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selling an internet business

5 Keys To Selling An Internet Business

By Business Contracts, Internet Lawyer

selling an internet businessIf you had the foresight to create an online company years ago, you are likely ahead of the curve. According to Nasdaq, it is estimated that 95% of purchases will be through eCommerce by 2040. That means investors are motivated to get involved with eCommerce and internet business sales are booming. But what do you need to know when selling an Internet business?

The bad news is that a significant number of business sale transactions fall apart before closing. If you are considering selling your online business, it’s important to get informed so that you can maximize your profits and minimize risk.

Here are the top 5 things you will want to know when selling your online business:

1. Prepare your Internet business for sale

Before you publish your sale or start working with a website sales broker make sure your online business is actually ready for sale. Ensure you have written business contracts in place with key employees, suppliers, or contractors so they will remain with the business after the sale. Also make sure your intellectual property, spam, and privacy policies enable you to legally transfer information to the third-party purchaser. Have a professional look over (and supplement, if needed) your financial and tax information because you will need to divulge accurate and thorough financial information to potential buyers.

2. Determine your desired outcome

There’s more to selling an Internet business than simply deciding on a selling price. Determine how you would like to be paid (do you want to be paid a lump-sum or in installments?) and whether you will provide financing for the sale. Also, do you intend to stay with the business as a consultant or employee after the sale? If so, determine how long you plan on staying and what you want to be paid for your time (above and beyond the website purchase price).

Related Article: Sell An Internet Business – How To Avoid 3 Costly Mistakes

Do not make the mistake of offering ongoing consulting services without a solid agreement governing the terms of your consulting. Many internet business owners get stuck doing free work 90 days to a year post-sale just to keep the business afloat until the buyer is up to speed. You can avoid that.

3. Conduct a pre-sale legal compliance review

You will want to ensure your website is not violating any intellectual property, spam, or privacy laws before you even consider posting your business for sale. Legal issues in the business will reduce the value of your business, or worse, prevent a sale entirely.

4. Use the right professionals

There are plenty of well-versed professionals with respect to selling traditional brick & mortar businesses, but selling an online business is not the same. You will need to work with a professional with specific knowledge and experience in eCommerce business sales. An Internet business lawyer can help ensure you have the appropriate legal documents and field questions from potential purchasers to bring your deal to the closing table while minimizing risks.

5. Protect yourself against risks

Selling any business carries certain risks. Sometimes competitors act like a prospective buyer in order to gain confidential business information that they will use to compete with your business. Be wary of frivolous prospects by carefully reviewing letters of intent and seeking the advice of experienced internet business counsel. You also want to be cautious of contracts and legal documents provided by potential buyers, because those documents will be written in favor of the buyer, not you!

Also, if you plan on financing part of the sale, make sure you secure that part of the sales price with collateral to minimize the risk of nonpayment. Without collateral, it may not be financially profitable for you to pursue legal remedies in the event of nonpayment. By securing your financial agreement with collateral, you are protecting your ability to collect if issues arise.

While these are the fundamentals to selling an internet business, you will want to perform due diligence and learn as much as you can about this online business transaction process to ensure you get maximum value.

Do You Need Help Selling An Internet Business?

If you have a motivated prospective buyer and time is of the essence, it will be worthwhile to contact an experienced attorney right away. Attorney Young helps entrepreneurs sell their eCommerce business for a fair price while reducing your legal risks. If you are ready to sell your Internet business or simply want to learn more about the process, schedule a phone consultation with Attorney Mike Young and he will help you develop a road map to ensure you get what you want from the deal.

Books for Website Owners – October 22, 2015

By Internet Lawyer

Title: How to Sell an Internet Business (10-Minute Legal Guide Series)

Author: Mike Young, Esq.

Reason to Read:

As explained in the book, you can protect yourself when selling your Internet business by following a few simple steps. This guide helps you create a road map for maximizing your profit while reducing your risks when you sell a privately held Internet business. One of the 10-Minute Legal Guide series, you’ll be able to read the key parts of the book in about 10 minutes and know what it takes to quickly sell an Internet company the right way.

Key Quote:

“Determining the true value of your company is an art. As a privately held company, there isn’t a public market of traded shares to look at for even guesstimating what your business is worth. What you consider important about your venture may be very different than the primary reason a prospective purchaser wants to own your business.”

Sell An Internet Business: 5 Expensive Mistakes To Avoid

By Internet Lawyer, Website Lawyer, Website Legal Documents

sell an internet businessAre 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.

Related Article – 7 Keys To Picking The Right Internet Lawyer For Your Business

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.