“Sell Your Online Business For Maximum Profit,” also known as “How To Sell Your Business - Online Exits,” is a course by Reggie Young, a former United States Air Force officer and now a seven-figure entrepreneur, teaching you ways on how you too can make multiple six or seven figures with your online business. Here are the show notes and summary of this course.
“Sell Your Online Business For Maximum Profit” is a course designed to help anybody, regardless of where they are in their business life cycle. This course is beneficial for those who are ready to sell their business, those who are already making a lot of money and wondering what else they can do to get more out of their business, or those who just want to exit their business altogether and maximize their valuation.
First, Young started off by introducing himself and what he does to help online entrepreneurs succeed, and tackled the course objectives.
“The earlier you can prepare, the better off you are to pivot into the different strategies or to be more aware of things… if you actually want to maximize your valuation… so I recommend you getting more valuations… Enjoy the process,” he said.
The course is divided into various parts, and we are going to discuss and summarize each of these parts in this piece.
Guiding Principles
Young talked about the guiding principles that every entrepreneur should commit to memory for their business. These principles are to:
- Show profit, growth, and defense
- Get multiple offers throughout the process
- Understand that your network is absolutely critical
- Understand that your story matters
- Keep calm and negotiate
“You can never do business alone,” he said.
Reasons To Exit
This part of the course tackles the reasons why you should exit your business. The first reason is scaling. You can use the money that you earned and profited from selling your business to scale. You can either hire teams, reinvent, do other things, and scale basically faster. The second is realizing profit. When you realize profit, you can realize how you can use that money either for personal or business use. This brings us to the third reason, that is, to attain personal freedom. Selling your business will give you that breathing space, and that huge injection of capital with your personal freedom.
The next reason is changing landscape. It is about dominating your market. You exit because you feel the landscape is changing, and there are opportunities for you to scale differently, so you can move forward to the next reason: better opportunity. Maybe you want to take chips off your table for better opportunities. Lastly, you exit your business to reduce your stress. Someone, entrepreneurs do not understand how the business has been affecting them negatively until they sell it.
Understand The Process
The process of selling your business begins with how much your business is worth and who you are selling it to. With this are concepts of valuation, exclusivity, and vetting. Then, you will have to go through negotiation, or “planting your seeds,” and making everybody in your network know about your business. This process involves interested buyers interviewing you so they can get to know your business better.
After this come the transfer and verify process. It involves the letter of intent, asset transfer, and due diligence, among many others. Lastly is the process of you getting paid. After the inspection period, the process of funds transfer will transpire.
Understand The Language
Understanding the languages that people use when buying or selling a business is also important. Some of these industry terms and languages are: Earnings Before Interest, Taxes, Depreciation, and Amortization or EBITDA; Seller's Discretionary Earnings or SDE; Add Back; Trailing 12 months or TTM; Year to date or YTD; profit and loss statement or P&L; strengths, weaknesses, opportunities, and threats or SWOT; and Porter’s 5 Forces model.
These languages also include: LOI (which has been discussed too in the previous section); Due Diligence; Multiple; Lifetime Value or LTV; Monthly Recurring Revenue or MRR; Annual Recurring Revenue or ARR; Turn Over; Churn; Exclusivity Period; and asset purchase agreement or APA.
Timing Considerations: When To Sell Your Business
How should you time your exit? People interested to buy your business will look at your TTM, and what your profit was in the last 12 months. For larger businesses, the longer your history is, the better your valuation will be.
When selling your business, you also want to keep in mind your ranking strategy. You can time your business by ranking or by season. Where can you trend up? This will maximize your valuation.
It is also important that you understand it usually takes two months to sell your business. If you want to exit in 12 months, you better start early, while considering the overall valuation of your business. But actually, Young said you do not actually need 12 months to sell your business.
What Does Each Person Do?: Who’s Who?
When it comes to selling your business, who are the people involved?
- Broker - They do things quickly, they have seen a lot of deals, so they know how the processes well, and they can provide resources to make sure the deal does not fall through.
- Aggregator - Aggregators buy brands, and they follow strategies. They have their own agenda and have a large amount of capital they can deploy quickly. They work with businesses with more cash flow, rather than businesses with less cash flow.
- Private - These people neither work for brokers nor aggregators. They can either be a private buyer or a seller with a lot of money. But, they tend to close deals much slower because they are looking for different objectives and buy things at fair value. If you have a lot of brand, it is advisable to work with a private buyer.
- Advisor - Advisors are paid and incentivized to maximize your valuation. They take a commission from the broker, from the aggregator, and from the private investment group. With an advisor, you can navigate common pitfalls. Choose advisors who can negotiate with you. And they are less agnostic to the buyer.
Traditional Valuations: How To Value A Business
Traditionally, when you value a business, you take the monthly profit or the profit times the multiple. Sometimes, people are taking the annual profit times to multiple. People look at this through EBITDA. Multiples are either written from a monthly or annual standpoint. This also involves discounted cash flow or DCF that buyers are looking at a business. They also look at comparable businesses and the percent of revenue.
How Valuation Is Actually Calculated
In reality, your valuation is calculated completely differently. For Young, it depends on a multitude of factors. This is why you want to get multiple valuations right out of the gate.
Valuations are priced to sell, offers are different, and are subject to a changing landscape. Valuations change based on a business model, and it is sometimes lowered during diligence, during negotiation.
You must combat the problem wherein most parties do not give valuation without exclusivity. So you must remember to know your business and market, highlight your strengths and weaknesses, show opportunity, and actively control the narrative.
Primary Strategies To Maximize Your Valuation
Young said, “Profit matters more than anything because profit cannot be argued. Profit is profit.”
Here are the primary strategies you should adopt to maximize your valuation:
- Do not outpace your cost.
- Micro split test your offer.
- Start thinking about recurring revenue (Ask yourself, “How can I create that recurring revenue?”).
- List every related asset when the time comes.
- Open new profit verticals.
- Look into leveraging existing systems (Ask yourself, “How does to customer find me, buy from me, and buy from me again?”).
- Have another pair of eyes, an expert in your niche, look into what you are doing.
- Cut costs safely (Ask yourself, “What costs can I cut safely?”). But be careful when cutting costs.
- Run campaigns with your season or trend.
- Kill negative profit drivers. But be careful with what you kill.
- Renegotiate with partners.
- Overhaul and monetize your lead magnet (Ask yourself, “What can I do to get more money on this?”).
- Clean up any account or legal issues (Ask yourself, “Where am I accepting risks?,” What account or legal risks am I exposed to?,” and “How do I clean them up?”).
- Mitigate any operational risks.
- Address risks for negotiation.
- Pretend you will relaunch and hold for one year.
- Partner and sell your business.
- Focus on industry and channel key performance indicators or KPIs.
eCommerce Value Strategies
For people running eCommerce businesses, here are the strategies to keep in mind:
- Reduce Cost of Goods Sold or COGS, storage, and fulfillment.
- Update supplier terms.
- Find a leaner supply chain.
- Clean up advertising campaigns. If you do not know how to clean them up, be very careful of who will clean them up.
- Push profitable offers to your current list. Leverage that list.
- Consider rehauling your listing optimization.
- Run micro split tests. Play with your pricing a little bit, and see if it changes things.
- Micro test offers or channels previously untested
- Apply conversion rate optimization on other channels.
- Increase your backend offers. If you cannot create any, find an affiliate program, whether it is physical or digital, and try to link to that to increase your backend profitability.
- Consider subscriptions. Get them up and running.
- Build out the top of the funnel for your social media and blog.
- Launch product variations.
- Redo outreach for influencers and bloggers. Or just do a brand new outreach.
- Make sure you are not losing money on refunds.
- Lastly, maximize your add backs.
Leverage Add Backs
Add backs are expenses that will not continue with the buyer. If it clouds the valuation, and it does not either maintain or increase your revenue, it is an add back. Think about these add backs to maximize your valuation in your business. Some of them include payroll taxes and stipends, corporate donations, recruiting costs, credit card points, personal and leisure expenses, and so much more.
Financials
Financials are very important. You want to make sure you have good bookkeeping. This can be done by using a good bookkeeping software.
You also want to make sure you are carrying out the right tax planning. Make sure you stay compliant with your taxes. Young recommends getting an account that has handled a business similar to yours.
Risk Mitigation When Selling Your Business
How do business owners mitigate risks when selling your business? You have to think where things are moving and where profit is created. What is the worst-case scenario? Ask yourself, “How can I fail?” to visualize the risks.
Risk mitigation is implemented on the front end and back end. On the front end, there are product reviews, customer journey links, updated terms of service, and more. On the back end, there are alternative supplier samples, sourcing agents, breakdown costs, and more.
Protecting Intellectual Property
“Intellectual property is a big one. We have to protect that,” Young said.
If you are protecting your intellectual property, you are being defensible. The best way to do this is to hire a lawyer. But, protecting your intellectual property is also sometimes about creating intellectual property. This will add value to your business. Protect your intellectual property on the state and federal levels.
Deal Structures
How do you structure your deal? There are a ton of ways to structure your deal. Let us take a look at each of them.
- Cash - The great thing about getting paid with cash is that you get it all at once. When you get paid all at once, you can invest. At least you should invest it somewhere, so you can start making money.
- Earn Out - This is usually tied to performance, and Young personally is not a fan of earnouts. It takes time for one to get it.
- Intangibles - This is the third point in the deal structure. Getting paid all at once may be good, but it is too ideal. Be aware of your intangibles. Intangibles may be discounts, promotions, partnerships, and the like.
“When you sell your business, you are no longer the owner,” Young added. “And it is important to remember that.”
Interview And Negotiation Tips
You have understood a while ago that among the processes you will go through when selling your business are the interview and negotiation. The goal of buyers is to understand your business, while your goal is to maintain your valuation.
“Make whoever is buying your company that they are getting a discount,” Young said.
Here are the tips to remember during the interview and negotiation stages:
- Keep in mind that you have the leverage.
- Stay calm. Do not get angry or show you are anxious. Be polite.
- Remember what you built, the hard work you put into it, and its value.
- Think about what the interviewer wants to know.
- Understand their background and speak their language.
- Profit over potential matters more than anything.
- Be ready to handle objections and tell your story.
- Be honest, and turn weaknesses into opportunities.
- Show people how easy, automated, and replaceable you are.
- Demonstrate value-added steps for the future. Have a roadmap that you are ready to give to them, though not all at once.
- Have some bonuses ready: Do not show all your cards at once.
- Show the backend to build confidence.
- Get it in writing.
- Do not imply you are in a rush.
- Maintain walkaway power.
- Don’t go in alone, defer to a third party like an advisor, even if only for legitimacy.
- Focus on the KPIs to justify your story and defend it.
- Remember, it still takes one to two months for the money to hit your account.
- Negotiate your deal structure, and always counteroffer. Make sure you feel good about your deal.
- Feel like you’ve won.
Due Diligence And What Not To Do
You have also learned earlier that the process when selling your business also involves due diligence. Due diligence happens after your letter of intent. Remember to protect your KPIs and profit. However, there are also things that you should not do during this process. These include not:
- Closing off considerations from other sellers
- Doing any gray or black hat tactics (Don’t fix what is broken)
- Doing any gray or black hat tactics (Don’t fix what is broken)
- Making changes to critical pieces, and being careful of quick optimization
Bear in mind to stay calm during this period, enjoy the process, and remember your journey.
Ensuring A Smooth Transfer
When we are transferring assets, we always want to make sure that we are staying organized. If buyers of your business see you are organized, they will put more trust in you, since everything you have for them is clean.
When transferring the files, you realize you slow down the process, but you should not. Having things organized speeds up the process.
If you will work with other people during this process, make sure that they know what they are doing. Moreover, your handover should also be organized, from your logins sheets to your standard operating procedures or SOPs.
SOPs And Team Handoff
Some of the SOPs you can create include inventory reorder and fulfillment, customer service, common issues, ad management, reporting, social media, content creation, and the like. It is also advised that you hire your handoff team. Make your handoff team part of the deal if you do not want to lose your team.
Taxes And How To Minimize Them
When it comes to taxes, Young said there is no one best way. This means researching this yourself or getting opinions from other people.
Dealing with your taxes involves things like your capital gains, your earnouts as your ordinary income, your cost basis, how you are incorporated, where you are incorporated, and when you are selling, among many others.
There are various ways to minimize your taxes. For one, can you incorporate differently? This may be a way to minimize your taxes. Mitigating your taxes is also about hiring a good certified public accountant or CPA. Or, you can also minimize your taxes by lowering your tax bracket. And there are many other ways to minimize your taxes, according to Young, such as writing off your taxes.
Life After Business Exit
What do you do after you exit your business? What is life like after the exit?
“Just enjoy it… now, enjoy that feeling,” Young said.
Life after exit is about thinking about what you want to buy, without forgetting you should still make a budget and save money for yourself. You also would want to help others and think about how much you are willing to give.
Life after exit does not mean it is the end for you. Young said one of the things he did after exit is he thought of ways to further expand his business. Think about how long it will take you to be profitable again. Project, project, and project.
“Life has a unique way of presenting challenges to you,” he added.
Remember your why, celebrate, take some time off, follow your intuition, stay hungry, and do not forget what mindset got you there.
What If You Decide Not To Sell Your Business?
If you decide not to sell your business, there are still questions that you should ask yourself. If you are taking this route, you should ask the following questions, according to Young:
- How much market share do you have?
- What level of risk are you taking? Is it worth it?
- Do you need a longer time to plan and adjust?
- Does more capital help you scale?
- Do you want to take loans?
If you are not selling your business yet right now, what you can do is partner, multiply, then exit for higher.
Important To Remember: Best-Kept Secret And Recommended Strategy
Before sharing his final thoughts, Young shared the best-kept secret and the recommended strategy when it comes to selling your business.
“This is what I think is the best-kept secret no one is really mentioning when it comes to selling a business is that your networks are absolutely critical to getting your highest value exit,” he said.
You need a solid, solid network.
“Your network is your net worth,” Young pointed out.
Remember to following strategies:
- Get multiple valuations early.
- Decide on your number, terms, and timeline.
- Get an advisor, and let them work for you.
- Do not commit to one seller too early.
- Get third-party advice for increasing valuation and optimization.
- Prepare books, SOPs, and operation handoff early.
Final Thoughts About Selling Your Business
To wrap up everything you learned in this piece about selling your business, first, you must remember these principles: show profit, and growth and defense; get multiple offers; realize your network is critical; know what story matters more; and keep calm and negotiate.
Young also recommended that you hire an advisor who is not an employee of that aggregator or marketplace.
Above all, enjoy the whole process. Remember why you started, what you built, stay calm, celebrate your win, and redefine your why. You have the leverage.