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Not too long ago, we created a guide about five mistakes that destroy your website’s value (it’s a great read – I highly recommend it). One of the mistakes we featured is something called transferability. Or to put it more succinctly, how easy or difficult it is for a new owner to run the business instead of you?
Sometimes that transferability can be very easy, and sometimes extremely difficult. How easy or difficult it is to transfer an online business can greatly impact the value of the website.
There are many factors that might make transferability an issue during sales negotiations. These can include, but are not limited to:
- Personal Branding – the business and the business owner are one in the same in the eyes of the customer.
- Technical Niche – the business specializes in a niche that is technical in nature and requires specialized knowledge.
- Licensing – maybe you need a particular legal license to run the business? For example, a real estate agent needs a license. So does a lawyer. Many other businesses do too.
- Inventory concerns – the current owner is carrying a lot of excess inventories, much of which are older than a year.
- Vendors Terms & Requirements – the vendor may not want to deal with a new owner under the same terms, or the terms and conditions of the vendor contracts may be exclusive to the current owner only.
- Contractors and Workers – employees may not be willing to work under a new owner, or may not be willing to accept any changes to their job.
So when you are going into a negotiation, you should work to remove as many obstacles as possible to maximize value. Here are some ways you can do that.
Personal Branding & Impact
Choosing to use your charming personality or personal credentials as a tool to brand your business and to entice customers to buy can be a good business strategy. But it also creates a multitude of headaches when it comes time to hang out the “for sale” sign.
The personal branding that you worked so hard to build, and which may have brought you a great deal of money and good karma, will make buyers nervous. After all, no one else is you, and if a buyer thinks that your clients buy because of your personal branding, that is something they can’t transfer over to their ownership.
Therefore, several months before selling (or longer if possible), start easing your way out of the picture. Replace yourself with more generic, transferable branding. Make your company the brand. Take a lesson from the Princess Bride and the Dread Pirate Roberts. That way, you can show a buyer that the company doesn’t need you for it to succeed.
There are many ways that a vendor can cause a hiccup in a business’s transferability. Common problems that we see are:
- You are on grandfathered terms. The vendor may have changed their approach or terms for new vendors, but they grandfathered you in under older terms. A new business owner may have trouble securing these terms as they typically will be in the vendor’s books as a new company.
- Your vendor requires a storefront. Some vendors require a physical storefront to display their products properly. If that’s the case, you’ll need a buyer who can satisfy that storefront requirement.
- Your vendor sees an opportunity. Some vendors sense an opportunity to change the terms when the business changes hands that could cause your deal to be disrupted or renegotiated at the 11th hour.
If a new buyer can’t use the same vendors you use or essentially get the same terms, then that will greatly affect the business, and the talks could falter on this very issue. Therefore, you need to fix this in advance.
Get familiar with your vendor’s terms and conditions before you put your website up for sale. If you feel comfortable doing so, talk to your vendors personally and see how they would feel about a new owner. Get a feel for the lay of the land.
Always have a list of possible alternative vendors and keep the relationships warm enough that you would be able to set up an account with them quickly and easily. If you think a current vendor is going to cause problems in a transfer, start using your backup vendor before you list your business for sale.
Keyman risks are very concerning to buyers. When they take over your business, they’ll likely be overwhelmed trying to learn all that you’ve built over several years. Losing a key employee during this training period could cause significant setbacks for them.
If you have employees who hold significant responsibilities within your company, buyers will likely be worried about their future commitment to the company under new ownership.
If you feel you have the right kind of relationship with your staff, you could perhaps consider talking with them, and being open about your plans. They may appreciate the honesty, and may reciprocate by telling you about any concerns they may have about working for a new owner.
However, you may not be comfortable sharing your plans with your staff as they may start browsing for backup jobs, leaving you with vacancies as you try to sell your business.
If you do not feel comfortable talking to employees, try to figure out what assurances you could give a buyer to entice employees to stay on board. Perhaps you could offer key employees a bonus to stay on for at least three months post sale. This would give the buyer enough time to be trained in the business and plan for replacing the key employees if needed. Or, if you think an employee is likely to leave, you could offer to help the buyer find and train a replacement as part of your transition plan.
Old Inventory & Excessive Inventory
Old, slow moving inventory always poses a possible point of friction when selling your online business. While having some inventory on hand isn’t necessarily a bad thing (it can help in the sale), holding a lot of slow moving inventory represents sunk costs for most buyers. Most won’t be terribly excited about buying this from you at cost, and many will be unwilling to pay anything for very old inventory.
Another consideration with inventory is transporting it to a new owner. When you sell your online business, it is unlikely your buyer will be in the same state and could very well be on the other side of the country. If you have mountains of inventory, transporting the inventory can become a significant hurdle and cost.
If your business carries inventory, consider the following steps to reduce concerns over inventory:
- Unload old inventory. Many sellers hope that a buyer will pay for old inventory at cost. But most buyers won’t be willing to do so. Try to get rid of as much old inventory as possible before you put your business up for sale.
- Reduce regular inventory. As you approach your sale, start ordering inventory on an as-needed basis. Don’t reduce it to a point where you jeopardize sales, just trim it enough to keep the inventory investment cost low for a new buyer.
- Consider using third-party fulfillment. If you are a year or more out from selling your online business, consider using a 3rd party fulfillment center rather than filling orders yourself. Fulfillment centers greatly increase the transferability of your business by removing the fulfillment portion of your business altogether. The gain in your website’s value often offsets the costs of outsourcing fulfillment.
Bonus Tip: Create a Training Manual
If you want to earn yourself brownie points with a potential buyer, then create a comprehensive training manual. In this manual, document how to do everything in the company and the standard processes you perform daily, weekly, and monthly. Make things easy by doing a screencast (here’s a list of software to help). Buyers will love that you’ve taken the time to create a permanent reference resource.
Making Your Business Transferable Doesn’t Have To Be Difficult
When you begin an online company, always think ahead, especially to the possibility that one day you might have to or want to sell it. Make sure from day one that all of the potential pitfalls highlighted in this article are avoided. If you make a big effort to do this, then successfully selling and transitioning your online business to a new owner will become simple.
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