How to prepare your ecommerce site for flipping

Ecommerce continues to be an exciting field.

It’s growing constantly. More and more people are realizing how with a little sweat and hard work they can start an eCommerce business to support their dream of living flexibly and free.

eCommerce continues to cut into the market share of traditional retail shopping, and it’s likely this trend will continue.

But while eCommerce businesses are growing and expanding all the time, there’s another part of the industry that is also gaining in prominence: website flipping.

Sometimes referred to as the world of “digital real estate,” this process of buying websites cheaply, fixing them up and then selling them for a profit is becoming an attractive way for people to make money online.

Yet, just like starting an eCommerce business is a bit more complicated than it looks, so is flipping websites.

There’s ‘easy’ money to be made out there flipping websites, but preparing a website and selling it is no small task.

You need to go through a comprehensive process of preparing the site for the market.

Ideally, you should have these things in mind when you first start the business so that when it comes time to sell you’re ready to go. Of course, not everyone gets into eCommerce planning to sell their website – some entrepreneurs have a long-term strategy.

So, no matter if you’re just starting out, or if you’ve had your business for a while and are now looking to sell, here’s how to get maximum value for all your hard work:

Understand what makes your site valuable

The first step in getting your site ready to sell is to learn the valuation process. Understanding what goes into determining website value is critical, as this will help you decide where to focus your attention.

Revenues are important, of course, but they’re not everything. Typically, your website will be worth 2.5x its yearly revenue. But this number is really just a jumping off point.

There are several other factors that go into figuring out how much your site is worth, such as:

• Business processes and systems: The efficiency with which your site runs is very important to investors. If your site is turnkey, it will look much more attractive to any investor. No one wants to take over a train wreck, so the way you do things matters, a lot.

• Customer retention and brand loyalty: eCommerce businesses that successfully retain their customers, and who have a solid base of loyal customers, will be seen as more valuable. Anyone who takes over the business will be able to depend on a constant stream of revenue that will give them the freedom to explore new avenues of growth. This needs to be a key focus when working on your business.

• Records keeping: You need to be able to prove your revenue claims and also demonstrate compliance with all relevant regulatory bodies.

• Risk management: Demonstrating you understand the risks your website faces and having plans in place to help alleviate the threats they pose, will make your website a more valuable investment option.

Understanding these non-revenue aspects of your business will make it easier to see where you need to be focusing your attention so that your business is ready to be sold.

Let’s take a look at exactly what you should be doing to prepare for the sale.

1: Perform an audit of all your site’s processes

As we mentioned, how your site runs will play a big role in determining value.

So, the first thing you want to do is to go over every aspect of your business to see where you could be improving.

A useful way to do this would be to envision what would happen if you walked away today.

What would keep going without an issue? And, more importantly, what parts of the business would completely fall apart?

This is where you need to dedicate your energy. No business should be too dependent on one person.

Find out where this is the case, and figure out a way to make things run more autonomously. This might be as simple as just writing out a process manual so that everyone knows the best practice for that particular function. In other cases, you may want to explore if automation can be helpful.

But don’t limit your efforts to just those processes overly-dependent on you and/or someone else. Take a look at everything you do. Where are efforts redundant? What takes longer than it should?

Actively engage the people you have working on these parts of the business to find out what could be done better. Most of the times you’ll find people have good ideas for improving the way things are done, but in the chaos of the day-to-day, it’s hard to find time to implement these changes.

Leave no stone unturned and put yourself in the position of an investor. Which parts of your business look messy and inefficient?

These exercises are things you should be doing anyway, but it’s particularly important as you start preparing to flip your website and sell it.

2: Check that your records are up to date

When you go to sell your website, you’ll first need to present your financial records. Revenues are a key determiner of value, so make sure everything is in tip-top shape so that people will feel more comfortable making offers on par with the actual value of the website.

But you need records of more than just financials.

Make sure you have all necessary tax documents, and if you operate in an industry where there’s regulation, make sure you have proof of compliance. The last thing any investor wants is to buy a website in trouble with the government.

If you’re importing products from abroad, make sure you have proof of paying import tariffs or any other relevant fees. All of this will be important to demonstrate.

There’s more, though.

Gather any market research you’ve done, compiling it into easy-to-read documents or presentations. Put together some information about your SEO backlink profile and pull together details of any marketing or promotional campaigns you’ve done.

Past performance and KPIs is not an indicator of future success, but it’s something. Being able to show investors what’s worked for you before (and to some extent, what hasn’t) will give them a better idea as to where the company is headed.

If they can look at your company and feel reasonably confident they can continue and expand upon your efforts, your chances are much better of receiving offers at or above what your business is actually worth.

3: Take stock of your risks

You can’t predict the future, but in business, it doesn’t hurt to try.

Today’s somewhat unstable political climate, natural disasters, changing regulations and so much more can dramatically affect the health of your business.

Anyone interested in buying a website will be keenly aware of the risks to which they are exposing themselves. But risks are a part of life, so this alone won’t push people away.

Yet if they look at your business and see excessive vulnerability, they may shy away from making a legitimate offer, if they even make one at all.

In eCommerce, two of the main areas of risk are going to be:

• Lack of diversification: you can’t be overly dependent on one product
• Unstable customer base: if you’re constantly having to chase down new customers to keep the business growing, this is a huge risk. What happens if your pool of new customers dries out? You need to work to get value your of past customers, too.

Identifying some of your major risks shouldn’t be hard. Just think about the aspects of the business that keep you up at night, or that make your heart skip a beat.

But there are likely additional perils lurking in the background. Spend some time really researching the industry in which you operate and try to find out where you’re most vulnerable.

Now remember, your job isn’t to eliminate these risks, but rather to have plans in place to make them less scary. If an investor asks you a question about how you plan to deal with something, having a well-thought-out response and plan will ease their fears and make it much easier to solicit quality offers for your website.

Final thoughts

These are things you should really be doing even if you aren’t planning to sell. They are useful exercises for analyzing your business and identifying areas where you need to improve.

But if your plan is to sell your website, know these are things you must do.

It’s best to start planning for the sale more than a year in advance so that you have the time you need to implement any changes and correct any areas of concern.

This may mean you’ll have to wait a little longer for your payday, but getting great offers the reflect the true value of your business and all the hard work you put into building it will make all that waiting more than worth it.

This article is contributed by Jock Purtle, founder of Digital Exits.

Jock is an online business broker, meaning he helps people buy and sell websites. One of the biggest parts of his job is to work with clients to help them set their business up to receive maximum value. Through his work, he has found that too many people think revenues are the only driver of value. To help business owners get more for their efforts, he writes frequently about how to build value into a business. You can find some of his writing in publications such as Forbes, CNBC, Entrepreneur and Business Insider.