On the last days of 2017, I finalized the deal to sell our popular WordPress photography plugin business: Envira Gallery and Soliloquy. In my 2017 year end review, I promised that I will be share some important lessons from this multi-million dollar WordPress plugin transaction, and I failed to deliver on it in a timely manner. But I really appreciate the patience and encouragement of those who continued to email me and held me accountable so I could finally publish these lessons.
Entrepreneurship is an emotional roller coaster. There are ups and downs through out the entire journey, but very few things come close to being as emotional as selling the business in an entrepreneur’s life.
Whether you’re starting a new business or thinking about selling an existing one, my hope is that you’ll find some of these lessons valuable in your journey.
These two WordPress plugins were originally started by my business partner, Thomas Griffin. Almost a year after Thomas and I partnered up to launch OptinMonster, we agreed that these two plugins would benefit tremendously if they were merged into the Awesome Motive family of products.
This was a great decision because both products saw tremendous growth, specially Envira Gallery. We turned these products into a great business that was extremely profitable. We put in place a great team for Envira / Soliloquy that allowed Thomas and I to focus on our growth software, OptinMonster.
As our marketing-tech software suite grew, it started to become clear that these two products did not fit our long-term vision.
Finally, in December 2017, we sold the business in a multi-million dollar transaction.
Now that you have the background, let’s take a look at some important lessons from the transaction.
1. Clean Financials and Separate Tax Returns Help A LOT!
Often first-time entrepreneurs have a tendency of running multiple projects from the same business entity. I know a lot of freelancers and WordPress agencies launch premium WordPress plugins and run the revenue / expenses through a single company.
This leads to extremely messy books because you don’t properly calculate / allocate expenses. Why does that matter? Because typically businesses are valued on an EBITDA or Discretionary earning multiple. If your financials are messy, then there is a very likely chance that you won’t get the best of valuation.
Not to mention, it’s very painful to separate the business out should you only want to sell one project.
Also if you’re not careful from an asset protection perspective, then you can significantly increase your liabilities.
One of the things that I had learnt earlier in my career was treating each product as a separate business unit can be tremendously helpful in an exit (should you ever have to pivot or change directions).
This is why the first thing I did when Thomas and I agreed to make these two products join the Awesome Motive family was to restructure them as independent LLCs with a proper ownership structure.
Doing this allowed our financials to be very clean from 2014 onward. This also meant that we had to file separate tax returns, have separate merchant accounts, separate P&Ls, etc.
While you might think it’s a lot of overhead, the benefits are totally worth it. As a CEO of multiple businesses, I can’t stress how important it is to have a clear picture of each business unit at all times.
Also having each product as it’s own business unit gives you the freedom to sell each business separately. In the beginning, we only wanted to sell Soliloquy but ended up deciding to sell them as a package deal to boost the value proposition for the buyer.
If you want to attract the best buyers and have a smooth transaction, then it really helps to have clean financials / books.
Aside from that, having separate tax returns can be very helpful in making your business listing SBA eligible which helps increase your buyer pool.
2. Hire a Broker to Improve the process
Like most things in life, timing is very important when it comes to selling a business. Often first-time entrepreneurs don’t know how to start the sell process. This often leads to delaying selling which can mean lower valuation multiple if the business isn’t growing or is slowing down.
While you can list the business on an auction-based marketplace like Flippa, I believe it can be risky if it doesn’t sell the first time around.
You could reach out to potential buyers yourself if you have a good network, but this isn’t always feasible for everyone.
Hiring the right business broker can be very helpful because they will help guide you through the process. I used Quiet Light Brokerage for this transaction. You can reach out to them and mention my name. Alternatively, I’m always happy to make a personal intro to my direct contact (just shoot me a message via my contact form).
3. Interview the Buyers Diligently
Often first-time entrepreneurs are afraid to ask questions to buyers because they don’t want to “piss off” someone who’s about to pay them a lot of money.
In my experience, I think it’s very important to interview buyers diligently because you’re about to handover your customers / business to them. That’s a lot of trust, and your reputation depends on it.
Not to mention, choosing the right person or company will also increase the likelihood of actually closing the deal. Just because you have a letter of intent (LOI), doesn’t mean that your deal is done.
It’s quite common for deals to fall apart during the due-diligence stage that happens after signing an exclusive letter of intent (LOI).
Last but not least, if you are signing a seller’s note or have earn-outs, then it becomes even more important that you trust the buyer.
General word of wisdom: If you are not happy with the guaranteed money, then don’t do the deal. Earn-outs, seller-notes, etc are not guaranteed.
4. Being Rational and Patient is VERY Important
The process of selling is like an emotional roller coaster. As an entrepreneur, you give everything to build a business. Selling it isn’t easy, even though sometimes it’s the right to do.
During the transaction, you’ll deal with a lot of frustrations. It’s important to be rational and patient.
You might have unreasonable ideas on valuation. It’s important to check the market to see what multiples businesses are being sold at, and be reasonable during the transaction. Otherwise, your chances of getting the deal done would be quite low.
The hardest part for me was saying good bye to the team. I considered each of them as a friend, and I really wanted to keep them at Awesome Motive. But I know that wasn’t possible.
Lucky for me, I have a very level-headed business partner (Thomas), and that’s truly a blessing.
5. Document Your Processes
When you’re running a startup, documenting processes isn’t a top priority. It’s a lot more important to just get things done.
However as you grow, you understand the importance of documenting processes. This becomes even more useful when you’re ready to sell the business.
It gives buyers comfort and peace of mind knowing that they’re going into a well-run company.
I also recommend evaluating the tools you regularly use and think about how hard would it be if you were to switch. For example, it’s fairly easy to transfer PayPal / Stripe subscriptions if they’re separate accounts (like we did).
However if you have a single Stripe account for multiple product businesses, then that can be a big headache.
We also kept all our affiliate accounts separate for each company, so at the time of sale we simply had to handover the accounts.
Things like GSuite and HelpScout are very hard to transfer. We had to write a custom script to migrate HelpScout data to the new account. I wish HelpScout build an easy way to do this because it’s much needed. GSuite was a lost cause.
It’s surprising how many companies don’t think about migrating data from one account to another. At OptinMonster, we made sure to build the ability to transfer optin campaigns from one account to another
Anyways, I hope you found these thoughts helpful. If you’re considering selling your business and want someone to talk to, I’m always happy to help. Shoot me a message using my blog’s contact form.