Interested in buying a business but have questions about the process or the BizSellers team? Read through the frequently asked questions below. If you still have questions, don't hesitate to reach out to us.
What licenses or credentials do you have?
Kevin Hermansen (Biz Sellers' lead broker) has a Master's Degree in accounting and taxation (MAcc), having graduated Summa Cum Laude from Brigham Young University in Provo, UT in 2006. Kevin then worked in public accounting for ~5 years, spending time with both Ernst & Young (one of the "Big 4" accounting firms in the USA) and with Cooper Norman (a regional CPA firm in Idaho). While with Cooper Norman, Kevin was on a small team that specialized in business valuations.
Kevin is also licensed as a real estate agent in the state of Idaho (license # SP52592), which is required for business brokers in Idaho and many other states.
How much experience do you have as business brokers?
We're very experienced. Over the past decade, we've brokered the sale of over 100 businesses for a total transaction value of just over $20 million.
Are most deals structured as an asset sale or as an entity acquisition?
Most deals are structured as an asset sale (simply because it's easier logistically), but there are several reasons why you may want to structure the deal as an entity acquisition instead.
In an asset sale, the buyer isn't acquiring the actual business entity (i.e. Bob's Fine Furniture LLC). Rather, the buyer is purchasing all (or most) of the assets/accounts owned by the business: the domain name, the website content, the inventory on hand, the customer lists, the social media accounts, the supplier accounts, etc. After the sale, the seller then just shuts down their business entity (since it's now asset-less), and the buyer places all of the acquired assets/accounts inside a newly formed business entity in their home state.
In an entity acquisition, the buyer instead acquires the shares (or ownership interest) in the seller's business entity, taking over ownership of the business. Since the business owned all of the assets/accounts, the buyer now has ownership/control of all of the website assets/accounts.
Common reasons for structuring the deal as an entity acquisition include:
- Suppliers are unwilling to set up new dealer accounts for new business entities
- The sale includes marketplace accounts (i.e. Etsy, eBay, etc.), and the buyer doesn't want to run the risk of those accounts getting suspended in the unlikely event those accounts are flagged when transferred to the new owner
- The business has contracts or other legal agreements that cannot be transferred/assigned to a new owner (or would be prohibitively cumbersome to transfer)
I've heard that some marketplace accounts (Etsy, eBay, Amazon, etc.) are non-transferrable. Can they be included in the sale?
Marketplace accounts (such as Etsy and eBay) can be included in the sale of a web-based business, but it does complicate the transaction a bit. How we handle the transfer of these marketplace accounts will depend upon how the business you're acquiring is structured (i.e. corporation/LLC vs. sole proprietorship), how the sale is structured (asset sale vs. entity sale), and the desires of you and the seller.
The absolute safest way to transfer Etsy/eBay/other marketplace accounts is to not transfer the accounts themselves. Instead, the deal is structured such that the buyer purchases the business entity that holds the accounts (i.e. an entity sale, rather than an asset sale). If the marketplace accounts are owned/controlled by "Selling Co" and Mr. Buyer purchases the Selling Co business entity (including all of the assets/accounts in its name), the marketplace accounts aren't being transferred at all. Selling Co owned/controlled the marketplace accounts prior to the transaction, and Selling Co still owns/controls the marketplace accounts after the sale. The only thing that changes is the owner/shareholder of the Selling Co business entity.
In the past, we've even structured a couple of deals where the original owner stayed on as a passive, minority owner of the business entity (i.e. a 1%, 2% or 5% owner). This way, the business was able to continue to use the original owner's name on the marketplace accounts, making it possible to not update ANY information whatsoever in the marketplace profiles.
If you and/or the seller aren't willing or able to structure the sale as an entity purchase, the marketplace accounts can still be transferred to the buyer and included in the sale. While it technically is against the terms and conditions of some marketplaces (such as Etsy and eBay) to transfer a seller account from one party to another, it happens A LOT and is a very commonplace practice. When done carefully (following the guidelines listed below), there is very minimal risk of the marketplace account being flagged or suspended. After all, the marketplaces are primarily concerned about a) accounts getting hacked (not sold) and b) shady companies acquiring accounts with strong rankings/feedback/sale histories so they can change/replace the listings with totally different products or lower-quality knockoff products to trick marketplace customers (not legitimate sales of web businesses).
The main keys to a seamless, unquestioned marketplace account transfer are:
- Keep as much profile information the same as possible - Generally, even if the deal is structured as an asset sale, you (the buyer) will be taking over the existing email accounts. This will allow you to keep the marketplace account's primary email address the same, which is important. If at all possible, it's also best to keep the bank details the same. The Asset Purchase Agreement (APA) will likely state that thecashin the bank account isn't included as part of the sale, but thebank account itself certainly can be included in the sale. Keep as much of the other profile details as possible the same as well.
- Don't update bank details right before a payout (if updating bank details) - If the seller is not willing/able to transfer the bank account that the marketplace deposits have been getting deposited into prior to the sale, be careful not to update the bank account information within 3 days prior to the next deposit.
- Update the profile information slowly and incrementally over time - You shouldn't make wholesale changes to the profile information all at once. Instead, you'll want to make one change at a time and spread out the changes over several weeks.
- Keep "branding" the same - If you're changing the business name on the marketplace account, it's best to keep the "branding" the same as it was before the sale. For example, if the business name prior to the sale was "Bob's Fine Furniture LLC", it's best to have the new business name be as similar to that branding as possible (i.e. "Bob's Fine Furniture, Inc.").
- Have the seller update the profile information (not the buyer) - The seller should make the changes to the profile information, not you (the buyer). If a new IP address is used to make changes to the profile, the marketplace's system might think the account has been hacked and flag it.
- Use a VPN during and for a few weeks following the transition - Along the same lines as the bullet point above, having both the seller and buyer use a VPN (which allows them to log into the marketplace account from the same IP address) during the transition and for the next several weeks is a good idea.
Following the guidelines listed above, we've never once had a marketplace account get flagged or suspended.
What are the typical steps in the buying process?
For most transactions, the buying process looks like this:
Pre-Offer Due Diligence - After reading the sale listing, sign the on-page NDA (if applicable) and use the 'Ask a Question' interface on the listing page to ask questions about the web business and request addition reports and information. If desired, you can also schedule a call to discuss the business/listing with our brokering team. In most cases, the seller is also willing to jump on a live Zoom meeting to speak with you after we first speak with you and gauge your level of interest and ability to buy. Prior to having a signed LOI in place (see step 2 below), we won't be able to share certain confidential information with you (e.g. trade secrets, supplier details & contact information, detailed sales breakdowns, keyword-level advertising/traffic reports, etc.), but we'll certainly share enough information for you to be able to determine what kind of offer you want to make.
Submit an Offer - While an offer doesn't technically have to be in writing, most buyers and sellers prefer to make the offer (and acceptance thereof) official by executing a Letter of Intent (LOI). Some buyers prefer to submit a formal LOI before any negotiations, while others prefer to work through us (the broker) to hash out the deal structure and basically come to an agreement on the key terms of the deal prior to submitting an LOI. We're good with whichever option you prefer, and we're happy to provide LOI templates for various deal structures upon request. (Note: As the name implies, a Letter of Intent is non-binding in terms of requiring the buyer or seller to complete the sale. Rather, an LOI expresses theintentof the parties to pursue the sale in good faith and outlines theanticipated(but not binding) terms of the deal.)
Seller Accepts Offer - Sometimes, the seller will accept your offer (i.e. LOI) as-is. Other times, the seller will make a counter-offer or instruct us to tell you the reason(s) why they are declining your offer (in which case you can submit a new offer/LOI if you'd like). We will work with both you and the seller to try to work out a deal structure that is acceptable to both parties. Once we agree to the basic terms for the sale, the seller will sign the final LOI to signify his/her acceptance of your offer. This puts the sale "under contract" and typically grants you exclusivity to complete the sale within the timeframe stated in the LOI.
Post-Offer Due Diligence - With an LOI in place, we'll work with you and the seller to complete the remainder of your due diligence. At this stage, the seller will share ALL the details of the business, holding nothing back. The 3 goals of final due diligence are: 1) verify the accuracy of the financials (i.e. P&L; statement) and other information included in the sale listing; 2) answer all of your questions about the web business' history, operations, supply chain, marketing, customer lists, etc.; and 3) prepare the definitive Asset Purchase Agreement (APA) which both the buyer and seller will electronically sign to complete the transaction (see step 5 below). For most web business sales, the due diligence process can be completed in just 1-2 weeks (sometimes 3 weeks). However, on some larger deals (i.e. 7-8 figure sales), the due diligence phase can be as long as 4-8 weeks.
Sign the Asset Purchase Agreement (APA) - Once you (the buyer) have completed your due diligence and both the buyer & seller are ready to close, the transaction is consummated by electronically signing the APA. Unlike the LOI signed in step 2 above, the APA is the binding, definitive agreement (legal contract) outlining the official terms of the sale. Buyers will sometimes hire an attorney to draft the APA, but most buyers and sellers choose to use the APA template we provide free of charge.
Transfer of Funds and Assets - As outlined in the now-signed APA, a) the buyer now transfers funds to an escrow account (which we can provide for free), b) the seller then transfers the business assets & accounts to the buyer, c) the buyer then confirms that he/she received all the promised assets/accounts and authorizes escrow to release the funds to the seller, and d) escrow then releases the funds to the seller.
Post-Sale Training & Support - Also as outlined in the signed APA, the seller will typically be required to provide 20-40+ hours of post-sale training and transition support over a period of 30-90 days (though the number of hours and duration of the support can of course vary, based on what was negotiated). We (Store Coach) stay involved in this process to ensure that you (the buyer) receive all of the post-sale training and support you were promised.
How do I make an official offer for a web business?
While an offer technically doesn't have to be in writing, most buyers and sellers prefer to memorialize the making and acceptance of an offer by executing a simple Letter of Intent (LOI).
The LOI is non-binding, meaning it doesn't force either the buyer or the seller to complete the sale transaction. It outlines the basic terms of what the deal will look like (i.e. purchase price, payment terms, included assets, closing timeline, post-sale training and support, etc.) and typically grants the buyer "exclusivity" (meaning the seller cannot sell the website to another party) during the term of the LOI.
For most web business sales, the LOI term is 1-3 weeks. On larger 7-8 figure deals, however, the LOI term can be more like 4-8 weeks. During that term, we'll help the buyer and seller work through the due diligence process and prepare for closing. At closing, the buyer and seller will sign the definitive (binding) Asset Purchase Agreement, which makes the sale official.
We're happy to provide various LOI templates (i.e. all cash, all cash with financing contingency, down payment + monthly/quarterly payments, etc.) upon request.
Is it common to offer a cash down payment plus earn-out payments over time?
All-cash offers are certainly preferable to most sellers, but it's not uncommon for a deal structure to include both a cash down payment plus a series of monthly/quarterly payments for several months or a couple years.
Most sellers will only give serious consideration to an offer that has at least 50% (and preferably more like 70-80%) of the total purchase price paid up-front at closing. You can obviously offer less, but the vast majority of sellers will turn down your offer.
As for the "earn-out payments" (i.e. payments for the seller-financed portion of the purchase price), sellers almost always insist that the payments be for a fixed amount each month/quarter (rather than being tied to post-sale revenue, profit or other performance metrics). There are several reasons for this:
Web-based business sell at a fairly low annual multiple (usually 2-4x their annual net profit, compared to 5-7x annual net profit for brick-and-mortar businesses) because of the inherent risks with online businesses. The risk factors are already built into the low asking price, so expecting to be able to further hedge the risks by having earn-out payments based on post-sale performance is essentially "double-dipping."The seller will have virtually zero control over how you (the buyer) operate the business post-sale. The seller doesn't know how business-savvy, hard-working, experienced and dedicated you are. If you do a poor job operating the business post-closing, it shouldn't affect how much they receive in earn-out payments.The seller is already taking on a fair amount of risk of not receiving all of the earn-out payments (and making a concession of not receiving the full sale proceeds up-front). Expecting the seller to take on the additional risk of those payments being reduced or forfeited (especially given the control issue listed above) is very rarely acceptable to the seller.
Some buyers balk at this notion that the earn-out payments shouldn't be at least partially dependent on the post-sale performance of the business. "Why isn't the seller willing to stand behind their business?" they ask. But it's not really a question of whether the seller is willing to stand behind their business. You may be interested to know that over the past decade brokering the sale of about 100 businesses, we've never once done a deal where earn-out payments were contingent on the post-sale performance of the company. Buyers commonly propose it, but we've never had a seller willing to sell based on those terms for the reasons listed above.
How much do online businesses typically sell for?
Most web-based businesses sell for somewhere between 20x and 60x their average monthly net profit over the most recent 12-month period (i.e. TTM, or Trailing Twelve Months), plus the cost value of inventory (if any) and the fair market value of other assets/equipment included in the sale. So, for example, a site without any inventory or equipment that made $100,000 in profit over the prior 12 months (i.e. an average of $8,333 per month) may be worth anywhere from ~$167,000 ($8,333/mo x 20 months) on the low end to ~$500,000 ($8,333/mo x 60 months) on the high end. That's a HUGE range... and not all that helpful to someone considering acquiring a web-based business.
Where any given web business falls within this 20x - 60x range depends on several factors, including:
- the business' age
- how its revenues/profits are trending
- the website's traffic profile (i.e. free vs. paid traffic)
- sourcing considerations (barriers to entry, exclusive selling rights, price tiers, etc.)
- how much owner time is required to run the business
- customer/email lists, social followers, trademarks, etc.
How are inventory or other assets/equipment accounted for in determining a website's value?
For inventory, the cost value (i.e. what the business paid their suppliers for it) is added to the earnings-multiple-based asking price of the business. For example, if the business has $40,000 (at cost value) of inventory on hand as of the closing date, then $40,000 would be added to the asking price.
For equipment, furniture and other physical assets, the market value (i.e. what it's worth today in its used condition) is added to the asking price.
Is it possible to purchase an online business through an SBA loan?
Yes, but only certain businesses qualify. The business must be based in the United States, must be at least 2-3 years old, must have pretty "clean" tax returns that tie closely to the P&Ls, and typically must be valued at $400,000 or more.
Does BizSellers provide escrow services?
Yes, we provide escrow services for no additional cost! This is a huge savings for both the buyer and the seller (as escrow charges are most commonly split 50/50), as services like Escrow.com charge hundreds to thousands of dollars for escrow services!
How much post-sale training and support is typically provided? What if I want more?
Virtually every sale includes a certain amount of post-sale training and transition support included as part of the purchase price (no additional cost). The exact amount of training/support depends on:
The purchase price - Typically, the higher the purchase price, the more training/support is included.
Complexity of the business - Typically, the more complex the business is to operate, the more training/support is included.
Demands of the buyer - Some buyers negotiate for more training/support than the listing states.
As eluded to in the final bullet point above, regardless of how much post-sale training/support the sale listing says is included as part of the sale, your offer can specify more training/support hours.
How long is the due diligence & closing process for a typical sale?
For most sales in the $50,000 to $300,000 range, the due diligence and closing process is typically right around 2 weeks. It certainly can be shorter than that if the buyer is willing and anxious to move quickly, but most buyers usually take about 2 weeks to complete their due diligence and prepare for closing.
We've closed many deals in under one week. It's certainly possible, as it's really not very difficult or time-consuming to verify the financials and the assets/accounts of an online business. The seller is usually willing and able to provide the requested reports and information very quickly. It's usually the buyer that slows down the process.
Some larger deals (ie. mid-to-high 6 figures and 7-figure sales) have a longer due diligence period, sometimes as long as 6-8 weeks. We do everything in our power to streamline the due diligence process as much as possible.
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