Stage 7 Ecommerce Business Fundamentals
We welcome you to our last stage of eCommerce maturity, the exit stage. This stage will look different depending on what your next step choices are. A Stage 7 business is one that has experienced both highs and lows. You have worked out workflows and brought in teams of people to build it up to what it is today.
We have moved through each of the stages with the dimensions of people, processes, and technology. We have seen the sales cycle start with you and become self-sustaining. Now you are at the crossroads, do you keep the business or sell it?
There are a few questions you can ask yourself to know if you are ready to sell your business. Such as, are you plateauing in growth? Are you prepared mentally to exit? Can your business function without you? Knowing the answers to these questions will help you figure out the best decision for you and your business.
Whether you choose to sell or take more of a backseat role, it’s helpful to break down the processes, people, and technology aspects of exiting your business as a full-time role.
In this stage, you have defined and redefined your processes to allow you to scale effectively and efficiently. It is important to note that we aren’t suggesting to ditch all methods but look at those that rely heavily on you or what the processes around each section look like if you were to sell your business.
Like all the significant investments you made in your business, someone walking into the business will want to be well versed in your company processes and procedures to ensure this is the right purchase for them. Having a minimum of three years of financial documents is recommended. Gathering legal documents such as your tax returns, business expenses, and team structure will help your buyer build trust in your business and assess if it is worth your asking price.
If you are not in a place where you can sell the business, you may want to transfer ownership and become a partner. This
If you do decide to sell your business, it is vital to know the buyer’s market. What other companies or competitors are on the market? Is your business priced reasonably? Do you have assets the other company’s do not? Knowing the market in which you are selling will help you not overestimate your business’s worth, while also not underestimating its value. It will also help you prepare to answer these questions from the buyer.
Also, look at your business’s overall health, has your profit declined over the past few years? Take that into consideration when listing your business. Your buyers will not care you have had better years. Knowing the health of your business will allow you to appraise your business worth appropriately. Are your books messy? Take the time and clean them up so a new buyer can inquire about your past years without frustration or time delay.
If you choose to relinquish your front seat driver role and become more hands-off with your business, your buying process would typically rely heavily on you. What does letting someone else procure your product look like?
A product procurement specialist or an agency buyer would be a role you will want to introduce in this stage if you haven’t already. A procurement specialist will have a broader range of duties than a buyer. This role will include tasks such as:
Monitoring procurement budgets
Supervising warehouse staff
Managing contracts with suppliers
An agency buyer will locate raw materials and products from manufacturers and send them to your warehouse. Budget and contracts within this structure rely more heavily on the accounting department and your sales team.
Aside from what the buyer is looking for, some tips can help you make the selling of your business successful.
You have spent all these years building a company from the ground up. You may value the business higher than its worth because you see the emotional and financial investments you have made into the company. Your buyers will not see it this way and only care about the profit. Becoming prepared to face the emotional and time-intensive process of selling your business will allow you to be able to sell calmly and effectively to the right buyer or buyers. Preparing your financial documents will allow you to hold space for the stress and not cause undue stress to the other parties.
Creating that time to prepare emotionally also allows you to prepare physically. You may have messy records or lack seamless CRM records. These are important to give yourself time to sort through and create assets for the new buyer to sell it at its highest asking price with confidence. Physically preparing any undocumented processes is also highly recommended as the buyer will want to see the advantages and disadvantages.
Your warehouse or storage facility will become an asset to your business. Your warehouse is a vital part of your operations and how they will continue to help the business succeed and grow in the future. Marketing your warehouse will allow potential buyers to assess how seamlessly they can transition into the company. You will want to outline how your warehouse makes your business efficient and effective.
Look for beneficial qualities your warehouse has. Some of those benefits might include:
Your warehouse management
The technology your warehouse uses for inventory control.
Inventory changes day to day, and therefore can be hard to know how to handle your inventory in the sale of your business. Understanding how your inventory will be tracked and assessed at the final purchase will help you feel empowered to sell your business.
Inventory is sold based on the average day-to-day value of inventory, and the actual stock count the day before closing. This process prevents people from padding their inventory costs and providing recognition if inventory is seasonal or not. Let’s look at an example below.
In this example, a seller averages $200,000 worth of inventory. They sell summer pool supplies. The inventory value increases in the summer because of the increased inventory amount, subsequently making an inventory in winter a closer evaluation to the $200,000. If the seller closes their business on Friday, the inventory would be taken down and counted on Thursday before the final sale. The final selling price will reflect actual inventory value.
It is rare to have someone walk off the street and want to purchase your business. It happens, but rarely. It is important to know who you should be talking to, to support your transaction when considering selling your business.
First, you will want to involve your lawyers and accountants as you begin to gather documents to sell your business. Involving them will provide you with the support you need around documentation and organization.
Second, you will need to get your business appraised by a third-party evaluator. Third-party value experts help assess your business from an outside perspective for a flat fee in which they look at your sales, revenue, outstanding invoices, inventory and debt to provide a fair price to list your business. Doing this prevents the buyer will be less likely to argue the asking price because you got approval from a professional who can give you a more precise selling price. Once you have an amount and are listed, it is time to find buyers.
Business brokers will help bring buyers leads to you for a percentage of the selling price. Having a business broker on your side is helpful as they will be able to spot fishy buyers and represent you professionally at closing.
Lastly, keep your emotions out of it as best as you can. Selling to family, friends, and other people you are emotionally involved with can sometimes make the selling situation more complicated.
Alternative to Selling
As an alternative to selling your business, you may need to restructure the people working for you. Promote internally to fulfill the roles that typically you had a heavy hand in leading. Doing this may include hiring a new warehouse manager to move into a more specialized position, such as a procurement specialist.
In earlier stages, we have spoken about the benefits of cloud-based inventory management systems. By stage 7, you have employed this technology as a resource and ironed out the processes around using your inventory management system. It has allowed you to have a company that is now self-sustaining. So is it worth adding that to your selling price? What does pricing out your technology look like when you are selling your company?
We often find the IMS systems used while growing the business have become such an integral part of operations that we think it should be considered an asset to your company. Although you can allow your potential buyer to include the technology or not, describing how it makes your business more efficient, just like your warehouse, will help the buyer see the value it adds to your business.
Alternatively to selling
It will be critical that these systems and workflows are in excellent condition if you decide not to sell as they will be your guide for your team to continue without you so involved in the day to day operations.