made training guide for the new owner,” says Gregory Elfrink of Empire Flippers.
To write SOPs, simply document the things you do on a regular basis as you do them (like product selection, advertising, keyword research, promotions, and day-to-day operations). Write step-by-step instructions for someone who has no idea what to do. Include screenshots, gifs, or videos wherever necessary. Make sure to document any critical information like account login credentials.
c) Track customer service hours.
Buyers want to know how much time your business requires, so it’s important to track your customer service hours. Use a time-tracking tool like Toggl or Time Doctor to keep accurate records. If you spend a lot of time talking to customers, consider hiring a part-time customer service representative. Even though this increases your costs, buyers will love it.
d) Resolve SEO issues.
As an online business, your SERP position is critical. Before you exit a business, it’s important to resolve any issues preventing Google from ranking your website. You should clean up duplicate content, disavow spammy links, use best practices for on-page SEO, create logical navigation, and redirect broken URLs.SEO is a massive topic. As a web business owner, you absolutely need a strong understanding of the entire discipline. Check out this excellent guide by Kissmetrics.
e) Negotiate deals with your supplier.
If you’re using Oberlo to sell products and you find yourself relying heavily on a single supplier, contact the supplier and ask if you can arrange a deal. (For instance, ask if they have special pricing for high-volume sellers.)
These are just several ideas to help you optimize your ecommerce business. You can find countless others by looking for problems that can be solved at scale (e.g., setting up email automation or writing processes).
Always keep in mind, buyers want a high return on their investment. Anything you can do to improve their ROI will raise the perceived value of your business.
Step 3: Prioritize Your Optimization Efforts
You can’t do everything at once, so start with business optimization efforts that will add the most value to your business. For each optimization idea, consider the costs, how quickly you can implement it, and how much value it could add to your business.
For example, writing a set of guidelines to handle customer complaints and organizing your finances are cheap and quick tasks that would add a ton of value to future owners and managers, so they should be top priorities.
But changing all your product photo backgrounds from white to gray is a long, arduous task (free, but time = money), one that wouldn’t add much value, so it should be a low priority.
Step 4: Implement Your Optimization Ideas
Once you’ve prioritized your optimization ideas, start with your most important idea, and work your way through them. You won’t get them done right away, but with a little smart project management, you can push through your list and make your business attractive to buyers (and easy to run for managers).
Step 5: Determine Your Store’s Value
Your final step is to determine your store’s value. Its value is what the market is willing to pay for a business like yours. Admittedly, there’s no perfect formula to determine a store’s value. It’s based on a number of factors, such as…
- Net cash flow: This is the most important metric. It indicates the amount of money in your account every month after you pay for products, tools (like Shopify and Oberlo), and your marketing expenses (like Facebook ads). Essentially, this is your profit.
- Social media presence: Naturally, social media is a big part of ecommerce. Lively social media profiles (with many followers and high levels of engagement) can raise the value of your business, especially if you can show how to turn those fans into customers.
- Revenue: Buyers want to know the total amount of cash you bring in, your average order value for new as well as existing customers, and trends that affect buying patterns (like seasonality or other market trends).
- Search metrics: Buyers pay more for stores with a healthier SERP visibility. They want to see you ranking for keywords with high commercial intent. They also like to see advanced, scalable pay-per-click campaigns.
- Infrastructure: The organization of your store is important. Buyers want to see you on a stable platform that’s easy to use, but still leaves you in control of the store. They also want well-integrated tools that seamlessly solve all the business’ problems.
- Your store: A well-made store (in terms of design and user experience) can add considerable value to a sale. Buyers want sites with strong merchandising, personalization, and clear navigation. Your site should function well on tablets and phones. Buyers are not willing to pay a lot of money for a store requiring a complete overhaul or platform change.
- Traffic and sources: A lot of traffic is important, but buyers want to see your traffic convert well (What good are users who don’t buy?), is economical (free traffic being best), and from diverse channels. (You don’t want to rely on a single channel, because a change could tank your store.)
- Owner dependency: The most valuable businesses are those that don’t require constant oversight from the owner. Make your business self-sufficient, and its value will soar.
So how much is your store worth?
Generally, your store’s value is a multiple of your net cash flow. The multiple is determined by the other factors listed above. If a store can generate consistent traffic, and has a solid infrastructure as well as a healthy social media presence, buyers might give it a multiple of five. So, if your store’s net cash flow is $50,000, the store would be worth $250,000.
Obviously, this isn’t an exact science.
At the end of the day, your store is only worth what someone is willing to pay for it. You can argue all day long that your store is worth a million bucks, but if no one wants to pay more than $500,000, that’s its value.Empire Flippers has a unique valuation tool to help you determine your business’ worth. The company uses it to price all of the businesses on its marketplace. It’s so accurate that 90% of websites sell within 10% of their listing price. Check it out here.
Get Out When Things Are Good
Your exit strategy isn’t necessarily an escape plan.
Don’t look at it as a lifeboat that will rescue you when your sales tank or you walk into a public relations blunder.
In fact, the best time to sell your business is when things are going great. That’s when your brand and your store are worth the most (and when buyers are willing to pay the most).
It also helps to sell when you have the time and energy to focus on the sale. You want to be available for your broker and potential buyers to make sure everything goes smoothly.
The most successful exit strategies are planned years in advance.
They include an ongoing plan to maximize profits, customer experience, day-to-day process, and overall valuation. Even if you decide to run your ecommerce store for the rest of your life, your exit strategy will help you build a better business.