What It Takes to Sell Your Online Business

Since the internet has grown to encompass every sphere of our lives, it’s no wonder that online businesses are thriving. But, have you ever considered what goes into buying and selling online businesses? Eric Owens, top internet business broker, says that while entrepreneurs may be great at starting businesses, the ongoing operational effort required often encourages these founders to sell. That’s where internet business brokers come in.

In this episode, Eric Owensmaster online business brokergives us an insider peek into how to buy and sell internet businesses in 2021.

Having started in the online brokerage industry in 2007, Eric founded App Business Brokers to facilitate the buying and selling of online businesses in the modern market. 

In this episode we discuss:

  • Realistic time frames for buying and selling an online business
  • Key factors that affect your online business valuation
  • Top-selling mistakes that entrepreneurs make when selling their online businesses

Podcast Transcript

  1. Host: Josh Fonger

    Guest:  Eric Owens

    Duration: 28:42

     

    Josh:  00:00-00:33     Welcome to the Work the System podcast where we help entrepreneurs make more and work less using systems. And I’m your host, Josh Fonger. And today we have a special guest, we have Eric Owens. Eric is the founder and CEO of app Business Brokers dot com. And has been successfully brokering internet businesses since 2004. And doing online businesses since 1997. Wow, that’s a long time. Eric has an impeccable reputation for efficiency, speed and integrity, making him one of the most trusted and sought after business brokers in the world. Alright, Eric, welcome to the show.

     

    Eric:   00:34-00:37     Hey, thanks for having me on, Josh. I appreciate it.

     

    Josh:  00:38-00:45     So tell us, Eric, as we get started here. What is your story? How did you become an internet broker?

     

    Eric:   00:46-02:39     Definitely. Yes, definitely not something where I like set out when I was younger, where I wanted to be a business broker or anything like that, I kind of fell into it, where I started out doing, I’m an engineer by background. So love the Work the System stuff. And so I thought I wanted to manufacturing company went to engineering school, did manufacturing management stuff for a few years and high tech manufacturing, and realized back then that was realized, I did not want to go to manufacturing business at all. I saw the trends going, you know, Mexico, China, all that stuff, we’re not the kind of business I wanted to be in, and then started looking at other ways to make money and build businesses. And it released seeds of the internet. And so I played around, figured out a few things myself, and then partnered up with a guy that I knew there was really good at sales and marketing stuff, I was good at the system. So we build a couple of niche tax software websites, and then read those for a few years. And then my business partner, and that was motivated to go buy a new Mercedes, and I was looking to buy a new house, or like, maybe we can sell these had never done it before. So we just figured it out, like how to go sell them and stole those two off. And then when we were doing that, I had a couple of contacts that were looking to invest in online businesses. And through owning another business, email marketing publishing company where it was, we knew a bunch of the early internet marketing people. And so new people that had internet businesses, and then all of a sudden had some buyers that want to buy them. So just kind of fell into it or like, okay, I can line up deals and take a percentage and got into it that way.

     

    Josh:  02:40-02:56     So that’s really fascinating. And you’ve been in this world a long time, I didn’t realize that. So what is the process? Because for those of you who don’t know, and I’m one of them, what is the process to actually go through to buy or sell an online business?

     

    Eric:   02:57-06:05     On the seller side, I somewhat similar to your offline businesses are a little bit similar to online in terms of the actual process you follow. So what we do is we typically, we talked to your prospective seller client, ideally, at least like 6 to 12 months ahead of when they want to sell three months is good, can do is shorter, just but if you want to sell for maximum value definitely takes a little bit of planning ahead and make sure you have the right things in place. And so we normally do is we’ll give people an initial consultation call, see where they’re at what they want to accomplish by selling, and then give them a free valuation on if they were going to sell their business right now, as is what the market would probably pay for it. And then see if those numbers make sense for what the seller wants to accomplish with the sale. And sometimes it’s already you know, has enough things in place where they can get the value they want. Other times that’s where it comes in where it might be a few things that need to be fixed up with the business before putting it on the market. And with the numbers look good, then we take all the information on the business and package it up into a nice professional perspective or some people call it a confidential business review the whole package on the business that has all the details on it. And then that’s how we use the presents to buyers. And then as brokers we’ll go about marketing a few different ways. We have an in-house database that we use as buyers we’ve built up over the years around like 11,000 buyers. And then we’ll also go run advertising different places and bring in the bringing good targeted buyer leads. Just that part’s all blind so keep it you have to inquire inside an NDA before they actually get to see the confidential details of course. And then we’ll also look at each particular business to you and see if it makes sense to go do some strategic buyer outreach, some businesses and make sense of other ones. Not necessarily a fit for that, but we’ll do that research and go do that work also to go do some direct outreach and then we’ll present it to buyers. Usually they have questions, they’ll go through a review process. If they’re kind of professional buyers, they have a whole process they go through on their end. And then usually get down to a point where there’s a few buyers looking to make an offer, there’s a broker, we helped negotiate that down to the best deal for the seller to move to do a letter of intent, which has any key deal terms. Due diligence report. That is one nice thing about online businesses and apps when it comes to due diligence. It’s far more simple than any businesses I’ve ever seen before, where as a seller or buyer, there’s only so many moving parts and pieces where if you know what you’re doing, it becomes a relatively simple process compared to offline businesses. Then with due diligence is done. And we sorted a purchase agreement, and any other contractual documents that might be needed. And under closing the fun day where everyone gets paid and gets to celebrate so, we work with people all the way through their process, right through like transition and all that.

     

    Josh:  06:06-06:18     So it was a great overview. So once, once you do sell, is there usually an overlap where the previous owner sticks around for a few months or a year or and I like companies that really just you bought it now it’s yours?

     

    Eric:   06:19-06:49     It can be that way? Just happens. Sometimes it’s more for apps, we see that where a lot of our app deals that we do, it’s almost like the buyer gets, they just want the assets. And they’re like, hey, great, thanks. Now get out of my way, previous owner of good internet businesses, sometimes they do ask for at least 30 days, sometimes longer if it’s a scenario where you maybe have b2b clients, or there is relationship stuff involved on the client side. But a lot of them run 30 days, the usual timeframe that we see.

     

    Josh:  06:50-07:02     That’s quick, because I have some clients to do it more in the traditional business side, it’s usually much longer. It’s like a riskier transition period sounds like not like that. But it’s quicker and not as risky with the transition.

     

    Eric:   07:03-07:19     Yet, see some larger deals, still there should be prepared to stick around for a while. And it’s almost even if the buyer doesn’t need them, it’s almost like there’s, it’s like part of playing the game. So we expect someone to be around more like six to 12 months if the deals want to get up into like 510 million that range?

     

    Josh:  07:21-07:45     Well, let’s talk about some of the factors. Because as you’re going through that list of things to do, one of them was you give them an initial forgot the phrase you used, but you basically assessed their company and said, hey, that’s what it’s worth. Now, what are the factors if there’s a handful of factors that really move the needle from making it worth, let’s just say, a million to 2 million, like, how do you? How do you make the job? What are the factors to work on?

     

    Eric:   07:46-10:28     Definitely. And it’s one where as an engineer, I wish it was all just numbers, all science, but it’s only part art part science. So we’ll look at it and see like, where we can position the business where, you know, maybe for certain buyers that have more value than for other buyers. But when it comes down to the numbers side of things, or the data side of things, the financials are a big factor. And that’s one thing that I always recommend to people where it’s you know, it’s not like the fun, exciting part of businesses, especially for online entrepreneurs. But it is really important because especially nowadays, where buyers are able to get third party funding for some of these online businesses where industry has grown up a little bit in the last two years. But when it comes to bank financing, I mean, if you’re a solo entrepreneur, and your financials are in a mess, and you’re trying to sell, it’s not gonna fly, once it gets to the bank, where they’re looking to buyers looking to fund it that way. So having clean accurate financials is definitely key to help make that happen. Dude, honestly need that when they come to us. But that’s one of the things we’ll work with them to get in place, if they don’t have it already. I always advise people, it’s one of those things like if you can just get that in place in the start and keep it going, then you’ll be set up for success down the road for sure. So the financials and ideally two, if you can run things through its own separate entity, and we have some clients where they, they might start like a few different online businesses and run them through one company entity. Which, you know, I think almost all entrepreneurs do that to start but if you are setting up something to sell it, run it through its own entity bank accounts, tax returns, all that. Makes it simple when it comes to due diligence, and like I said, if someone’s getting third party financing, it makes that process go tremendously more easy. So look at the financials and also when the financials will look at the trends. Certainly year over year increases or decreases and then the current and annual run rate that the businessmen do because inevitably that’s what buyers are going to look at heavily weighted on the financials for sure. And then, it’s one of the main factors that we also look at. If it’s like an apple look at the user base, if the user base is growing or declining, and then to some degree with online businesses, if they have anything like recurring revenue, then look at that, if that’s the true rate stuff is growing or declining.

     

    Josh:  10:28-10:40     So are there certain types of online businesses that are really good? I just found other companies that say you should never sell this kind of online company? Like they’re so obvious verticals?

     

    Eric:   10:39-11:48     It’s a great question. I would say more business model stuff. So, SaaS businesses software as a service, if you build a software as a service, business, someone will want to buy it. It’s pretty amazing anything you put out like that. Even if it’s not making a ton of profit, if it’s bringing in revenue, and has a strong customer base. There’s a lot of different buyers that will look at that and buy it. These  two ecommerce businesses, whether it’s someone’s using Shopify or Amazon, there’s tons of buyers now that are looking to buy those up. So the current market demand, it’s definitely a good, good niche to be in. And ones that are harder to sell are like I went to a conference back a while ago, where it’s definitely people that create more personal brands, which is fine. If mean, an awesome business, they’re just harder to sell. Someone built the whole business around their personal expertise and their fate, personal face basically.

     

    Josh:  11:49-12:39     Okay, so more difficult to sell with the personal brands. I’ve got to two questions, one client and one for me personally. So I had a client six months ago, and they were in the auto parts industry selling online. 100% online. I don’t know their numbers, but Amazon, eBay, other sites, basically all auto parts. With that, but the thing is, they were trending downwards, because they recently got hit the ranks were going down. And also, you know, industry trends are way more competitive in the auto parts industry. Would someone say, hey, even though you’re trending downwards, you got to go to the user base, you’ve been in business for five years, you know, say you’re doing a million dollars in sales? Let’s say they would still entertain sellers?

     

    Eric:   12:40-13:07     We’ve gotten some deals done that have been even in like somewhat rapid decline, just give way less money for it for sure. So lower valuation. I think that’s one thing to know, if you’re going to sell in a decline is to have that expectation that you’re going to get a lower price than you would if things were flat or growing. Certainly the ideal unicorns, scenarios like it, you’re gonna sell to on an uptrend, where there’s still more growth happening. Things don’t always play out that way.

     

    Josh:  13:08-13:33     Okay, because they were kind of in a tough spot. And, and I don’t know if I mentioned your name or not to them, but I should have done this a while ago. Okay, it’s interesting. The other question wasn’t, so work that system, right? So Work the System. We have no intention of selling. But I know, let’s just say 10 years from now, I want to sell it. What should I start thinking about now? So that 10 years from now? I can pay for my kids’ college?

    Eric:   13:34-15:00     Right. Really definitely. I mean, you probably have a lot of stuff in place. So some of the personal brand ones are where the winners key to it. If you still have other systems in place that can run the business, those people I was encouraged to set it up is like, you know, set the business up to a point where you, it’s a business you love, and then likely someone will buy it. There are certain things you can do that you know, keep your personal brand out of it or minimize it. Like so many people have built personal brands, go into it, because either that’s the easiest way to do it. Or they actually want to be the face of it. Like that’s what, you know what they like about it. But we’ve seen some people successfully do it, where they transition to a new owner that wants to be in that particular niche. And then over time kind of transition, that new owner to be in the face of the business is said to be a longer term play to make them okay. Some people move into like more like a publishing type of model where they have multiple products or multiple people involved. Like I have a friend who has a business teaching private pilot’s like the ongoing certification training stuff that they need and sorted out where his partner was the expert. Now they have like a whole team of content creators that where the business doesn’t rely on them.

     

    Josh:  15:01-15:32     Okay, so in my case, so Sam has kind of passed the baton on to me. Sam is still involved. But in the future to say 10 years from now, the goal is I’m thinking about this on the spot, it would be, I would want to get like a team of people who are kind of certified and Work the System who kind of are experts. Their writing, their speaking in their podcasts. So Josh is not here anymore. But the company is still carrying on because now the whole plethora of experts, and it’s more about the brand as opposed to one person.

     

    Eric:   15:33                 That’s your ideal scenario for sure.

     

    Josh:  15:34-15:53     Okay. I’ll start working on that. I have some time though. No plan to retire yet. Okay. So, financials, you want to trend right away, you want to have said maybe some systems in place. Anything else that we missed that you want to make sure that you want to have before you sell?

     

    Eric:   15:54-16:45     I think one thing that other people forget is, if you want to sell for maximum values, having something with the business that’s somewhat defensible. Even if it’s the ideally trademarks, patents, that kind of stuff. Some businesses don’t lend themselves to the go to the patent direction much. But you can certainly trademark brand products, things like that. And then, other than that, it’s more a matter of like looking at, you know, maybe it’s your brand, making it where your brand appeals to your target market, much more than anybody else does, is thinking through with your business in the market, if there is any way you can make it more defensible. Even simple things like having repeatable marketing systems in place, it can help with that, too.

     

    Josh:  16:46-17:09     Okay. Now, I’m just taking notes myself. That’s good. Awesome. All right. So what is the theoretical best time to sell? So you got unlike company, is it good to sell? When there’s still lots of room in the industry for growth? Is it good to sell just as soon as you have an upward trend to sell, then we’re just whatever you feel like? Or how do you make the choice that this is the right time to make that pull the trigger?

     

    Eric:   17:10-18:22     Unfortunately, we see people come to it, sometimes we’re like they’ve gotten burned out on the business, where they just they keep working on the business to the point where it’s like, okay, they’re kind of done with it personally, or have been done with it personally for a while and kind of taking their foot off the gas. So for contrast, that’s like, not the ideal scenario, because you probably let the business decline to some degree. Really, the ideal scenario would be where you’ve got it built for at least two to three years. That way, it has some history behind it. And that does allow you for third party funding sources to be able to fund it, that amount of history, and where it’s at least flat or growing. And there’s some relatively low hanging fruit still on the table for a new buyer to come in and grow it without having to invest a ton of capital into growth. So at least flat or, or growing in that decision point. I think it’s, it’s a matter of also to you, if you do have some financial goal for your exit, then making sure your financials are trending in that direction to be able to justify a valuation that may get you there.

     

    Josh:  18:23-18:29     So what is the most common mistake that people make? That kind of scares them up for sign to business well?

     

    Eric:   18:30-19:47     I think what I said before the day, they’ve been burned out in the business to where they live. Actually, along those lines, usually we get a lot of a huge percentage of our seller client base ends up being what I call serial entrepreneurs. So they’re really good at starting stuff really good at growing it, not necessarily great at operating it and putting a team of people in place like once you get to that place, it almost feels like a job to them to you know, manage a team of people where, and then they get some other bigger idea. So you know, they might have a small online business making 100-200-300 grand a year, they have an idea for something that they think is gonna make them, you know, millions of dollars a year. They’re working on a new idea, and then totally take their foot off the gas on their current thing, and then decide to sell it at that point. That’s the biggest mistake I think is letting your attention go off the current business and move to the new one. Because when you’re faced with this declining asset where it does decline too much from a buyer perspective, even smart buyers will look at it and go. I wonder if I’m missing something here. Like I wonder if I’m catching a falling knife that I just don’t see that it’s a falling knife they won’t be able to turn around.

     

    Josh:  19:48-20:03     So what are the common multiples and ABS is too broad of a question for an online business. I mean, how do you even come up with numbers are just rules of thumb for us as a company or like Amazon business that are just common?

     

     

    Eric:   20:04-20:52     They’re pretty common and lots of times it comes down to what they’re selling for in the current market. Although the e-commerce ones have been pretty consistent, I’d say over the years on the SAS ones, and they can go for anywhere, they definitely fetch a higher multiple, typically, somewhere, some of those can get more like three to six times whatever the yearly earnings are. E-commerce ones tend to be somewhere between two to three times, sometimes three and a half. In that ballpark, in the mobile app deals that we do, those tend to be more like one and a half to two and a half times, once in a while three times if they have subscription revenue stuff, but I’m making change to some degree at any given time, and depending on if it’s, like I said, if it’s growing or flat or declining.

     

    Josh:  20:53-22:35     So what has, this is really interesting to me. What has the history of the online because you’ve been just longtime online business selling, buying, selling, compared to now compared to where you see it going in the future. I mean, what would have been kind of the trends that you’ve seen and is the end game or the future bright or dark? In terms of I mean, I think it’s bright in the terms of a buyer demand, like buyer demand keeps increasing. From really diverse places, whether its individuals or investor groups, private equity companies, and then we get even like some larger companies that look at specific online businesses or apps where they look into acquiring for probably to leverage the customer base in some way. So veterans’ good on the flip side is definitely getting more competitive. And I think buyers are getting more sophisticated, where things like I said, like clean, accurate financials, I think in the future, that’s going to be pretty vital, where if you don’t have that, then you’re going to get like a weightless multiple or have a hard time selling. I know over the years we have gone from like, the early stages of internet businesses that I worked on, it was a lot of info about the type of stuff that people were selling. They weren’t even doing a ton of e-commerce type of plays, where now people are really familiar and comfortable with the e-commerce model. So on the buyer side, they just understand it and can grasp it and probably see ways where they can improve the business. So e-commerce specifically and they see that continuing to grow and grow for sure.

     

    Josh:  22:36-22:39     So it sounds like it used to be the Wild West. And now it’s getting much professionalized.

     

    Eric:   22:40                 Yes. Definitely.

     

    Josh:  22:41-22:49     More money in the game now. But more competitions in the game, too, I suppose. So that’s interesting.

     

    Eric:   22:50-23:08     I think in the future, too. One thing I see is, is that people need to have multiple ways to bring in clients, or multiple ways to advertise, like, if your business is all Facebook ads. They’re pretty risky. From the buyer.

     

    Josh:  23:09-23:34     Okay. So it needs to actually have a sound like, behind the scenes of what I’m hearing is you need to actually have some loyalty or some value in the brand itself, is that the techniques of growth? Go obsolete so fast. So that’s not really a defensible, you know, unique selling point anymore.

     

    Eric:   23:35-23:49     You really focus more buyers will look at it and feel like, well, I could buy your business for I don’t know, 500,000. Or I could go dump, you know, 100 grand into hiring media agencies to run ads for me and build out something comparable.

     

     Josh: 23:50-24:30     That’s true. And without, like, companies that don’t have, I guess, proprietary machinery, so much. Okay. Now, that’s very interesting. Okay. So, a couple more questions, and then I need to probably sign off. So how about this is just for one of my clients? How do you personally get clients in your industry? And this can be for anyone who has to find a difficult client, like, how do you find clients? Because this is not it’s kind of a niche situation. So some of my own online company for five years, but they’re only going to sell it? You know once. How do you find people want to sell and buy?

     

    Eric:   24:31-25:46     I think what we’ve done over the years is just a lot of, we’ve gotten a lot of our business by referral. So the early clients that we sold businesses for, some of them have moved on and now we’re like, they’re people like Ezra Firestone or Matt Clark from Amazing dot com, or they teach other entrepreneurs how to build these types of businesses. So for us, we’ve lucked out that way. Were they people like that send deals to us or other online entrepreneurs that tend to know via other online entrepreneurs, so your network of contacts, they typically at some point, one of their friends or people they know want to sell. And so we get a lot by referral. And then we’ve done some content marketing stuff. So whether it’s stuff like this podcast with you or contributing other people’s actual courses, where they teach people how to do that. And then last year, I started doing some speaking stuff, like, moving forward, that will probably do too. If I was gonna break into this industry, like mergers and acquisitions or things like that, now starting from scratch, I would probably target some particular niche in some expertise. And in that niche, and going in that direction.

     

    Josh:  25:47-25:52     By this point, you guys have kind of bought and sold a variety of industries that you kind of like, you could play in a number of places right now. Right?

     

    Eric:   25:53             Right. Definitely.

     

    Josh:  25:54-26:03     Interesting. All right. Well, we’re running low on time. So what is one question that I did not ask you, but I should have asked you.

     

    Eric:   26:04-26:49     You know, one thing that there’s about this that came up from you is a recent thing, where for sellers to think about it before they sell is like what they are going to do next. Some people have a clear idea on that. Other people don’t. But I find some of our clients where they have their business, their whole identity is very much attached to being the owner of that business. And if they sell and don’t have a plan, then sometimes it can almost get like, can always be depressing, where it’s like, so my business made a bunch of money, like, but now I’m not that person anymore. Like, what do I do? Who am I almost? So, you know, existential crisis stuff, where if you don’t have a plan in place, at least have a plan to take some time off and figure out what you’re going to do next.

     

    Josh:  26:50-27:00     That’s good advice. I suppose that I might also kill one year deals because they might get to the table and then say, you know what? I decided not to sell after all. Does it happen?

     

    Eric:   27:01-27:11     Really?It has been more where we’ve talked to people and then showed them some ways where they can improve their business where they’ve gone and done it. And they’re like, you know what, I love this business now. I want to keep holding on to it for a couple more years.

     

    Josh:  27:12-27:14     Do they pay you for that advice? Or has that just happened in the past?

     

     Eric:  27:15-27:19     It happened in the past our business model, we’re gonna actually start doing some more consulting stuff.

     

    Josh:  27:20-27:41     So there you go. I’ve had the same thing happen where we were trying to buy a company. And once they find out what kind of what we’re gonna do, they just start doing it. I said, we don’t want to sell anymore. Anyways, that’s, that’s interesting. All right. Well, where can people find out more information about you and what you do if they want to buy or sell an online company? Where do they go, Eric?

     

    Eric:   27:42-27:54     Definitely, they can reach out to us at APP Business Brokers dot com it’s the best way. And it just hit us up and let us know came from this podcast with Josh will give you some extra VIP treatments.

     

    Josh:  27:55-28:42     Okay, awesome. Well, very good. Well, hello, everybody. Look while watching it. Listen to this podcast, I enjoyed the time we had with Eric, again, Eric, thank you for sharing your wisdom. This is really helpful to me. Hopefully, a lot of folks are listening. Stay tuned. Next week, we’ll be sharing another podcast with either a previous client of mine or a business expert like Eric or an author, a guru, someone’s gonna help you grow your business so you can make more and work less. And if you would like to leave us a review and get a copy of that book right there behind me Work the System, we give away one copy of that book a week to whoever leaves a review. So leave us a review and get a screenshot of that. An email to info at work the system dot com. And then once a week, we’ll be pulling a name out of the hat and sending a book your way. Otherwise, again, thanks, everybody for joining us, and we will see you next time.

     

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