Preparing Your Affiliate Business for Sale

Selling your online business is a serious decision for any owner, and the process of seeing a sale through to completion can be intimidating for first-time and experienced sellers alike. Hiring an M&A advisor is a good step in helping to ease the effort, but as with any major endeavor, it pays to be well prepared from the outset. Having successfully sold over 1,000 online businesses, we’ve put together some guidance on how sellers of a content or affiliate business should best prepare for the sale process.

As an affiliate business owner, you must stay up to date on Google updates and SEO best practices to avoid any future penalties which will be detrimental. Each year, Google changes its search algorithm around 500–600 times. While most of these changes are minor, Google occasionally rolls out a “major” algorithmic update that affects search results significantly. For search marketers, affiliate business owners, and anyone doing SEO, knowing the dates of these Google updates can help explain rankings and organic website traffic changes and ultimately improve SEO.

With FE International’s Website Penalty Indicator, affiliate business owners can check how the Google algorithm impacted their website and if your site has been penalized. The tool gives you an overview of your organic traffic and shows when the update from Google occurred. This way, you can quickly determine if the update impacted your organic traffic.

There is an overwhelming amount of information and “best practices” out there for SEO. Ben Hill, who divested his affiliate site through FE International, offers firsthand knowledge of building a thriving affiliate business. He says posting new content should not be a once-a-week occurrence and suggests posting daily and underscores that Google favors long-form, in-depth content. Find out more about how you can optimize your affiliate site for crawling and indexing and boost your affiliate marketing SEO by reading our blog on How to Succeed at Affiliate Marketing.

Know Your Numbers

Understanding the financials of your online business from the outset is vital to the successful sale of your business. Before you initiate a sale process, you should be clear on every aspect of your site, including all sources of revenue, cost(s) of sales and operating expenses. You need to be able to compile an accurate profit and loss statement for your online business, as this will form the basis of prospective buyers’ valuation methodology and due diligence. The valuation of your business will be calculated after reviewing various factors specific to your type of business.

Here are some things to think about. Note that some of the following may not be relevant to your site:

• Sources of revenue – Annual recurring revenues, AdSense, Affiliate programs, Direct ads, Direct sales, Monthly recurring revenues, etc.
• Cost of sales – Advertising & promotion, COGS, Credit card processing fees, Outside services, Shipping & delivery, etc.
• Operating expenses – Content creation, Employees, Hosting, Outsourcing, Refunds/Chargebacks, Subscriptions, etc.

Record Keeping

As part of the above, you should be looking to collate all the financial and supporting documentation to prove the financial performance of your online business. Not only will this verify the numbers you provide at the outset, but FE International will audit the financials, and this will be the starting point for the buyer’s due diligence process. As part of the preparation for sale, pull these files together in one place. You will want to gather monthly bank statements, credit card statements, merchant processor statements and monthly invoices.

Regardless of the type of online business you are planning to exit, we recommend that you have a separate bank account for your business, as this will speed up the audit process and reduce the amount of time you as the seller will need to spend. You likely will want to maintain a separate account for personal and other expenses unrelated to the business you will be divesting of.

While on the subject of documentation, standard operating procedures (SOPs) are valuable when managing a business but are even more critical when taking on a new business and getting oriented to new processes. Help the new owner(s) of your business familiarize themselves by providing them with detailed SOPs. To do so, you will want to review and modify your already existing SOPs and create new ones as needed. Chances are, as your business has grown, new processes were added, and you may not have gotten around to writing detailed guides for all of these yet. Now is an excellent time to write them.

Advice for Content and Affiliate Business Owners

As you prepare your content business for sale, we advise that you gather all relevant metrics and other important information. A key component of your business’s success relates to its website traffic, so make sure you track traffic. We recommend using Google Analytics since it is widely used and user-friendly. Also, confirm that all your content is unique and reads clearly and is informative. Quality content is fundamental to a content business. Utilizing someone else’s content (including images) without permission is not acceptable. Be sure you abide by the Digital Millennium Copyright Act (DMCA) and follow through on any takedown requests. Copyright infringement is a serious offense, and potential buyers will not want to get involved with a business that does not take this seriously. Additionally, if your website features affiliate links, be sure to include an affiliate disclaimer on each page containing these links.

If you are looking to divest your content business, it is best if your business’s branding does not revolve around you. We advise that you modify communications on all traffic platforms, including your website and social media, to reduce mentions of you as the owner drastically. This will help potential buyers see themselves as leading the business and will also help during the transition process.

There are some steps you can take to improve upon your business before divesting. You can work to grow your organic backlink profile by using HARO or PR publications. Additionally, suppose a Google update has hit your business. In that case, we recommend that you work on stabilizing traffic before exiting, as you will see a more positive outcome if you do so.

To help the new owner get up to speed on your business, we recommend creating SOPs specific to your content business. What steps do you typically take to get a piece written, posted, promoted and conduct keyword research? What processes with your affiliate partner(s) do you have in place if you are running an affiliate business? Outlining these will help the new owner get situated. Additionally, we advise that you develop a clear roadmap for the new owner. This would outline the business’ strategy and highlight opportunities for growth. Also, if you work with a freelance writer, we advise that you arrange for this individual to transition with the business. We also recommend you inform this individual of the sale at the right time to ensure business continuity. The new owner of your business will greatly appreciate all these efforts.

Know Your Reasons for Selling

One of the most critical pieces of information for any transaction process is the seller’s reason for sale. Know your reason for selling – it is one of the first questions a buyer will ask, so you need to articulate your motivation. Your answer needs to be honest and, ideally, shouldn’t express any urgency. Buyers expect to hear reasons such as selling to move into another niche, financing an offline endeavor, paying down debt, etc. Red flags are raised if the sale rationale seems ambiguous, unsure or connected to the underlying performance of the online business.

The Value of Your Business

Earlier in this article, we touched on valuations briefly; however, it is important to understand how your business’s valuation will be calculated when preparing for a sale. At FE International, we value and advise on the sale of internet businesses with a wide range of monetization strategies (e.g., ad-based, affiliate or subscription-based revenue model across almost every niche. Below we touch upon how we value content businesses and offer suggestions for further reading.

Valuations of Affiliate and Content Businesses

For most affiliate businesses, the Seller’s Discretionary Earnings (SDE) method is used to determine earnings or “net revenue.” In the internet business world, investors have increasingly gravitated towards the multiple-based methodology because of its simplicity and robustness in the face of scant financial or comparable data.

For more information on affiliate valuations, read our article Affiliate Website Valuation: What’s Your Affiliate Site Worth?

Run the Business

Don’t forget to run the business – the sale process usually takes several months, by which time you will likely have another reportable period of numbers. Buyers often ask for these during marketing or due diligence and it’s a far superior message to report stable or improved numbers than ones that have slumped from seller neglect. Unfortunately, a good month of numbers won’t improve the sale price, but a bad month will open the door for renegotiation.

Integrity is Important

The common thread running through all of these steps is credibility. If you want buyers to move forward, you must show respect by being open, honest and accurate about all things, both good and bad. This starts with the information that is shared to summarize your business but is imperative with all documentation and dialogue exchanged and will be critical in due diligence through closing to ensure the transfer stays on track. Misrepresentations and conflicting statements will always be found out (we’ve never seen it otherwise) so it’s best to be completely open and honest from the outset.

If you want to know more about the sale process, please read our overview on How to Sell Your Online Business With FE International.

Preparing For a Sale Checklist

• Have you reviewed all sources of revenue, cost(s) of sales and operating expenses?
• Have you gathered monthly bank statements, credit card statements, merchant processor statements and monthly invoices?
• Do you have a separate bank account for the business you are divesting of?
• Have you reviewed your business’ SOPs and developed new ones as needed?
• Have you thought through and determined your answer to the following question: “Why are you selling your business”?
• Do you have a basic understanding of how your business will be valued?