Are you ready to sell an Internet business? Here are five common mistakes entrepreneurs make that you can dodge with a little advance preparation.
Mistake #1 – Failing to identify what you want
The day after your ecommerce company is sold, what are you looking to do with the next stage of your life?
Some sellers want to walk away and never look back. Others want to retain a role with the company they’ve just sold – as a consultant, an employee, or an informal mentor to the buyer.
If you want to stay involved with the company, how long do you plan to stay? 60 days? A year?
Answering these questions will help you structure your offer for sale so that there’s a good fit with the ultimate purchaser.
Mistake # 2 – Working for your earnout
Although it’s common for some sellers to stay on as consultants or employees for a period of time to ensure a smooth transition for the buyer, that’s different than an earnout where part of the compensation paid for your business is contingent upon future events, such as the company achieving certain post-sale milestones.
Too often, sellers will commit themselves to working for the company for one to two years without any additional compensation than the earnout.
In essence, they’ve deducted the amount of the earnout from the sale price and are working for that amount of compensation as employees or consultants for the period of time.
While that’s typically a good deal for the purchaser, it rarely makes sense for the seller when one takes into account the labor involved and lost opportunity costs.
Mistake #3 – Failing to prepare your Internet business for sale
Most ecommerce companies simply aren’t ready to be sold because their owners haven’t taken steps necessary for someone to buy.
If you have key employees and suppliers, do you have written agreements in place that ensure they remain in place if your business is sold?
Have you put in place the right legal documents to ensure you’re not violating intellectual property, spam, and privacy laws by transferring client, website visitor, and email list subscriber information to a third party?
If a letter of intent (LOI) was signed tomorrow, would you be able to provide the prospective buyer with the financial and tax information needed during the due diligence period?
Mistake #4 – Unsecured seller financing
Like the sale of brick-and-mortar companies in the offline world, sellers of Internet businesses may choose to finance part of the deal to make it happen.
However, it’s important to secure this part of the sales price with some collateral from the purchaser. Otherwise, you should assume that at some point the buyer will stop paying and it will not be financially profitable for you to pursue legal remedies for the breach when you take into account legal fees, value of your time, and the likelihood the purchaser will be unable to pay if you win in court.
Mistake #5 – Using the wrong professionals to sell an Internet business
It’s easy to find business brokers, attorneys, and accountants who can help you sell a brick-and-mortar venture. However, few of these professionals have the knowledge or experience to help you sell an Internet business without screwing up the deal.
Don’t be a guinea pig. Be sure you retain an experienced Internet lawyer and other professionals who understand Internet business and know what it takes to sell your company on your terms.