A frequent problem encountered by sellers when selling their internet business for sale is that they have several online businesses they run under one ‘roof’ so to speak. The sellers often only keep one set of accounting measures for all the businesses in operation and typically one bank account where funds are deposited.
Multiple site owner tip #1: Set up separate entities for each ecommerce presence and have them owned by the parent company. This will cost a little more in the beginning, but will more than pay dividends on the exit. At the very least, separate bookkeeping measures should structured to make paring them away from the others easier at the time of the sale.
The difiiculty starts when the owner wants to sell off one of their assets and has to split the business revenues and expenses that are linked with this one section of their entire ecommerce business ‘empire’! Most sellers end up removing basic expenses in the profit and loss statements that need to be present or that will be expensed by a new owner. The seller needs to segment all operating expenses related to all of their ecommerce businesses and extend these across in amount of the sales volume of the specific site. It is better to err on the low side and be conservative with the expenses assigned to the site, since a new owner will have to pick up the full expense of this operating cost for the one business if they buy it.
Multiple site owner tip #2: File taxes separately for each ecommerce business.
Another problem typically linked with these scenarios is the tax return – if requested for due diligence or for SBA financing. With a situation where there are multiple ecommerce businesses operated under one business name and ultimately one tax return, it becomes tricky to dig out the financial data from this and support it with the individual business P&L statement .
A handful of sellers execute good accounting measures that break up the business revenues and expenses, so this is not an issue for them, but for the vast majority of sellers with this set up, it can become challenging in determining the accuracy of the books during due diligence.
Summary: My council, in examination of these stated problems, is for a seller to fashion separate accounting measures for every individual business and separate all expenses based on the % of gross revenues each site contributes relative to the total.
This will provide a more precise and practical valuation of the individual site relative to the whole and avoid difficulties and doubt that could arise in the due diligence process. It also leads to a quicker, cleaner close and a point of vigor in the selling price when negotiating offers.
Another strategy that can be executed of course, is to sell the entire ‘armada’ of ecommerce businesses as a package, so all income and expenses are incorporated and are equal to the tax returns easily. Keep in mind that all of these transactions are treated as an asset purchase and that none of the business structure is passed on in the closure of this acquisition.
David Fairley
President, Websiteproperties.com
