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228. How to Prep Your Business for Sale & Get Top Dollar with Christine McDannell of the Magnolia Firm

228. How to Prep Your Business for Sale & Get Top Dollar with Christine McDannell of the Magnolia Firm

Have you ever thought about selling your eCommerce business? While many entrepreneurs create businesses with the intention of selling them in the end, most small business entrepreneurs think they'll run their businesses until they're ready to retire. But even then, what are your next steps? Do you just shut the whole thing down and say goodbye to your customers?

What if instead, you could sell your business to someone else and get a nice chunk of change in return?

While selling your business is likely easier than you think and can be done sooner than you think, there are some key things you'll need to have in place before you can fetch top dollar.

Since I'm not an expert in exiting business, I brought in Christine McDannell of the Magnolia firm to school us on what we need to know to set our businesses up for sale.

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Can I Sell My Business if I am the Face of It?

If you are the face of your business right now, that is completely fine and generally necessary in the first few years of business. As you're preparing to sell the more you take yourself out of the business the better, but there are still ways that you can stay the face of the business if you find the right buyer.

Do a Public Transition Between You and the New Buyer

If you're the face of your business up until the end and you find a buyer who is also willing to be the face of the brand, you can do a public transition introducing the new owner of the business. Create a mini-marketing campaign around the transition and some fun content around the hand-off.

For example, a client of Christine's created a hat with the company logo on it and the existing owner and buyer did a video where they threw the hat from one scene to another to show the hand-off and explain what the customer can expect moving forward. The buyer gets a chance to introduce themselves and create that initial connection with the audience.

What if the New Buyer Doesn't Want to Be the Face?

If the new buyer doesn't want to be the face of the brand help them find some influencer or community members who can take over that role.

The new buyer can do one post and email to say hey, I'm the new owner. I'm really shy and will mostly be behind the scenes and then explain that there will be some great people stepping in to engage with them.

Will My Customers Be Mad if I Sell My Business?

Christine has sold multiple businesses over the years and every time she's always afraid to announce her exit because she doesn't want to let her customers and clients down. But every time, without fail they are excited for her and send her words of encouragement.

What Do I Need to Have in Place if I Want to Sell My Business?

If you want to get maximum value when you sell your business there are a few quick tips to get you off on the right start. Your ultimate goal is to create a business that is turnkey and ready to rock & roll as soon as the new owner steps in.

1. Remove yourself from the business as much as possible

If you are currently the face of your business and you don't want to be a limitation at the time you want to sell, then you'll want to slowly start removing your face from the business when you can. This might look like bringing on in-house content creators or creating new relationships with influencers in your industry.

You'll also want to delegate as much of what you do on a day-to-day basis as possible. Most people aren't buying businesses to give themselves a full-time job, so if it is one for you right now, it's probably time to start building out your team.

2. Build a strong team that wants to stick around

Having a solid team of people who handle the majority of the day-to-day in the business is really important in a sale.

People buy businesses so they don't have to start everything from scratch and part of that is having a solidly structured team that can run the business like a well-oiled machine.

3. Have Standard Operating Procedures

It's so important that you have some sort of operations manual or business playbook that anyone can follow when they first jump in.

If you've got all the need to know in your head, it's going to be really hard for a new person to come in. You've got to get everything documented.

If you struggle to sit down and do the work, hire an outside consultant to help you.

Remember that SOPs are living and breathing documents that get updated over time.

4. Build a Positive Reputation

If you don't have a positive reputation in the industry with happy customers and employees, it's going to be really hard to sell your business. No one wants to take on the drama of repairing a poor reputation.

Make sure you have solid systems in place to build up your positive reputation as well through customer reviews and even employee reviews on sites like Glassdoor.

Do whatever you've got to do to keep your customer happy. Be willing to bend over backward. It can feel painful at the time, but it adds a lot of value to a business and can fetch you a higher-than-average multiple when it comes time to sell.

5. Focus on Net Profit

At the end of the day, net profit is what someone is buying. They want to know it's a cash flow positive business and that they will be able to take money out of the business right away.

While growing your top-line revenue is of course important in every business, it doesn't matter how much money you made if you spend 90% of it to get there.

In the early years of growing your business, it's okay to take a lower margin for the sake of growth. Eventually, though, it needs to turn a healthy profit otherwise it's a hobby, not a business… a no one is going to want to buy it.

How Do I Determine How Much My Business is Worth?

The sale price of your business is typically going to be a multiple of your net profit. At the time of publishing, Christine is seeing an average multiple of 3-4x your net profit.

Business valuation is tough though as it's part art and part science. There are a lot of other variables that are considered when it comes to the value of your business such as the size of your email database, your social media audience, how engaged are your customers, etc.

You'll also want to make sure you add back any salary or dividends you're taking from the business along with any personal expenses you may have been running through the business such as your health insurance, your car, etc. That will give a more accurate representation of the true profit of the business and what you as the owner are really taking out of it.

Should I Include my Inventory as a Part of the Sale?

To start off you do not want to include your inventory as a part of the sale and instead sell it separately. The buyer will pay you the wholesale price that you paid.

You can also use inventory as a bargaining chip. For instance, if a buyer is willing to pay the full asking price for the business, they may ask you to throw the inventory in and you can absolutely do that.

When Should I Close My Business vs. Trying to Sell It?

Even if you are pre-revenue, if your business is a brilliant idea there might still be someone who wants to purchase it. You won't necessarily get millions of dollars for it, but you'll get something.

There might also be an opportunity to do a rev share model where the person taking over the business pays you a percentage every time they sell something.

If however, you are completely upside in your business. If you've got a ton of debt, or you went way too heavy in inventory it's going to be very hard to sell. The only time a business in that position can sell is if they've got a lot of brand equity and a huge customer base, like what you see happen with big corporations.

Can I Sell My Business But Stay on in a Creative Capacity?

Yes, this does happen. For instance, there is an arts & crafts subscription box that includes custom 3D-printed molds each month. The current owner loves doing the design part and would love to stay on as an hourly consultant to do that creative part if needed.

This is a great option for someone who started a business because they love the creative side of it, but realized they don't really like the business side. Now they can just do the part they love.

How Much Does it Cost to Work With a Business Broker?

In addition to the success fee, which is typically a percentage based on the sales price, some brokerages will also charge a set-up fee.

Christine from the Magnolia Firm charges $20k up front which covers all of the preparation needed to get your business presented and then upon the sale, that upfront payment is credited toward the success fee.

If they are unable to get you sold within a 12-month period, they will refund the set-up fee.

What Types of Business Does the Magnolia Firm Work With?

The Magnolia firm typically only works with businesses generating at least $1M in revenue with $250k of net profit. But they also have a program called the rapid acquisition club where you get to present your business to a small group of motivated buyers.

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Meet Christine

Christine McDannell is the Principal and Lead Business Intermediary of The Magnolia Firm, a boutique M&A brokerage firm helping business owners achieve the perfect exit.

She is passionate about all things business – especially helping entrepreneurs step into the next phase of life with their dream business exit.

Hey, I'm Jessica

I support scrappy female entrepreneurs with actionable steps & strategies to grow and scale the traffic, sales & profit in their eCommerce businesses. 

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