Introduction
If you’re looking to sell your ecommerce business, the first step is to put together a solid buyer’s package. In this article, we’ll show you how to do just that. We’ll give you tips on what information buyers will want to see so that they can make an informed decision about purchasing your company. We’ll also discuss how long it will take for all of this information to be ready so that you can get started as soon as possible!
The importance of documentation
Documentation is one of the most important aspects when it is time to sell your ecommerce business. It’s also one of the most overlooked and an area where an experienced eCommerce business broker can add significant value.
Documentation is necessary to ensure that you’ve been following best practices and are ready to sell your business or part of it quickly, with no complications or surprises on either end. It provides buyers with a clear understanding of what they’re buying into, and removes risk from their decision process.
Prepare your financial statements for the past 3 years
Financial statements are a snapshot of your business at a specific point in time. They’re prepared using accounting principles, which are rules for measuring financial performance, liquidity and solvency. Financial statements can be prepared using either cash or accrual basis accounting.
These days, many businesses use accrual-basis financial statements because they provide more relevant information than a cash-basis statement alone would provide. Though adjustments can be made to convert from accrual to a cash basis, if necessary.
Financial statements are used by investors, lenders and auditors to determine if a company is financially healthy. Buyers will want to see the past 3 years in order to calculate their valuations and understand the key aspects of your business. Some buyers may also ask to see the past 5 years to spot trends and the impact of Covid19 on the business.
Prepare your financial statements for the current YTD
As you prepare to sell, it’s important to get a good handle on how your business is doing in the current year. This will help give potential buyers an idea of what they can expect on day 1 if they buy into your business.
Review your financial statements at least quarterly
You should be reviewing these statements on a regular basis so that you know exactly where your company stands and if anything needs adjusting moving forward, like cash flow, marketing budgets or inventory levels.
Prepare your tax returns for the past 3 years
Buyers need to see that you’ve been paying taxes and running your company in an orderly fashion. You should prepare the tax returns for the past 3 years so you can show a buyer that everything has been in order and you’ve been complying with all local and federal tax regulations.
Additionally, if your buyer will need financing to complete a transaction, almost all lenders (including the SBA) will require copies of the business tax returns.
The good news is that this process isn’t complicated but it does take some time to get everything ready. You might want to consider hiring an accountant to make sure your numbers are accurate and match your financial statements.
Document your marketing and sales KPIs and Metrics
Now that you have a clear handle on the business metrics that matter to your business, it’s time to document them. If you don’t already, this will take some time and effort to get right. There are no shortcuts when it comes to implementing these systems.
What are the KPIs and Metrics for your business marketing? How do you attract visitors to your website and what percentage of the visitors make a purchase? What does it cost to attract a buyer and what is the gross margin earned by the average buyer of their lifetime?
What else do you measure? What information do you track? How do you set targets? How do you track progress to the targets? What are the results of tracking them?
Document your suppliers and how you decide to add and remove products from your store
The products and services you sell are usually a very important aspect of any business.
Without great suppliers, you cannot reliably get these products and services to grow your company. So, it’s critical that you get good at finding them and making them work for you so that your customers have a seamless experience when buying from your ecommerce business.
First, let’s go over some tips for how to document your supplier relationships so that when it comes time to sell, there will be no questions about why certain suppliers were chosen or removed from the website:
Make a list of all the suppliers you use. Include the name, address and contact information for each supplier as well as what they provide. For example, if you are selling electronics and are using a manufacturer in China to produce your product, make sure you note that on your list.
In the list of suppliers, also calculate the total revenue and gross margin attributable to each supplier annually. Highlight any specific terms or agreements in place with these suppliers. For example, if you have an exclusive contract with a supplier that prevents you from selling to other customers, make sure this is noted in your list. Also highlight any terms or agreements that are no longer in place. For example, if your contract with one supplier has expired and you have chosen not to renew it, make sure that is noted on your list as well.
Document your internal software applications
You will also need to document all of your internal software applications required to run your business. This should include a brief description of each application, who is using it and what it does, how much it costs per year and any additional features or capabilities included with your license.
Document your customer support metrics and KPIs
Customer support is a crucial part of your business, but it’s also easy to forget that customer support metrics are important. If you don’t have a system in place for tracking and improving these metrics, you could lose customers or miss out on potential sales opportunities.
To start tracking your support metrics and KPIs:
First, make sure you have an organized way for receiving customer support tickets and keeping track of them in one place. For example, if you use Zendesk or HelpScout as a ticketing system, try creating columns that show how many tickets were received per month; which questions people asked most frequently; how long it took to resolve each question/issue; and how many open cases were resolved within 30 days (and then 60 days). This will help you determine where improvements need to be made so that customers get the best experience possible—and aren’t stuck waiting too long without answers.
Second, keep track of statistics such as these:
How many tickets were opened?
What was the average response time?
How many open cases remained unresolved after 30 days?
What was their average response time?
These numbers can tell us whether your team is doing enough work during peak hours (which means they may need more resources), what type of requests come up most often (so we can better prepare for them), etc.—all useful information when considering whether we should bring on additional staff members or contractors temporarily to improve customer service levels.
Document your fulfillment and warehousing processes
Your business is a complex system that requires a lot of documentation to keep it running smoothly. It’s important to document the process of handling customer returns and product inspections, as well as how you pack, ship and deliver your products. You should also create written procedures for how you handle quality control in warehouses, distribution centers and shipping hubs.
Your fulfillment process will be easier if you have detailed documents about all aspects of this process.
Conclusion
You’ve planned, documented and organized your business, you’re ready to sell your ecommerce business. Now that you have a strong foundation of information and documentation, selling your company will be much easier than before. You may want to consider hiring an experienced business broker who can help with this process. The broker will be able to guide you through the process of gathering all of the necessary information and assembling the information into a Confidential Information Memorandum (CIM)
