How To Sell Shopify Store: An Investor Tutorial in 2021 | PageFly

How To Sell Shopify Store: An Investor Tutorial in 2021 | PageFly

The journey of building a Shopify store is filled with joys and challenges, successes and failures, and affluence and lacking.

Through it all, you might reach a point where you start to reflect on everything you’ve been through with your business. 

It’s probably fair to say that it isn’t often that an entrepreneur will stay with a business for the rest of their life. So what happens when it’s time to part ways?

when to sell Shopify store

Some entrepreneurs get the itch for a new adventure or a new business project. Others wish to start another chapter in their life and buy a house and raise a family, for example. Selling your Shopify store opens up the doors to the opportunities you’re looking for.

Depending on how you’re running your business, it could be possible to achieve goals like these while keeping the business going. Of course, there is a better option for when it is time to exit your business.

Instead of running the business into the ground because you’ve lost the passion for it, or investing everything you have into its continued growth, you can cash out your business and reinvest that capital into new projects or areas of your life.

If you’re intrigued by the idea of receiving a large capital windfall—one likely larger than you’ve ever received in your life—and freeing yourself for the next chapter, then continue reading, because we’re going to show you how you can discover and increase the value of your Shopify store, who would buy your business and why, how to prepare your business for sale, and how to sell your Shopify store.

Outline

I. Before Selling Your Shopify Store: Business Valuation 

There’s one commonly held belief that business sellers have that we need to dispel before looking into how your Shopify store is valued.

Because of the journeys entrepreneurs have gone through with their businesses, they believe so much in their potential. For an entrepreneur, their business is their baby and they want to see it succeed. Because entrepreneurs believe their business is the next big thing, they wildly overestimate the value of their businesses and this sets them up for failure.

However, the harsh reality is that your business value isn’t based on its potential or how much work and capital you’ve put into it. It’s based primarily on its history of performance and how it is currently performing.

By reading this article, you’re going to understand how your business is really valued and thus put yourself in a better position to achieve a higher-profit exit.

Your business is valued using a simple formula:

Shopify valuation formula

We take an average of your monthly net profit—usually a 12-month average—and multiply that by a figure called a multiple.

A lot of other business brokers use a trailing twelve month (TTM) average for your net profits, which is your total profits for the past year. The problem with this method is that it doesn’t accurately reflect the true state of your business. Within those twelve months your business could have had dips and spikes in performance which aren’t accounted for in a TTM.

It benefits you as a seller to use a monthly average because the more potential business buyers understand the history of your business, the more likely you are to receive offers.

A 12-month average is the gold standard. Twelve months of solid data that show your business’ true state is the best you can offer potential buyers as it gives them a comprehensive story of your business’ history.

We also list businesses on our marketplace using six- or three-month averages in cases where the business is particularly young, or we feel a 12-month average doesn’t accurately represent the current state of the business (for example, if the seller was overcharged supplier costs).

The average monthly net profit is the simplest figure to calculate in this formula. What’s not so simple is your business sale multiple. There are many factors that are considered to calculate your multiple, but the main ones are as follows.

Business Age

This is the first factor we consider. The older your business is, the more it has proven itself against the test of time.

A young business could be showing substantial growth, but if it hasn’t been built to withstand the external forces of the business market, then a Google update, Amazon ban, or arrival of competition in the market could knock that business down to the ground. This is why older businesses are more highly valued. They have faced these challenges and continued to be profitable.

Diversity

A way to defend against the forces acting against your business is to diversify your revenue and traffic sources.

diversity

If you’re reliant on just a few products from a few suppliers for 100% of your business revenue, then when those products become discontinued or the suppliers have logistical problems, you lose 100% of your revenue.

Similarly, if all of your traffic comes from Google organic search, an update that affects your site could cause you to lose a huge portion of your store traffic.

This is why having diverse revenue and traffic sources is a valuation factor we consider for your business.

Brand Strength

Selling products and being highly profitable is just the tip of the iceberg. Having an established brand within your niche, with many positive reviews, a strong social media presence, high rankings for hot keywords, and a unique & trending product, will allow you to sell for a higher price.

Owned Assets

This is everything associated with your business that has financial value.

Your supplier contracts and relationships are a prime example of this as they represent the strength of your product line. Other examples include an email list, trademarks, employee contracts, and social media accounts.

Those are some of the factors we consider to calculate your business sale multiple. 

Empire Flipper’s valuation tool is one of the best tool in the industry that takes these factors into account and calculates your business’ value based on data from real sales that took place on its marketplace.

Shopify valuation tool

Once you have a valuation figure in mind, which could change after your business is thoroughly vetted and listed on a marketplace, your next step is to find interested buyers.

II. Decide Who To Sell Your Shopify Store To?

Shopify is a rising platform as more and more commerce takes place there every year.

It’s easy enough to launch a Shopify store, so you might be wondering, why would someone pay me for my store?

Remember the early days of carrying out product research and investing in products only to see some of them flop? Buying an online store allows the buyer to skip that whole startup process where you take little profit home, if any at all.

Online business mergers and acquisitions is a rapidly growing market and over the years we’ve seen multiple business buyer types enter our marketplace.

Some look for businesses with room for improvement so they can fix up the business and quickly make a return on their investment. Others have a portfolio of various types of online businesses that work synergistically to make the buyer cash flow. Still others have huge funds and are looking for a business that runs itself as a passive investment.

There’s a wide range of online business buyers out there, so it’s likely you’ll be able to find one for your business as long as it’s profitable and ready for a new owner.

Where do you find these buyers, then?

III. Best Places to Sell Your Shopify Business

There are three main ways you can sell your Shopify store.

01. Private Sale

As you can probably imagine, there are many online groups and communities out there where business owners share the business they want to sell and buyers in the communities will contact the owner directly.

While you do get 100% freedom to select who you want to sell your business to and how much you want to sell for, there are some considerations you should take seriously.

This “out in the wild” approach leaves you wide open to sinister characters who will try to take advantage of you. A potential buyer may be a scam artist trying to acquire your business without sending you the funds.

Even if they’re not a scam artist, there are experienced buyers out there who are very savvy negotiators. A common occurrence in private sales is an inexperienced seller setting a sale price that’s way too high for their business—they do this because they, understandably, have an emotional attachment to their business and think it’s worth a lot more than it actually is. An experienced buyer sees this as a sign of inexperience and out negotiates the seller to make them sell for less than the business’ true value.

To go this route, you’d really need to have buyer contacts you can trust and lawyers who can ensure the transaction of the business to the new buyer is legal, and that both parties fulfill their duties in the deal.

If you don’t have those in place, and especially if this is your first business sale, then selling privately will be risky.

02. Marketplaces

Online business marketplaces are a step up from private online groups and communities. Usually they are regulated to a certain degree to avoid any nefarious activities.

Having said that, you will be solely responsible for the safety of the sale. You will need to make sure it’s legal and carried out correctly, just like you would with a private sale.

The main difference between a private sale and selling on a marketplace, aside from the regulations that are usually present in a marketplace, is that using a marketplace is a more effective way to promote your business to buyers.

You can list it for sale to thousands of buyers, a portion of whom will have purchased businesses on the marketplace before, on a platform that users trust. When you sell privately, it’s up to you to build your own deal flow.

Some marketplaces may even offer some professional advice if they have the capacity to do so. Check out these following marketplaces to sell your Shopify store: 

2.1. Empire Flippers

Empire Flippers is the leading M&A brokerage with the world’s largest curated online business marketplace. 

It's easy to list an online shop on EmpireFlipper too: just fill in a few fields about your site including its URL, revenue estimates per year during normal business hours (Online Business Hours), monthly earnings after fees (Monthly Revenue) and how long it takes you each day to maintain the website (Site Maintenance Time). 

empire flippers

2.2. Shopify Exchange Marketplace

Exchange Marketplace makes it easy and secure for you to sell your Shopify business online. Exchange has partnered with Escrow.com to ensure that the payment, listing and transfer processes are straightforward. 

However, not everyone can sell Shopify stores on Exchange Marketplace. To successfully sell your Shopify store on Exchange Marketplace, one has to meet a list of criteria and eligibility. Check out Shopify's detailed guideline HERE

Read more: Exchange Marketplace: How Does It Work and How To Sell & Buy Shopify Stores Here

Shopify exchange marketplace

2.3. Flippa 

Flippa is a marketplace for buying and selling online businesses. Similar to Empire Flipper, it has a huge buyer base, multiple and flexible ways of selling. 

When listing your Shopify store on Flippa, you'd need to provide a minimum 12-month financial history (revenue and expenses) and key operational details. The listing process is straightforward – it will take approximately 45 minutes to build an outstanding listing.

Flippa

03. Business Broker

This is the safest and probably the most efficient way to sell your business.

A broker is an individual or firm who has buyer contacts. If they think your business is a match for the type of business their buyer contacts look for, then they will put you in contact with those buyers.

A broker acts as a middleman between you and the buyer. An individual broker may have closer connections with their buyer pool as compared to a broker with a marketplace which is open to many buyers. 

Different brokers tend to be more suited to different types of business models, as they make more sales of those business models. For example, as a broker, FE International makes a lot of SaaS business sales, so they have buyer contacts who acquire SaaS businesses, and they have SaaS owner contacts to sell those businesses.

As a broker with a marketplace, we’re a bit different in that we’re the only broker as far as we know that is involved in all stages of the online business sale process, from connecting the buyer and seller to transferring the business over to the buyer.

The caveat of using a broker is that brokers charge a fee for their services, usually a commission percentage taken off the final sale price of your business. We would argue that you will still make more money with a broker than going privately and not paying a commission, as a good broker has quality contacts and can use their experience to assist you in getting the best sale price.

However, before you consider listing your business for sale, you need to prepare your business for sale.

IV. A Timeline to Prepare Your Shopify Store for Sale

There are different stages you go through when preparing your business for sale, in terms of what action you take to get it ready.

01. Six Months Out

You probably have some things at the back of your mind that you need to do with your business. Six months before the sale is the time to do them.

Operational changes are the biggest one here. If you have any inefficiencies in your processes or you’re underperforming in certain areas such as inventory management, now is the time to fix those problems.

The best way to do this is to create standard operating procedures (SOPs) for all of your important operations. Having repeatable systems that are easy to follow and result in maximum results from minimal effort make your business run like a well-oiled machine. You might want to consider investing in some software tools to automate some of your processes, or hiring VAs to handle some of the more menial tasks. The less you have to work in your business, the higher its value will be.

Another key area you want to focus on is your supply chain. When you pass your business to the new owner, the supplier isn’t obligated to keep the same rates they had with you. Getting a written supply rate agreement that is transferable to a new owner will be worth its weight in gold to a buyer.

You can also make an exclusivity agreement to make your business more defensible and put the buyer at ease. If you have a good relationship with your supplier, you can even ask them for better rates to increase your margins and make your business profits look more attractive.

If you want to go the extra mile to make your business that much more appealing to potential buyers, then you can create a future marketing plan to help the buyer see how the business can grow.

02. Three Months Out

At this point, you want to review your numbers.

When buyers are reviewing your business as an asset, one of the first things they’re going to be looking for is its financial history.

The financial history of your business tells its story. For example, if you had a dip in profits one month, there will likely be a reason for that and a buyer will want to know that reason. If it’s due to a stock out, it tells the buyer that your business has had issues with inventory management, but this isn’t necessarily a bad thing. Some buyers will see that as an opportunity to come in and improve the inventory management for a quick and easy return on their investment.

To present your financials, you should create a profit and loss statement (P&L), or have your accountant do this for you.

P&L statement

When valuing your business, we look at the average net profit over the past 12 months to account for any dips or spikes that occurred over the year. However, you still need to prepare your P&L to cover the lifetime of your business.

The other figures you need to prepare are your site analytics.

When listing a business for sale, we require an analytics tool like Google Analytics or Clicky to have been connected to your website for at least three months for the same reasons we require 12 months of your business profits.

Another crucial task you need to do to prepare your business for sale is to update your terms of service. Doing this helps avoid any tricky situations for a new owner down the line.

In the final 30 days before the sale, you want to update your P&L and make sure your employee contracts are transferable in case the buyer would like the employees to continue with the business after the sale.

You might even want to look over the financial and traffic history of your store and prepare some explanations for why there were dips or spikes ready for negotiations.

Once you’ve decided on the date you want to list for sale, you just need to decide how you’re going to sell and prepare the necessary processes to execute the sale.

V. Sell Your Shopify Store to Start Your Next Chapter

Shopify businesses, whether they’re based on DropShipping or a traditional eCommerce model, are attractive assets.

These types of businesses, from five-figures right up to eight-figures and beyond, are being actively sold right now.

There are Shopify store owners everywhere cashing out from their businesses for a capital windfall that is likely bigger than they’ve ever received in their life. Having that cash load and free time allows them to reinvest in new projects, buy a home to start a family, or acquire a new business and continue that perpetual wealth-building cycle.

If you’re in a place in your life where now is the right time for you to sell, then list your Shopify business for sale today.

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