The late, great Benjamin Franklin once said:
“If you fail to plan, you are planning to fail.”
Selling your e-commerce business is a major endeavour, and if you approach it unprepared you risk exposing yourself to major frustrations and leaving a lot of money on the table. This is especially true in today’s market where buyers have become both increasingly selective in their acquisition criteria and more demanding during due diligence.
And the sooner you start preparing, the better: At Nextoria we like to start helping sellers form a plan for their exit as early as possible to make sure they’re fully prepared when the time comes!
“Put some time & energy into the process if you are about to exit your business – there is a lot to learn before entering that process”.
1. Take care of what you can control now
Whether you plan to exit in 3 months or 3 years, there are a number of steps you can take right now to make sure you’re as ready as you can be when the time comes to exit. Remember, it is always better to button things up today than to scramble to do what you still can at the last minute!
It’s never too early to start working on each of these steps:
- Intellectual property: securing patents, trademarks, and exclusivity agreements in current and future markets protects your brand equity and strengthens your value to buyers.
- Operations: having clear Standard Operational Processes (SOPs) in place is a tremendous asset when the time comes to transition your business, and they will help you run your business more efficiently. As an added benefit, our clients almost always identify optimization opportunities just by going through the process of creating SOPs.
- Finances: not having clean, organized financial statements will hurt your ability to sell your business. If you want to exit, it is absolutely critical to get you finances in order as soon as possible. First, this makes the process of attracting buyers and moving through due diligence much, much smoother. Second, it will allow you to establish a very clear grasp on your performance and identify levers that can increase your valuation down the road. Remember, you don’t need to become an accounting expert yourself: you can hire an e-commerce specialised bookkeeper who will take care of this for you. See our article on Accrual Based Accounting for more on this topic.
These are just a few of the steps you can take today to start preparing for a future exit, and the earlier you start working on these, the better. Even if these seem intimidating, there is good news: no matter what happens down the road, each of these steps will also benefit you as you continue to run your business, so it’s a win-win!
2. Track and optimise your performance
Beyond one-off steps you can take to increase your valuation, your exit plans can also influence your growth strategy: The decisions you make when you’re planning to keep your brand for 10 years versus planning to sell in the next 1-2 years might be different, and it is important to understand these trade-offs.
Sure, growing sales is important, but how does that impact your profitability? How are different products impacting your performance? How does this compare by marketplace? Are your resources better spent on growing sales on product B, which is driving 5% of your sales, or would you drive more profit growth by reducing return rates on your best selling product? It is important to know the answer to each of these questions to maximise the value of you business’.
Some common optimisation opportunities you can identify by tracking the right metrics include:
- Identifying products that are negatively impacting profit margins: Selling your e-commerce business is like running an important marathon – you want to be peaking as the big day approaches. In M&A terms, “peaking” is making sure the profitability of your product mix is as high as possible heading into an exit. We often see sellers who have a number of products that are contributing to growing sales while also bringing down profit margins. Tracking sales and profitability at the product level will help you make better decisions about optimising your product mix and investing resources to drive smart growth.
- High return rates: This can be a major red flag for buyers, especially if your returns are due to product quality. If this is the case, you need to address this situation ASAP. However, returns are often due to customers not understanding what they are purchasing → If this is true for your business, improving your listings to better educate customers (e.g., demonstration videos) can dramatically reduce returns and make you stand out in a positive way!
There’s a lot to keep track of when running a rapidly growing e-commerce business, so it is important to have an easy way to track your performance in a way that will allow you to make informed decisions. Without a system to stay on top of your performance, trying to track all of that information can become a burden and take time away from running your business
When you’re selling your business, you want your numbers and performance to speak for themselves. Even when there are easy explanations and solutions that can be shared with interested buyers: The less you have to explain, the better.
This is why at Nextoria we’ve developed a set of dashboards that quickly and easily give Amazon sellers answers to these questions. We use these dashboards to identify optimisation opportunities and help inform strategic decisions as we work together towards an exit! Curious to see where you stand? Get in touch with us if you’re interested in a free assessment!
3. Keep an eye on the market
We’ve talked about the things you can control, but executing the right exit is not just about optimising your business: It is also about finding the right buyer at the right time. Aggregators, private equity funds, strategic buyers, and a litany of other types of buyers and investors in the e-commerce ecosystem all have different goals and motivations when acquiring brands. There are a plethora of variables that go into finding the right fit, and being at the right place at the right time can make all the difference!
At Nextoria we work with Sellers to execute their exit on a well-planned time horizon, but we also make sure to keep a close eye on the market and leverage our network so that we can seize the right opportunity when it comes along. If a buyer happens to be looking for a strategic acquisition in your niche, you could find yourself in a serious sales process well before you planned. This scenario is more common than you may think, and is yet another reason why it is so important to have your business affairs in order as soon as possible. At Nextoria, we make it our goal to help our clients find unexpected opportunities in an ever-changing market.
4. Set yourself a clear goal
If you are considering an exit, that means you have already accomplished the hardest part – building a successful, well-branded e-commerce business. Take a moment to appreciate all the hard work you have put into getting where you are, and think about what you want to achieve next.
Ask yourself – Why do you want to exit? Are you looking to sell and move on or are you looking for a partner that will help your company continue to grow while you focus on the parts of the job you enjoy? What is the number you want to achieve and why? Is it worth it to you to ask for a more conservative number to exit quickly or are you focused on doing everything you can to maximise value of your company?
You may not be able to get everything you want, but you should seriously consider each of these questions as you approach an exit so that you can have a strategy that matches your goals.
We’re here to help!
If you’re starting to ask yourself whether an exit is the right option for you, or are set on selling but are not sure when and how, we’re here to help.
At Nextoria, we believe it’s never too early to start helping founders prepare for the exit of their dreams. Actually, this is our favourite part: the earlier we can start helping, the better!
Curious to know what steps you can take today to start preparing? Interested in getting a free assessment using our proprietary dashboards? Just reach out on firstname.lastname@example.org to talk to one of our experienced advisors.