How to prepare your business for sale in 2024

Rudi Eihenbaums

Dec 8, 2023

Ready to move on from your business, cash out, and maybe start something new? Reward your hard work and get paid for the business that you've built.

Every business is unique, from valuation to revenue sources, but experienced buyers will want to know your finances, such as profit & loss (P&L), and other metrics that contribute to your business value, such as brand/product life cycle and customer acquisition strategy.

So, organize your finances, streamline processes, and clarify any questions a buyer may have to set your business up for a smooth transition. The more prepared your business is for a sale, the more attractive it is to potential buyers, and the quicker the sale can be.

3 quick steps for Shopify stores, specifically

If you have an e-commerce business running on Shopify, this process is a lot simpler if you decide to sell it to OpenStore. We sat down with the Head of Pricing, Cindy Hao, on what you need to ensure a quick and easy sale:

1. Your store’s URL and your email address

2. Access to your store’s Shopify and ads account

3. Some financial metrics that Shopify doesn’t track: screenshot your P&L statement, or answer a short questionnaire

During the process, remember to:

• Keep maintaining your financial records

• Restock as needed

• Maintain and manage your ad spend

• Ensure transferability of your business

OpenStore can buy your Shopify business in as little as 2 weeks. You receive 80% of the payment at close, and 20% after a two-month transition period. OpenStore’s experts take over managing your store, and your time investment post-sale is zero hours. 

7 steps to prepare any business for sale

1. Don’t wait for the right time

You might think that waiting for a seasonal sales boost could sweeten the deal for potential buyers. Not necessarily.

A savvy buyer will understand industry and market conditions. They will look at your overall performance, growth trends, and profit margins, taking into account seasonality.

Instead of waiting for a seasonal sales bump, use that time to prepare your business for sale.

2. Pull together financial statements

Get your books together. You’ll need a balance sheet, an income statement, and a cash flow statement. These are non-negotiable. They provide the buyer with a clear picture of your business’ financial health and profitability.

1. Balance sheet: a snapshot of what your business owns (assets) and owes (liabilities) at a particular point in time. Assets include cash, inventory, machinery, property, and accounts receivable. Liabilities involve accounts payable, loans, and credit card balances. The balance sheet also details the owner’s equity – the amount you or other owners would have left if you liquidated the company and paid off the debts.

2. Income statement (also known as profit & loss): how much money your business made (revenue) and how much it spent (expenses) over a specific period, typically a fiscal quarter or year. Revenue comprises sales and any other income sources. Expenses involve costs like product costs, shipping, advertising, and overhead. The difference between revenue and expenses is your net income or profit. 

3. Cash flow (CF) statement: where your business' money came from and where it went over a specific period. It details cash flow from operations (e.g. selling products), investing (e.g. purchasing equipment), and financing (e.g. loans or investments).

While there is some overlap, these are 3 individual metrics — Cindy explains:

Aim to prepare the last 2-3 years worth of these documents for a comprehensive view. Tax returns can serve as an additional way to be transparent.

If you’re on Shopify, the admin panel offers some in-built analytics to simplify the process:

• Shopify profit reports

• Finance reports

3. Prepare your P&L

A P&L statement provides potential buyers with an understanding of how revenue is transformed into net income — demonstrating your business’ profitability.

Here’s a checklist:

1. Gather all relevant financial data including sales revenue, cost of goods sold (COGS), business expenses, and taxes. Also account for any additional income or expenses not directly related to your core business operations.

2. Classify revenue and costs or expenses into specific categories. For example, things like sales, direct costs (e.g. production, delivery/returns), indirect costs (e.g. marketing, utilities), and non-cash expenses if relevant (e.g. depreciation, amortization).

3. Calculate gross profit: subtract your cost of goods sold from your sales. This tells you how much profit you retain after all costs of fulfilling a customer’s order.

4. Calculate contribution profit: subtract your marketing expenses from gross profit. This tells you how much profit you make to cover your fixed costs.

5. Calculate operating profit: subtract your remaining operating expenses from the contribution profit. This shows your profitability, or earnings before interest and taxes (EBIT) or, another measure, before depreciation and amortization (EBITDA). 

6. Calculate net profit: subtract interest and taxes from your EBIT to calculate your net profit or net income. This is your business' bottom line after all expenses.

These metrics give potential buyers a snapshot of your business' health. Accuracy is key. Misleading numbers can lead to mistrust from potential buyers, so consider working with an accountant or financial advisor.

4. Audit key books

Cleaning up your books involves more than just arranging the statements. It means getting rid of financial clutter. Your business’ financial health is a significant indicator of its overall attractiveness. 

• Transparently separate out irrelevant expenses like non-business-related or one-offs that won’t apply to the new owner. Buyers want to see business-related expenses only.

• Pay off outstanding debts or bills as they can raise red flags for buyers. If possible, pay off these debts before putting your business up for sale. If that’s not feasible, be transparent on a clear plan in place for managing them.

• Organize your records in one easily accessible place. Use bookkeeping software or hire an accountant, if necessary.

Remember, buyers aren't just buying your business’ current stock. They're investing in its future potential, and financial records help to evaluate this.

5. Start on a valuation

Calculating your business’ value goes beyond looking at net profit margins.

While those are important, it requires an in-depth analysis of various aspects that impact its potential for future growth, for example:

• Competitive advantage

• Customer acquisition cost

• Revenue stream diversity

• Brand value & recognition

• Business environment, market conditions

Remember, these are general factors. The value of your business ultimately depends on what a buyer is willing to pay. You can consider hiring a professional appraiser for an unbiased valuation, but be wary of valuations received from business brokers.

Typically, the more profitable your operation is, the higher the sale price you can garner. 

Resources for Shopify stores:

• Business valuation methods

• Business value calculator

• Profit margin calculator

6. Expand on business value

The more information you provide to potential buyers, the more likely they are to feel comfortable making an offer.

If available, consider providing:

• Traffic and sales reports on the influx of potential customers. If you have an online business, detail your monthly visitor data, traffic sources, customer demographics, and conversion rates (e.g. leads, checkouts, signups). If you have a physical location, include footfall. Buyers will want to understand seasonality, sales trends, and customer acquisition.

• Full inventory list of your business’ physical or digital products. Include details like the number of each product, suppliers, cost prices, retail prices, lead times, and any bulk purchase agreements.

• Supplier contracts or agreements with vendors or any third-party. Buyers will want to know the terms, pricing, and whether these agreements can be transferred.

• Customer database: a list of all your customers, their contact details, and their purchase history or position on the sales funnel. This can indicate customer loyalty and repeat business potential.

• Agreements you have with customers. For example, consider including your return, refund, shipping policies, and general T&Cs. Buyers want to understand what governs customer experience.

• Intellectual property (IP) such as trademarks, patents, or copyrights: include documentation for these. If you have employees or contractors, include any agreements about who owns the products or work they create.

• Employee contracts and payroll records to understand staffing costs, roles, contracts, obligations, and transferability.

The more transparent you are, the more appealing your store may become to potential buyers. Comprehensive documents save time for an accurate valuation, minimizing back-and-forth.

Some help for Shopify stores:

• Return on ad spend calculator

• Starting with analytics for Facebook & Instagram ads

If you decide to sell your store to OpenStore, the pricing and valuation team will guide you through the whole process, ensuring that every step, from auditing to preparing documents, is as smooth as possible.

7. Prepare the transition

When speaking to a buyer, know your next steps ahead of time. 

To finalize a handover, you’ll need to:

• Agree on the terms and be clear on the terms of the deal, especially payment arrangements. For example, if you sell a Shopify store to OpenStore, you get 80% of the payment at close, and the remaining 20% after a two-month transition period.

• Transfer ownership: depending on your business and the complexity of the deal this may involve lawyers, accountants, third parties, and other advisors. With OpenStore, a team of experts handle this process and there are no fees.

• Post-sale support: some buyers might require post-sale support so make sure to understand this in the terms of your agreement.

After closing the sale, a smooth transition is essential to ensure continuity and the continued success of your business. Help the new owner understand the operations and introduce them to key clients. The smoother the transition, the more confident the new owner will be in running the business, ultimately benefiting the business you worked hard to build.

Simplified preparation for Shopify stores

By buying 40+ e-commerce businesses running on Shopify, OpenStore has streamlined the process and reduced the preparation time that Shopify store owners need to take.

• It took 10 minutes for Max Medroso to gather the required details for OpenStore’s process. After selling, he enjoyed a smooth transition of operations.

• Ben Davenport was referred to OpenStore by a friend and valued the process of analyzing his business — it showed him we were serious about growing his brand.

• Firas Balaffou faced uncertainties and broker fees so he opted for OpenStore with an uncomplicated process. All he had to do was connect his Shopify and Facebook accounts, and sync with OpenStore on P&L metrics. He accepted the all-cash offer of $380,000 for his brand, without any fees.

It's not about selling when your business has peaked, but selling when you're ready. And if that time is now, then consider OpenStore’s acquisition offering to get the most out of your hard work.