Why sell an online business?

In this in-depth guide, you’ll discover how to sell your online business (e.g., websites, SaaS, apps, social media, eCommerce store) profitably on Flippa.

It might seem like a difficult task, but in reality, it’s straightforward.

There are two questions we need to answer here:

Why are you selling your online business? And, why sell it on Flippa?

To give you a clearer picture, the demand for online businesses today is through the roof. Take a look at the Google trends data for “buy website” in the past 12 months, you can see that the demand has been pretty consistent:

READY TO SELL YOUR ONLINE BUSINESS?

Sell your online business with Flippa, the #1 platform for online M&A. Flippa has expert M&A Advisors to support you through your exit journey, as well as the tools and technology to match you with high quality buyers and get deals down. Start your exit journey here.

Digital real estate is gaining the upper hand each day — especially in this era where businesses and economies have become more reliant on the web.

If you have a digital asset, you might be thinking: should I sell the business or continue to run it? This concern is commonplace, especially among people who have bought and sold brick-and-mortar businesses for ages.

Getting a big lump sum payout might be a good reason to sell your business. For some, selling off their online business means they’ll work less, venture into new projects, or use it as a mechanism to pay off debt (eg. student loans, a home loan) and gain financial independence.

Perhaps you’d be happier with a payout equivalent to or even more than a couple of years of income. That way, you can (probably) retire or take a sabbatical and spend quality time doing what you love.

For others, you simply want to concentrate on another project and build a different profitable business, leaving you without the time needed to run this one.

The reasons for selling an online business are varied. I remember selling my business to invest in property while my friend sold his business to buy a car. Making a physical purchase may require a lot of money, which can take years to accumulate through traditional savings.

Do you need money for your kids’ college tuition? Do you wish to support your parents with their retirement?

All these and more could be why you’re excited to sell your online business.

As an entrepreneur, you’ll agree that starting a business can be exciting — while managing the day-to-day tasks can get tedious.

When it comes down to it, your business might have also outgrown your skill set, and you decide that selling the business to someone else with the needed skill set is better for everyone. You can access the funds and freedom you’re after, and you’ll pass on your business to a new owner dedicated to running the business.

The decision to sell your business comes with a mixed bag of emotions. We’re here to guide you through the process of selling your online business — so that you can get the most out of it.

Why sell your business on Flippa?

Flippa is not only the original platform to buy and sell online businesses but also the biggest and most reliable platform to sell your online business. Over the past decade, Flippa has closed the most sales ($400 million+), attracted thousands of loyal buyers, and created an easy-to-use platform (even for beginners).

With well over 1.5 million active users, Flippa attracts around 5,500 new users each month. This has led to over 10 million searches every month. Flippa also has an active user base, constantly engaging with the site, browsing for new listings, and starting meaningful discussions between buyers and sellers.

You’ll soon discover that Flippa makes selling and buying online businesses straightforward and user-friendly.

1. Flippa is a peer-to-peer platform

Flippa is a peer-to-peer platform – unlike other marketplace platforms, you don’t need to hide behind brokers or other service providers if you don’t want to do so. You can create your listing and provide as much detail as possible. 

You can chat directly through the Flippa platform and easily answer questions posed by buyers. And most importantly, you can determine the price you’re willing to accept for your business. You’re completely in control, and its a great place to enter into a buy-sell agreement, prequalify buyers, sign a purchase agreement, confidentiality agreement, plus a whole lot more.

2. Flippa lets you negotiate with potential buyers

Another defining factor that makes Flippa stand out. Yes, you can negotiate with potential buyers. We encourage it!

You have spent the time building a business ready to sell, so it’s entirely up to you what you’re happy to sell it for. Flippa simply supports you along the way, providing information on valuations, putting your business in front of the greatest number of acquisition- fit buyers, and facilitating discussions between buyers and sellers.

3. Flippa provides safe transactions

Do you want safe and seamless transactions? Flippa’s got you covered. You can feel confident through Flippa’s service or Escrow, knowing that your transactions will go smoothly and without a hitch.

Nothing is more important than ensuring safe and secure transactions on any platform, especially when selling a business you’ve worked so hard on.

4. Flippa is an affordable marketplace

Flippa is an affordable service. The listing fees are low, and the success fees are the best in the market. While you may stumble across similar marketplaces that don’t ask for a listing fee, they also don’t come with the technology, the security, and the engaged user base that Flippa brings to the table.

5. Flippa’s Broker Matching

When you join and list your business for sale on Flippa, we offer two options; either ‘self-service’ or ‘broker matching.’ A broker might be the best option if you want extra support selling your business. Brokers will review your valuation, work with potential buyers, help prepare critical paperwork and field offers, and manage the DD process. You can find out more about Flippa’s Broker Matching program here.

Preparing for a sale

Preparing for the sale of your business is a crucial step that requires careful planning and organization. This section of the guide will provide you with valuable insights on how to effectively prepare for the sale process.

Selling an online business is a transformative endeavor that requires meticulous preparation, strategic thinking, and a deep understanding of the market dynamics. Just as you invested time, effort, and innovation into building your digital venture, the process of selling demands a similar commitment to ensuring that your business is presented in its best light. In this phase, your goal is to elevate your online business to attract potential buyers, instill confidence, and showcase the full spectrum of its potential.

Conduct a Comprehensive Business Assessment

Before selling your online business on Flippa, it’s imperative to conduct a comprehensive assessment of its strengths, weaknesses, opportunities, and threats. This evaluation provides a clear understanding of where your business stands and allows you to address any areas that might raise concerns for potential buyers. Scrutinize your financials, growth metrics, customer acquisition channels, and operational processes. Identifying and addressing potential issues upfront not only enhances the value proposition but also builds trust among potential buyers.

Prepare Your Business Records

Accurate and transparent financial records are the backbone of any successful sale. Organize your financial documents, including profit and loss statements, balance sheets, cash flow reports, and tax records. Highlight key financial indicators that demonstrate your business’s profitability and growth trajectory. Buyers seek businesses with a track record of financial stability and potential for future profitability, so presenting a clear financial picture is crucial. Ensure that all intellectual property (IP) assets are properly documented and protected. This includes trademarks, copyrights, patents, and any proprietary technologies. Having these assets in order not only adds value to your business but also demonstrates your commitment to safeguard its unique aspects. A strong IP portfolio can be a key selling point, especially in competitive markets.

Transparency is the cornerstone of successful business transactions. Address any potential concerns openly and honestly. Be prepared to provide additional information and data during the due diligence process. Buyers appreciate sellers who are forthcoming with information, as it builds trust and confidence in the business’s integrity. A data room is a great way to share key information, and if it’s prepared correctly, it can expedite the exit process.

Tip: Use cloud accounting platforms like Xero and Quickbooks online. These platforms make understanding your performance easier, plus Flippa conveniently connects to make the onboarding process easier and quicker.

Business records to prepare for your data room:

Financial Records

• Gather and organize financial records, including profit and loss statements, balance sheets, tax returns, and cash flow statements.
• Ensure that financial statements are accurate, up-to-date, and prepared by generally accepted accounting principles (GAAP).
• Prepare a comprehensive financial package that highlights the business’s financial performance, growth trends, and potential for future profitability.

Operational Records

• Compile and organize operational records, such as employee contracts, vendor agreements, customer contracts, and any other relevant documentation.
• Ensure that all contracts and agreements are current, valid, and transferable to the new owner.
• Provide clear documentation on key operational processes, inventory management, marketing strategies, and other essential aspects of the business.

Intellectual Property and Legal Documents

• Identify and organize all intellectual property assets, including trademarks, copyrights, patents, or trade secrets.
• Ensure that all intellectual property rights are properly registered and protected.
• Compile all legal documents related to the business, including licenses, permits, leases, and any pending litigation or regulatory matters.

Professional Assistance

• Engage services of professionals, such as accountants and attorneys, to assist with organizing and reviewing financial and operational records.
• Collaborate with a business broker or intermediary who can guide you through the sales process and ensure proper presentation to potential buyers.
• Seek expert advice on legal and regulatory compliance to address any potential issues that may arise during the due diligence process.

Due Diligence Preparation

• Anticipate the due diligence process by preparing comprehensive due diligence checklists for potential buyers.
• Address any potential red flags or issues proactively and be prepared to provide explanations or solutions.
• Conduct a self-assessment of the business to identify any areas that may require improvement or resolution before the sale.

Tip: Use Flippa’s due diligence checklist to understand what buyers will want to see.

Verified and Integrated Data

• Always-On Accurate Data.
• Connect and expose financial and operational strengths with 15 integrations from the world’s leading platforms.
• Maximize your sale value with up-to-date data: By connecting your data sources, historically accurate and continually up-to-date information will automatically be added to your listing every month.
• More verified data, more information, better results.

Enhance Operational Efficiencies

Efficient operational processes not only streamline business operations but also make your

business more appealing to potential buyers. Evaluate your workflows, customer service protocols, and supply chain management. Highlight improvements you’ve implemented to enhance efficiency and scalability. Buyers are attracted to businesses that can seamlessly transition into their ownership without disruptions.

Curate a Compelling Marketing Strategy 

Just as you’ve marketed your products or services to customers, crafting a compelling marketing strategy for your business’s sale is essential. Create a detailed listing that highlights your business’s unique value proposition, growth potential, and market positioning. Use persuasive language,  appealing visuals, and clear data to illustrate your business’s strengths. A well-crafted listing captures attention, engages potential buyers, and sets the stage for meaningful conversations. 

Showcase Growth Potential 

Buyers are often interested not only in your business’s current state but also in its potential for growth and expansion. Identify avenues for future growth, whether it’s untapped markets,  product diversification, or scaling existing strategies. Providing a roadmap for how the new owner can take the business to the next level demonstrates your foresight and positions your business as a valuable investment. 

Prep Your Team for Transition 

If your business has a team, communicate openly with them about the impending sale.  Ensure that key personnel are informed and prepared for the transition. This helps to maintain operational continuity and fosters a positive perception among potential buyers. A well-prepared team reflects positively on the business’s overall health and stability. 

Evaluating Your Reasons for Selling and Setting Realistic Expectations 

Reflect on and assess your personal and professional motivations for selling the business.  Consider factors such as retirement, pursuing new opportunities, financial goals, or changes in personal circumstances. Evaluate the timing of the sale and determine if it aligns with your personal and business objectives. 

Set realistic expectations regarding the sale price, timeline, and potential challenges, and conduct market research to understand the current market conditions and valuations in your industry. Do the current market trends align with your expectations? If not, are you willing to wait for the price or buyer you want, and can you financially afford to do so?  

Preparing for the sale of your business involves evaluating your reasons for selling, setting realistic expectations, and organizing financial and operational records. By reflecting on your motivations, setting reasonable expectations, and maintaining confidentiality, you can position your business for a successful sale. Furthermore, organizing financial records, operational documents, intellectual property assets, and engaging professional assistance will help attract potential buyers and streamline the due diligence process. With careful preparation, you can maximize the value of your business and ensure a smooth and successful sale.

Business Valuation 

Business valuation is a critical aspect when selling a business as it determines the fair market value and helps you set an appropriate asking price. This section of the guide will provide you with valuable insights on how to conduct a business valuation when selling your online business. We will explore different valuation methods,  including asset-based, income-based, and market-based approaches. By understanding these methods and following the guidelines below, you can confidently determine the value of your online business and maximize its potential in the market. 

Daniel Sold His SaaS Business on Flippa for $300K using the valuation tool on Flippa was simple. I put in the domain, connected my stripe accounts, and all the financial and analytics to  get an accurate valuation.” 

Understanding Different Valuation Methods 

Valuing an online business is a critical step in the process of selling, and it involves a thorough understanding of various valuation methods. These methods offer distinct approaches to assessing the value of a business, each  focusing on different aspects: 

Asset-Based Valuation 

This method evaluates the business based on its tangible and intangible assets. Tangible assets encompass physical assets like equipment, inventory, and property, while intangible assets include intellectual property, brand value, customer relationships, and goodwill. Asset-based valuation is particularly suitable for businesses with substantial tangible assets or those that are asset-intensive. 

Income-Based Valuation 

This method determines the value of a business by considering its ability to generate income and profit. It encompasses approaches like the discounted cash flow (DCF) method and the capitalization of earnings method. The DCF method calculates the present value of anticipated future cash flows, accounting for the time value of money. The capitalization of earnings method, on the other hand, employs historical or projected earnings to estimate the business’s value. 

Market-Based Valuation

This method establishes a business’s value by comparing it to similar entities in the market.  Market-based valuation relies on metrics like price-to-earnings (P/E) ratios or price-to-sales  (P/S) ratios derived from comparable transactions or publicly traded companies. This approach is most effective when a robust market exists for similar businesses and sufficient data supports the valuation. 

Flippa uses a Market-Based Valuation when giving you an indicative estimate. This is based on thousands of historical sales across digital business models including but not limited to E-commerce, SaaS, Content & Advertising, and Apps.  

How to price your business for sale? 

When determining a pricing strategy for your online business, consider a multi-faceted approach that encompasses various factors: 

Financial Statements and Historical Performance 

Begin by compiling accurate and up-to-date financial statements, including profit and loss,  balance sheets, and cash flow. Analyze historical financial performance to comprehend revenue growth, profitability, and cash flow generation. Make adjustments to the financial statements—such as accounting for one-time expenses or non-recurring revenues—to provide a normalized financial view. 

Future Earnings Potential 

Assess the business’s future earnings potential by examining market trends, growth opportunities, and the competitive landscape. Consider factors like market demand, customer retention rates, scalability, and innovation within your industry. Conduct comprehensive market research to comprehend the projected growth and profitability of similar businesses. 

Intellectual Property and Brand Value 

Evaluate the value of your intellectual property assets, such as trademarks, copyrights, patents, and proprietary technology. Gauge the strength and recognition of your brand within the market and its potential for generating future revenue. Factor in the value of customer relationships, customer databases, and exclusive contracts or partnerships. 

Comparable Sales and Transactions

Look into recent sales and transactions of comparable online businesses to gain insights into market valuations. Seek transactions within your industry that align in terms of size, revenue,  business model, and growth potential. Analyze the financial multiples, terms, and conditions of these transactions to identify a relevant valuation range for your business. 

Business valuation is a crucial step when selling your online business as it helps you set an appropriate asking price and attract potential buyers. By understanding different valuation methods, including asset-based,  income-based, and market-based approaches, you  

can determine the fair market value of your business.  Consider financial statements, future earnings potential,  intellectual property, brand value, and comparable sales, and seek professional assistance for an accurate valuation.  By conducting a thorough business valuation, you can confidently navigate the sale process and optimize the value of your online business.

What’s the best advice for sellers?

1. You need to figure out your numbers. The ultimate goal is to get the best valuation for your business. So you need to make sure your SDE is calculated properly.
2. Use our valuation tool! You’ll find a handy tool that uses an array of analytics to provide a clear idea about your business, what it might be worth to a buyer on the platform using the sales data we’ve gathered for ten years, and how best to maximize the value. 

If you’re looking for more information on valuations, reach out to one of our valuation experts at Advisor@Flippa.com, who will be more than happy to provide additional guidance and assistance.

Remember that this is ONLY a guide — since every business comes with its peculiarities and requirements. Your business valuation will be peculiar to your business model.

READY TO SELL YOUR ONLINE BUSINESS?

Sell your online business with Flippa, the #1 platform for online M&A. Flippa has expert M&A Advisors to support you through your exit journey, as well as the tools and technology to match you with high quality buyers and get deals down. Start your exit journey here.

When is the best time to sell my online business?

The best time to sell your online business is now. It doesn’t matter whether you’re reading this guide today or three years from the day of publication, the digital landscape is experiencing exponential growth, and there’s no sign of stopping.

So when is the ideal time to sell my business?

We have to consider three components when it comes to timing your sale.

Is your business consistent?

Consistency is key, and that’s what buyers on Flippa yearn for. They want to see consistency in performance. If you can provide data over the past 12 months on how your business has grown and run without any hiccups, then you know it’s time to sell.

If there are some inconsistencies, be sure to provide a logical reason for such inconsistencies, and make sure they’re well highlighted in your listing to enable buyers to make better buying decisions.

Is your business on the rise?

Above everything else, buyers are looking for a business that has experienced an upward trend. Month over month, your subscriptions, page views, and, more importantly, revenue are rising. Flat-line growth could mean consistency, which, as we’ve said, will often attract buyers.

However, if your business has declined, this may be the one factor that makes you hold off on selling (for now). Buyers will be concerned and skeptical, and if you can’t logically explain the decline, it might not be the right time to sell.

Do you want to sell?

We always advise business owners to sell when they want to, not because they have to. If you’re not yet ready to take the leap, don’t. Once the sale is completed, we want both buyer and seller to be happy with the outcome. 

If you don’t feel you have the ability to negotiate or say “no” to an offer, you could be forced into a sale you’re not completely happy with. If you’ve set your price fairly, you’ll be able to find the right buyer on Flippa for your business.

Mistakes to avoid when selling a business

If you’re considering selling your small business, here are some of the common mistakes to avoid:

• Selling for a low value: Make sure when you’re checking accounts to determine whether the business is profitable, you pay attention to the cash flow to ensure you’re selling your company for the right amount. You don’t want to underestimate the company’s value. Put a price on the business to ensure you receive maximum value.
• Selling for too high: On the other end of the scale, many business owners think their business is worth much more than it is. No one is going to want to sign a sales contract on a business that is overvalued.
• Not being up to date on financials: Poor financial data could deter people from purchasing. To avoid selling for too high or too low, ensure you have quality accounting software that can provide a balance sheet, other financial statements, and other information about your business that could help sell.
• No financial advisor: Selling businesses isn’t a black-and-white task, so make sure you have someone who knows what they’re doing to back you. Business brokers are well-versed in everything you need to know, from business loans and business insurance to capital gains, contract law, and intellectual property.
• Marketing the wrong way: You want to ensure you sell the business to a qualified buyer. To do that, you should target your marketing to prospective buyers via the right platforms. Flippa is the ideal online site that allows you to sell the company confidently.
• Forgetting important business administration: To sell the business, you must keep on top of all your business banking, business tax, commercial lease agreements, private equity, savings accounts, and even stock purchase details.
• Selling at the wrong time: Whether it’s the wrong time in your life to sell or the wrong time for your target market (if you sell Christmas products, you don’t want to sell your business in February, but rather wait another six months), make sure you sell at the right time. Have a succession plan in place.
• Not informing employees: Be sure you let your key employees know of your plans – you never know, they may want to buy the business themselves, or they’ll want to work out an exit strategy if they don’t want to stay on with new owners. Distributing letters of intent to sell is an easy way to do this.

READY TO SELL YOUR ONLINE BUSINESS?

Sell your online business with Flippa, the #1 platform for online M&A. Flippa has expert M&A Advisors to support you through your exit journey, as well as the tools and technology to match you with high quality buyers and get deals down. Start your exit journey here.

How to list your online business on Flippa?

You now understand the benefits of selling your online business on Flippa. Now, you need to understand how to create a great listing that will attract the buyers you want. You’ve worked out what your online business is worth and determined the price you’re happy to sell for. Now, it’s time to get the most out of your business by creating an attractive listing.

We are asked time and time again how much information should be provided on a business listing on Flippa. The answer is “as much as possible.” Come to the process with as much information at hand as possible so that you can create an informative listing that highlights all aspects of your business. When in doubt – more is better!

Ultimately, a business is only worth what someone is willing to pay. Our goal here is to teach you how to get the most out of your business by creating a top-notch listing and taking advantage of some of our marketing tools and tricks.

Start selling on Flippa.

The process is straightforward. Head to flippa.com and click “start selling” in the top right corner of the screen. (Or just click here if you’re ready to go!)

1. The first choice that you’ll come to is what sort of business you are selling.

Enter the URL and we’ll prompt you to choose the type of online business you’re selling. You will see six of the most common types of online businesses sold on Flippa, or you can select from any digital asset type. If you can’t find the right business model select ‘Other Asset’ – we sell any and every type of digital asset!

2. The Basics.

What’s your business name, when did you start your business, what country is your business located in, what industry do you operate in, and a bit more information on the specific asset type?

3. How does your business make money?

Now we get to jump into your business. Based on the type of business you selected you’ll be provided with prompts for how your business makes money. If these don’t fit with your monetization, select ‘Other’. You can select more than one option for how your business is monetized.

If you need some help figuring out how your particular business is best listed on Flippa, please feel free to email us at support@flippa.com or schedule a call with one of our onboarding experts through this link and we’ll walk you through the process and make sure you get set up correctly. 

4. Product Integrations.

We can’t emphasize enough how important this step in the listing process is to help you make a sale. Linking any integrations you can such as Google Analytics, Stripe, Quickbooks, Paypal, Google AdSense, WooCommerce, Shopify, BigCommerce, etc, takes just a couple of clicks and will provide potential buyers with verified information about the revenue you make and the traffic coming to your website. This step is one of the most important factors in most online business sales on Flippa.

Based on the type of business you are selling, you’ll be presented with a number of integrations to choose from.

5. Financials.

We probably don’t need to tell you how important it is to provide your financial history. Revenue and, ultimately, profit are what most buyers are looking at first and foremost. They want to know if you’re making money and how much. 

We allow you to sync with Stripe or Quickbooks if you use these platforms, but if not, it is worth every second to upload your information by hand. We only look for revenue and expenses, so this process doesn’t take very long, even when done manually.

On top of uploading your numbers to our system, we highly recommend you upload further proof of revenue. This can be screenshots of the backend of your Shopify store, a video walkthrough of your subscription service revenue, or we’ve even seen users upload tax returns with any confidential information redacted.

6. Build your listing.

This is where you get excited about the business you’ve built. Lay it out there for potential buyers and think about it from their point of view. What would you want to read about if you were considering a large investment in a business that somebody else created and you are only learning about for the first time today?

Flippa makes it very easy to list your online business for sale. All you need to do is follow the guidelines, fill in as much information as possible, add images, add a video, or anything that will help you stand out to potential buyers.

The biggest tip we can give for this portion of the listing is to be highly descriptive but not to the point that people will stop reading.

For instance, if you run an eCommerce business, don’t simply say, “We make money by selling our products.”

Go into detail about the process. For example:

We source the products from a supplier, those products are shipped to a warehouse, and we sell the products on our website via Shopify and Amazon. Our profit margins on Shopify are XX%, and our margins on Amazon are XX%. The average order value is $XX. We sell XX number of products on average each month. We only see X% returns, and those are handled by X business.

Let buyers know about every positive aspect of your business. Do you have a strong social media presence? Do you see incredible ROI from Google or Facebook ads? Do you have an email list? Do you have hundreds of articles on your website ranking on Google? Do you have 5-star reviews? Lay it all out there. Sell sell sell.

7. Transparency is key

Don’t be afraid to mention any weaknesses. Transparency is key; our buyers want to know if there are any skeletons in the closet. It’s okay if you aren’t great at SEO. It’s alright to let people know that you were preoccupied with something else for a couple of months, and that’s why the numbers were down during a specific period. 

Buyers want to know what mistakes have been made so they can be sure they know how to manage similar instances in the future and are looking for businesses that can be grown using their expertise.

Let the buyer know why you’re selling a profitable business. Are you spending too much time elsewhere? Has it grown outside of your expertise? Are you looking to make a large purchase (like a house or car) and need cash in hand?

Provide some insight on who would be successful with this business. 

• Is this meant as a side project or a full-time gig? 
• Would the new owner need expertise in any specific business or technology sector? 
• Do you think business growth has stalled because you aren’t an expert at Instagram advertising? 

The more information, the better.

Finally, be sure to upload an eye-catching image. It might feel like a screenshot of your site works just fine, but you must consider this as a marketing person and try to catch a potential buyer’s attention. Using a bold image, a stock photo, or a favorite image from your website can often be more impactful than a screenshot of text.

Auction vs asking price

Flippa offers two distinct methods for selling your business. Auction and Asking Price.

Auction

The auction option allows users to bid on your business, ideally driving the price up as excitement grows. With an auction, you can also set a “reserve” price, essentially the price that an auction must reach for a sale. Auctions last for 30 days and, in the end, if unsold, will automatically convert into a static listing, so you can still make a sale even if bidding is slow for any reason.

You can also set the price at which “bidding starts.” A lower minimum bid will drive interested buyers to your listing and increase competition between buyers.

We recommend setting the starting price for your auction at a number low enough to draw attention and generate excitement but not so low that you see people with no actual intention of purchasing your business getting involved.

For instance, if you believe your business is worth $40,000, you might want to set your reserve price to about $30,000 or $35,000 (depending on what you’d be willing to accept) and set the auction price to begin at $10,000. If you set the auction to start at $1, you’ll get some bids, but people bidding $5 aren’t likely to scale up to the true value when the time comes.

Asking price listings

Asking Price Listings allows you to set a price, and then negotiate directly with buyers. These are more common for high-value assets as people need time to do their due diligence when looking to spend a lot of money. With this method of selling, negotiation is the name of the game. Your asking price is considered the starting point for negotiating directly with buyers.

Buyers can make reasonable offers above and below your asking price. You can approve or reject all offers and change your asking price anytime.

Your listing will remain live on the marketplace until it is sold, removed, or canceled.

A great listing example.

We highly recommend you take a few minutes to watch the below video of Stefan and Blake leading you through a great example of a recent listing to help you get a feel for what works before venturing off to list your own assets. You can skip the leadup if you want and jump to the example at the 3-minute mark.

Watch – How to build a great listing

All said and done, building the best listing on Flippa is about quality over speed. Take the time to get all of your eggs in order. Come to the table with your Google Analytics connected and any other integrations you use, your financials updated and input, and any supporting documents uploaded as attachments.

Take the time to put all of the details of your business together in extreme detail so that potential buyers get excited by what you’ve built. If you are in a rush to sell your business, you’ll close the deal far faster if you take several hours to develop a stellar listing rather than rush the process. Saving a few minutes upfront will cost you days if not weeks,  as people simply won’t be interested in what they see.

Take your time, put in the hard work, and check out our article on how to draw attention to your listing!

READY TO SELL YOUR ONLINE BUSINESS?

Sell your online business with Flippa, the #1 platform for online M&A. Flippa has expert M&A Advisors to support you through your exit journey, as well as the tools and technology to match you with high quality buyers and get deals down. Start your exit journey here.

Marketing and finding the right buyer 

The journey of selling an online business starts with finding the right buyer. Flippa is a powerful ally in your journey to identify potential buyers who resonate with your business’s essence and possibilities. 

By following these guidelines, you can maximize exposure, generate interest, and find the right buyer for your business. 

AI-Driven Buyer Matching 

An industry-first innovation with 100,000+ matches weekly. 

• Beautifully simple matching for better deal-making 
• Visualize matched buyers 
• Build demand and Interest 
• Invite your preferred buyers 

Get Matched with Potential Buyers Through Flippa’s AI Recommender Engine

Flippa uses a proprietary matching algorithm with an AI-powered graph neural network to benchmark over 100 factors that determine a fit and relationship between buyers and sellers.  The result? Simply the best matching algorithm for buyers and sellers anywhere on the planet,  paired with our notifications and email engine ensuring efficient transactions for the buy and sell side. 

Visualize Matched Buyers 

Flippa’s deal room has expanded to include a recommended buyer view. Simply hit ‘Invite Buyers’  to view recommended buyer profiles, and see budgets and past acquisition history. It’s a simple-to-use interface giving you unique insight into the overall pool of prospective buyers. 

Build demand and Interest, and invite your preferred buyers to find a profile you like. Have a buyer you would like to pitch to. You can invite them directly.  Simply hit ‘Invite Buyer’ and we will take care of the rest. We’ll tell them about your business/asset, explain why we think they are a good match, and notify them directly. You can track the status of the invitation at any time with our handy status bar. 

Navigating Negotiations with Confidence 

Armed with insights gained from engagement interactions, you enter negotiations with a deep understanding of what potential buyers value most. This knowledge is instrumental in crafting persuasive arguments that address their concerns and highlight the unique strengths of your business. Effective negotiation isn’t just about numbers—it’s about aligning the buyer’s aspirations with your business’s potential. 

Building Long-Term Relationships 

Flippa’s environment is conducive to fostering long-term relationships that extend beyond a single transaction. Even if a potential buyer doesn’t proceed with your current listing, the connections you make can lead to future collaborations or referrals. Nurturing relationships within the Flippa community positions you as a credible and reliable seller, enhancing your profile and attracting serious buyers for your next venture. 

Benefit from 

• Deal-by-deal promotion and email marketing.  
• More direct relationships with institutional buyers. 

Creating a Marketing Strategy to Attract Qualified Buyers

The Flippa Advisory team will work with you to optimize reach and opportunity. A typical approach includes but  is not limited to: 

Develop a Compelling Sales Pitch 

Begin by crafting a succinct yet compelling sales pitch that encapsulates your business’s unique selling points and value proposition. Convey the benefits, growth prospects, and competitive advantages that render your business an alluring prospect for potential buyers. 

Initial Release – Tapping into Flippa’s First Access Community 

Flippa’s First Access community represents a network of Premium Buyers. This group of buyers will provide critical insight with their feedback informing likely interest, positioning improvements, and ultimately company valuation. In fact, in many cases, this small cohort of buyers will reveal your ultimate acquirer. 

AI Matching – Leveraging Flippa’s Global Universe of Buyers 

It’s one thing to have the largest universe of buyers; both acquisition entrepreneurs,  professional investors, company and institutional buyers, it’s another thing to match with precision. Immediately following the initial release Flippa will trigger its AI and notify buyers of a prospective deal.  

Did you know? Flippa matches over 100,000 buyers weekly 

Network Marketing – Optimising Reach Across Flippa’s Channels 

Whether a private listing or a public marketplace listing Flippa has unparalleled reach.  Network marketing includes targeted presence across Flippa’s email marketing (reach in  excess of 500,000), push notifications, and where relevant, syndicated to partner platforms. 

In Summary

In the dynamic landscape of online business sales, Flippa.com is the market leader and the only platform with M&A matching at scale. By tapping into Flippa’s advanced search filters, decoding engagement interactions, and leveraging insights from our accredited M&A advisors, you’re not just selling a business—you’re connecting with a buying group that will continue your legacy and propel your digital creation to new heights. 

Negotiating the sale 

Negotiating the sale of a business is a critical phase in the selling process. This section of the guide will provide you with valuable insights on how to navigate the negotiation process effectively. We will discuss essential negotiation strategies and tactics and guide you through addressing key elements such as price, terms, and contingencies.  By understanding these principles and employing effective negotiation techniques, you can maximize the value of your business and achieve a successful sale. 

Understanding Negotiation Strategies  and Tactics

Set Clear Objectives 

Prior to embarking on negotiations, crystallize your objectives. Define your desired outcomes concerning the sale price, terms, and other pertinent elements. Having a well-defined target steers your negotiations toward achieving your goals. 

Research and Preparation 

Equip yourself with a profound understanding of the market landscape. Research prevailing industry trends and valuations. Gather data on comparable sales, industry benchmarks,  and market dynamics to substantiate your negotiation stance. 

Build Rapport and Trust 

Forge a foundation of trust and open communication with the buyer. Establish a rapport that fosters collaboration. Nurturing a positive relationship creates an environment conducive to productive negotiations and enhances the prospects of reaching a harmonious agreement. 

Active Listening 

Deploy the art of active listening to delve into the buyer’s motivations, concerns, and preferences. Scrutinize verbal cues and non-verbal signals, enabling you to adapt your negotiation approach accordingly and tailor it to the buyer’s unique standpoint. 

Focus on Win-Win Solutions 

Strive for outcomes that are win-win for both parties. Seek resolutions that fulfill the interests and aspirations of both you and the buyer.  Crafting creative solutions that address their needs while safeguarding your own priorities facilitates a collaborative and successful negotiation. 

Maintain Flexibility

Flexibility is a potent tool during negotiations.  Stay open to exploring alternative proposals.  Recognize areas where you can offer concessions without compromising the overarching value of the deal. Adaptability amplifies the prospects of finding common ground. 

Seek Professional Advice 

Leverage the insights of seasoned professionals such as Flippa’s expert team of accredited M&A  advisors. Enlisting their expertise adds a layer of guidance to the negotiation process. Their experience aids in navigating intricate aspects and guarantees your interests remain protected. 

Addressing Price, Terms, and  Contingencies

Price Negotiation 

Base your minimum acceptable price on similar business and industry comps. Construct a compelling case for your asking price,  emphasizing the business’s strengths, growth prospects, and competitive edges. Present a cohesive rationale that demonstrates the value you’re seeking. 

Terms and Payment Structure 

Delve into the deal’s structure, encompassing cash payment, seller financing, earn-outs, or contingent payments. Negotiate terms that harmonize risk mitigation with financial gain.  Strive for an arrangement that satisfies both parties’ interests and objectives. 

Due Diligence and Contingencies 

Converse about the buyer’s due diligence requisites and establish a clear timeline for the process. Address contingencies, such as obtaining financing, necessary approvals, or fulfilling specific tasks, within a reasonable timeframe. Transparency in this stage fosters confidence and smoothes the path to closure.  flippa.com/dd 

Non-Compete and Transition Period 

Engage in discussions concerning non-compete agreements, preventing you from competing with the buyer post-sale. Define the scope and duration of the non-compete clause in alignment with your future aspirations. A  well-crafted non-compete contributes to a harmonious transition. 

Legal and Contractual Considerations 

With Flippa’s embedded Letter of Intent builder, you’ll receive offers on the platform. You can also consult our accredited M&A advisors and/or where you need legal counsel think about using Flippa Legal in partnership with  Contracts Counsel flippa.com/legal. Scrutinize elements such as representations, warranties,  indemnifications, and other provisions that influence your liability after the sale. 

Document Everything 

Methodically document each negotiation, offer,  counteroffer, and finalized term. Maintain a comprehensive record of any adjustments or amendments to the original agreement. This meticulous documentation cultivates clarity and limits potential misunderstandings. 

In Summary

Negotiating the sale of a business requires a strategic approach and an understanding of negotiation strategies and tactics. By setting clear objectives, conducting thorough research, building trust, actively listening, and seeking win-win solutions, you can navigate negotiations effectively. Addressing price, terms, and contingencies requires careful consideration, and seeking professional advice can provide valuable insights. Remember to document all aspects of the negotiation process to ensure clarity and avoid potential disputes. With a well-executed negotiation strategy, you can achieve a successful sale that meets your objectives and maximizes the value of your business. 

Flippa deal room 

An integrated, seamless and powerful platform that unifies all aspects of a deal into a simple easy-to-use workflow. 

• Manage multiple conversations in one place 
• Price drop and management
• Preview messages Add third parties 
• Shortlist preferred buyers Easily submit embedded LOIs 
• Seamless deal completion 
• Submit Asset Purchase  Agreements 

Due Diligence and Documentation 

When selling an online business, the due diligence process plays a critical role in establishing trust and transparency between the seller and potential buyers. This section of the guide will provide you with valuable insights on how to assist buyers with their due diligence process effectively. Additionally, we will discuss the essential documents and data you need to prepare to facilitate a smooth and successful due diligence phase. 

Assisting Buyers with Their Due Diligence Process

• Establish Open Communication Channels 

Foster a collaborative atmosphere by promoting transparent communication with potential buyers.  Swiftly address their inquiries, information requests, and clarifications. This approach not only builds trust but also demonstrates your commitment to facilitating a thorough due diligence process. 

• Provide Access to Information 

Equip serious buyers with the essential information they need to conduct due diligence. Share relevant details about your online business, ensuring they possess the resources required to make informed decisions. Consider organizing a structured data room or a secure online platform where buyers can conveniently access crucial documents and data. 

• Be Transparent 

Unveil an accurate and comprehensive portrayal of your online business, setting up Flippa integrations is a quick and easy way to do this. Highlight its strengths, growth prospects, and potential opportunities, while candidly addressing any existing weaknesses or challenges.  Transparent communication establishes a foundation of trust and promotes a constructive due diligence experience. 

• Answering Buyer’s Questions 

Be prepared to respond to a range of queries encompassing financial statements, revenue streams,  customer demographics, marketing strategies, and operational processes. Respond in a timely  manner, furnishing detailed and accurate information to the best of your knowledge. A prompt and comprehensive approach demonstrates your commitment to facilitating an informed decision-making process. 

• Let Flippa do the Hard Work for You 

Flippa’s leading Due Diligence product used by brokers, buyers, and advisors goes where most don’t. Not only does the DD Team do the usual verifications but they’ll unlock insights, and reveal performance benchmarks and potential growth opportunities. 

It’s a deep dive into operations, which reveals interesting insights, performance against benchmarks, and potential growth strategies for the new buyer. 

SELL WITH EXPERT M&A ADVISORS

Our certified M&A Advisors are dedicated to assisting you throughout the selling process, offering guidance, answering questions, and helping you achieve a successful sale.

Flippa due diligence 

A Verification & Assessment Service Offered by Flippa 

• Deep-dive into operations, financial, and traffic insights 
• Reveal potential growth strategies for buyers 
• Measure performance against benchmarks 

Preparing Necessary Documents and  Data for Review

Financial Documentation 

Lay the foundation with comprehensive financial statements encompassing profit and loss statements, balance sheets, and cash flow statements for the past three to five years.  Assemble tax returns, and if available, audited financial statements. These documents offer insights into the business’s financial health and performance. 

Intellectual Property 

Document and furnish information about any intellectual property linked to the business— such as trademarks, copyrights, patents,  or trade secrets. Highlight any ongoing or past legal disputes connected to intellectual property. Providing a comprehensive view of intellectual property safeguards the business’s unique assets. 

Legal Documentation 

Gather a suite of legal documents that underpin the business’s legitimacy and operations.  This includes articles of incorporation, bylaws,  operating agreements, and any pertinent contracts or agreements with vendors, suppliers,  or partners. Ensure documentation of necessary licenses, permits, or registrations that validate the business’s legal standing. 

Operational Documentation 

Present a detailed overview of the business’s operational framework. Include standard operating procedures (SOPs), employee handbooks, and training materials that elucidate the internal workings. Offering insights into the technology stack, software,  and tools used to drive efficiency underscores operational excellence. 

Marketing and Sales Information 

Share the business’s marketing strategies and advertising campaigns. Provide a comprehensive view of customer acquisition channels. Furnish data on customer demographics, conversion rates, customer lifetime value, and strategies for customer retention. This information paints a vivid picture of the business’s market positioning and outreach effectiveness. 

Customer and Supplier Data 

Compile comprehensive information about the customer base—ranging from customer lists to profiles and testimonials. Document key supplier details, agreements, and relationships that are integral to the business’s seamless operations. This information offers insight into the business’s external relationships. 

Tip: Flippa will include Semrush analytics on each asset for sale. 

Website and Traffic Analytics 

Granting access to website analytics platforms like Google Analytics. Showcase critical metrics including traffic sources, page views, conversion rates, and user behavior. Include data on search engine optimization (SEO) efforts, backlinks,  and social media presence to provide a holistic online profile. 

In Summary  

Effectively managing the due diligence process and preparing the necessary documents and data are crucial steps when selling an online business. By providing transparent and comprehensive information, you instill confidence in potential buyers and increase the likelihood of a successful transaction.  Remember to engage professionals when necessary and maintain open communication throughout the due diligence process. By following these guidelines, you’ll be well-equipped to assist buyers with their due diligence and streamline the documentation phase, leading to a successful sale of your online business.

Finalizing your deal

By now, you have seen the benefits of listing your online business on Flippa, you know how to create an irresistible listing, and you know how to attract potential buyers to your listing.

The last puzzle piece is understanding how to close the deal correctly!

Interestingly, there’s no steep learning curve at all. Flippa’s platform simplifies everything and makes it as seamless as possible. However, you must understand a few key things, starting with accepting an offer.

Respond to the right offers

When you receive an offer, you have a right to accept or reject it. An “offer looks good” shouldn’t be the criteria for accepting it. We always encourage sellers to be verified and establish trust with buyers.

This scenario also plays out on the part of the buyer. They have to build rapport with sellers.

As excited as you might be when you get an offer, getting to know the buyer first is important. How critical can this be? Well, you’re going to do business with this person. It’s a major transaction, and you want to be confident that you can trust this person.

You might want to review their profile to see if they’re verified and have a good history. Of course, new buyers may not have a history — yet, it’s a great place to begin your ‘relationship’ journey.

Always speak to the buyer before accepting an offer. You need to get a feel for them and then make your decisions based on how trustworthy you perceive them. A quick message might just be the magic pill you need to know a bit about the buyer, which is a great way to prequalify buyers.

Ask yourself, “Can this buyer pay and be able to pay on time?” What is their financial situation? While you may not need to hire a private detective to conduct a deep investigation, take the right steps to establish a communication layer when closing your deal.

Don’t close a deal or transfer assets off the platform

Yes, Flippa is a safe place for buyers and sellers to do business. We have achieved great security and satisfaction for buyers and sellers. That said, you also have a role to play to ensure your satisfaction at the end of the day.

Flippa has set policies and practices in place — all aimed at driving a smoother transaction between buyer and seller, and it wants buyers to get what they pay for and that the seller gets a fair price for their business.

Suppose you decide, for some reason, to complete the transaction outside of Flippa. In that case, it’s hard to protect yourself if the seller absconds with your money or when unscrupulous behavior arises from either party.

Payment platform options

To help foster smooth payment from the buyer to seller, Flippa integrates with PayPal for lower-value transactions, which makes for a nearly instantaneous transaction. PayPal is mostly used for starter sites and other low-value digital assets.

Escrow

For the majority of high-level businesses worth thousands of dollars, Escrow.com is the best bet. Escrow provides a convenient, transparent, simple, and safe transaction. The goal is to safeguard your funds and keep them safe until the transaction is complete. 

Once the buyer receives the assets, they have to accept and acknowledge via the escrow portal that they have successfully received them. Only then will the funds be released to the seller. If the unforeseen happens while the transaction is still ongoing, Flippa can protect you. With escrow, it’s a win/win for the seller, buyer, and of course, the credibility of this platform.

Suppose you live in a country or territory where neither PayPal nor Escrow.com is operational. In that case, Flippa can also employ other payment options to make it easier for you to accept a payment to your bank account.

If that’s the case, email support@flippa.com, let them know the situation you’re facing, and they’ll quickly step in with a payment solution for you and your buyer.

You can read more about the Flippa payment options here.

Listing fees

Flippa sales experience has two fees you need to be acquainted with:

▶  The listing fee.

▶  The success fee.

The listing fee is paid upfront when you list your business for sale on Flippa. These flat-rate fees may vary depending on the type of asset you want to sell. You can check this on the website or look at the image below.

When your business is sold, you can expect to pay a variable success fee, depending on the sale price.

For a lot of people, it usually boils down to 10% of the total sale price, for sales up to $50,000. However, as the value of your digital asset sale increases, there’s a decrease in the fees, which makes Flippa the cheapest place to list and sell your web business.

READY TO SELL YOUR ONLINE BUSINESS?

Sell your online business with Flippa, the #1 platform for online M&A. Flippa has expert M&A Advisors to support you through your exit journey, as well as the tools and technology to match you with high quality buyers and get deals down. Start your exit journey here.

How to generate interest in your listing

Now that you’ve fully understood the process of setting up your listing, it’s time to create awareness, drive traffic to your listing, and attract potential buyers to your listing.

Since you’re here, we know you’re an entrepreneur. You have successfully created or purchased some type of online business.

As an entrepreneur, you already know that the theory, “If you build it, they will come” only goes so far when it comes to driving traffic to a website or listing. It’s essential to embrace the principles of marketing.

Yes, Flippa has a powerful search functionality and algorithm that will most certainly drive organic views to your listing. But you have to do a few things to help your listing gain as much attention as possible.

To get started, let’s be sure we’re on the same page. Make sure you add these easy items to your listing to make it stand out.

Watch – How to generate interest in your listing

Be sure to complete your seller verification

Your seller verification is visible on your listing. It appears on the side of your listing, and it can be a form of social proof for potential buyers. Going through the steps for seller verification might not mean anything to you, perhaps you think it’s an internal admin thing, but it’s critical to the success of your listing.

It’s recommended that you take time to go through the three steps (email, phone, and photo ID verification). This will portray you well among buyers (and viewers) that you’re a reliable and trustworthy seller.

As an entrepreneur, nothing beats earning trust. Regardless of the type of business you’re doing, you need to earn the trust of your target audience.

Everything isn’t all about the digital asset you’re listing for sale, it’s also about who you are, and how you have built that asset. Buyers are looking for relationships; they want to connect on a deeper level with a like-minded serious seller.

Be active on your listing

Engaging with your listing is essential. It’s a requirement if you want to get more views and build rapport with potential buyers.

Remember that most buyers on Flippa are browsing the platform and searching for any new opportunities that meet their criteria.

These potential buyers are watching several listings at a given time, as they go through their due diligence processes. If you don’t want your listing to get lost on the platform, it makes sense to fan the interest that people have shown already.

Being active on your listing means two things:
▶  Engage users by responding privately to their messages, and
▶  Engage users in the comments section.

Respond to messages

When you respond to private messages, you want to be quick and detailed. Since Flippa is a popular platform that supports a global community, there’s a chance you won’t reply to messages to a user immediately as their message might be delivered while you’re asleep, but do all you can to respond to their comments and questions within 24 hours.

By being responsive to their messages and replying to them on time, they’ll get excited and feel confident that you’re dedicated to your business.

Be active in the comments

Never overlook this important engagement step. Being active in the comments section is critical if you want to establish that you’re a trusted seller on Flippa. This is one of the best tools on the platform to connect with users.

When your listing receives a comment, several people will be notified via email, including people who are watching that listing. Your comments and answers will be sent to everyone who is currently watching the progress of your listing.

Upgrade your listing

There are several options to upgrade your listing, with the ultimate goal of increasing your views and reaching more people. The more buyers that see your listing, the more chance you have of matching with the right buyer for your business!

If you want to scale your listing, you may want to consider using these as leverage to attract more views. It can give you an advantage when it comes to selling your digital asset.

You can use the various boost packages to get your listing featured on Flippa’s search results, get your listing to show on the home page, be listed on the daily email that’s being sent out to thousands of buyers, and have your listing advertised through targeted social media platforms.

In addition to the viewership, you can also have an interview posted to your listing to help give your business that human touch. This can make you more approachable and buyers more excited to buy your web business.

Recently, Flippa has also made it possible to have one of our experts guide you in optimizing your listing with the right language and details that have proven to generate the most responses.

When selling through Flippa, you can require potential buyers to sign an NDA (non-disclosure agreement) before they’re allowed to access critical details about your asset.

End your auction on a Friday

According to our data, Friday afternoons, US time, generate the highest traffic to most listings on Flippa. Why? No one can tell for sure. But likely because a lot of people want to take back control of their lives — perhaps they’re tired of their day jobs and chose to browse the platform for any entrepreneurial investment.

Highlight the sale to your own network

You don’t have to keep your sale quiet. If you’re confident and happy about your digital business, why not tell people about it? Let them know it’s for sale! Send email to your customers, talk about it on discussion boards and forums, post about your listing on LinkedIn, etc.

Keep in mind that marketing your business to people you already know, or people who know you could be the best marketing strategy.

Flippa has grown into a massive marketplace. There are hundreds of thousands of users landing on the website each month looking for amazing business opportunities.

Yes, Flippa’s listing upgrades and options for gaining more exposure are important, but that shouldn’t deter you from marketing your listing by yourself. It never hurts to reach out on your own and do more.

The best way to begin your journey with Flippa is to create a relevant, beautiful, and detailed listing. Then you need to go through the seller verification process so that potential buyers can feel confident when doing business with you. You should also put the Flippa sale banner on your site header (code provided by Flippa on your listing page). You never know if one of your viewers might turn out to be a potential buyer.

Conclusion

All in all, you have to be prepared and patient when selling your online business. You should have a selling price in mind (rethink if you don’t already have this) the moment you decide to sell your business.

Our final tips for sellers

Be prepared and patient when selling your online business. When you decide to sell your business, consider a selling price (rethink if you don’t already have this).

Patience is key. It can sometimes take days or weeks to find the perfect buyer. Deciding on why you’re selling from the start of your journey will help you manage and set your expectations as to the price and timing of the sale.

Go through the seller verification process so potential buyers can instantly see that you are a trustworthy partner. Finally, take advantage of the tools that Flippa provides, such as our marketing boosts and the comments section of your listing.So what are you waiting for? Get started with Flippa today!

Historically low interest rates and high government stimulus provided entrepreneurs and investors with easy access to funding. Transitions to remote and hybrid work and the rise of ecommerce made digitally-based businesses more attractive. Amid the Great Resignation, more workers considered career alternatives including entrepreneurship. While inflation and rising interest rates have somewhat cooled activity in the market more recently, signs point to sustained interest in entrepreneurial activity.

Trends in U.S. Entrepreneurial Activity

Since the beginning of COVID-19, interest in buying and selling businesses has exploded

Source: Flippa analysis of Google Trends data (2005–2024) | Image Credit: Flippa

According to data from the U.S. Census Bureau, total new business application volume today is approximately 50% greater than before the pandemic began in early 2020. And entrepreneurs are also considering transactions around existing businesses. Google search data has shown a spike in the search terms “how to sell a business” and “how to buy a business” in recent years. In the Google Trends index, search interest in both terms has risen from the high 30s (out of 100) before COVID to 80+ now, indicating significantly elevated interest.

SELL WITH EXPERT M&A ADVISORS

Our certified M&A Advisors are dedicated to assisting you throughout the selling process, offering guidance, answering questions, and helping you achieve a successful sale.

Total M&A Transaction Volume by State

While California accounts for the most buyer volume, lower-tax states account for a greater proportion of seller volume

Source: Flippa marketplace transactions (2016–2024) | Image Credit: Flippa

In recent years, the rapid pace of digital transformation has generated unparalleled demand for online businesses. While interest in entrepreneurship is up throughout the country, the volume of transactions varies by geography. Notably, residents in California, the epicenter of Silicon Valley, lead the pack of digital asset buyers, followed closely by those in Florida. Each state accounts for approximately 14% of total buyer volume. Other top states for buyers include Texas (8.9%), New York (7.3%), and Illinois (6.1%). 

However, the scenario shifts when examining sellers, where California residents do not dominate transaction volumes to the same extent. Instead, residents from states with lower or no tax implications, such as Florida, Texas, and Washington, command a significantly higher share of total seller volume at 15.8%, 14.2%, and 12.8%, respectively.

Per Capita M&A Transaction Volume by State

States in the Mountain West & Florida stand out for high levels of business transactions

Source: Flippa marketplace transactions (2016–2024) | Image Credit: Flippa

On a per capita basis, states in the Mountain West and Florida are home to a higher volume of buyers. Wyoming leads all states in buyer volume per capita at 3.38 times higher than the U.S. average, with other western states like Idaho, Arizona, and Washington also having buyer volume more than twice the national rate.

Leading states for sellers include Delaware, where the seller volume per capita is nearly 11 times higher than the U.S. average, and Wyoming, where the volume is almost 10 times higher. Delaware, Wyoming, and other leading states for sellers tend to be popular places to start a business due to business-friendly regulatory and tax structures. For example, Delaware is known for having clear corporate law, good liability and privacy protections, an efficient corporate court system, and certain tax advantages that make it an attractive place to operate. Meanwhile, Wyoming is regularly rated as having one of the best tax climates for businesses due to its lack of corporate and individual income taxes and relatively low sales tax rates.

Below is a comparison of per capita business transaction volumes for buyers and sellers in all 50 states. The analysis was conducted by Flippa using over 100,000 business transactions on its marketplace spanning the past eight years. For more information, see the methodology section below.

States With the Most Active Buyers

SELL YOUR YOUTUBE CHANNEL AND SOCIAL MEDIA ASSETS

Flippa supports any social media platform account including YouTube Channels, TikTok, Instagram and many others. Simply select your businesses social, choose the industry that best represents your business and begin creating your business description.

States With the Most Active Sellers

Methodology

The data used in this study is from a proprietary set of more than 125,000 digital asset sales that occurred on the Flippa.com marketplace between 2016 and 2024. To determine the states with the most active tech investors, researchers at Flippa calculated how each state’s total transaction sales volume per capita compared to the U.S. average for both buyers and sellers. The total transaction sales volume was calculated as the sum of the sale prices for all transactions. States were ordered by the per capita buyer transaction volume.

References

1. Federal Reserve Economic Data (FRED). (2024, February). FEDFUNDS – Effective Federal Funds Rate. https://fred.stlouisfed.org/series/FEDFUNDS Retrieved March 9, 2024.
2. Federal Reserve Economic Data (FRED). (2024, February). FGEXPND – Federal Government: Current Expenditures. https://fred.stlouisfed.org/series/FGEXPND. Retrieved March 9, 2024.
3. World Economic Forum. (2022, February). The great resignation: Boom in startups from more diverse founders. https://www.weforum.org/agenda/2022/02/the-great-resignation-boom-in-startups-from-more-diverse-founders/
4. U.S. Census Bureau. (n.d.). Interactive Visualizations – Business and Financial Statistics. https://www.census.gov/econ/bfs/visualizations/interactivegraphs.html Retrieved March 9, 2024.
5. Harvard Business Services, Inc. (n.d.). Benefits of Incorporating in Delaware. https://www.delawareinc.com/before-forming-your-company/benefits-of-incorporating-in-delaware/
6. Tax Foundation. (2023, October). 2024 State Business Tax Climate Index. https://taxfoundation.org/research/all/state/2024-state-business-tax-climate-index/

Full Results

The lower middle market is exciting because it’s filled with companies just waiting for the right investor to tap into their potential. This is where to look for those looking to diversify their portfolio and get involved in something with room to grow. However, like any investment, it comes with its challenges. Navigating these waters requires a good understanding of the sector and a strategic approach to investing. Let’s dive deeper into what makes the lower middle market a segment worth considering for your next investment venture.

What is the Lower Middle Market?

In the lower middle market, you find businesses making between $5 million and $100 million in annual revenue. It’s a crucial sector of the private equity world, acting as a bridge between the small startups and the giant corporations. These businesses are in a unique position—they’ve outgrown the startup phase but haven’t yet reached the size of larger corporations. With the right investment and strategic guidance, this makes them ripe for growth.

For investors, this means a chance to get involved with companies that have the potential to scale up significantly. It’s about finding businesses at a turning point, ready to take the next step but needing that extra push. Understanding this market’s nuances is key to identifying and making the most of these opportunities.

How To Efficiently Manage Lower Middle Market Businesses

Managing businesses in the lower middle market requires a tailor-made approach. These companies often operate on the cusp of significant growth, making them ripe for strategic guidance and investment. However, their size and resources necessitate a nuanced touch, blending agility with a keen eye for operational efficiency.

The key to thriving in this segment is understanding its unique challenges and opportunities. Effective management strategies often involve proactive leadership, operational streamlining, and agile decision-making. For investors, this means providing capital and the strategic oversight and resources these businesses need to scale up. It’s about promoting a partnership that leverages the strengths of the lower middle market—its flexibility, responsiveness, and potential for innovation—to achieve mutual growth and success.

Why Invest in Lower Middle Market Businesses?

Investing in lower middle market businesses comes with a compelling set of advantages that can be too good for the discerning investor to pass up. This market segment is characterized by its fragmentation, meaning a wide variety of businesses are spread across different industries, each with its unique value proposition. What makes this fragmentation attractive? It offers investors a chance to dive into niche markets with less competition and the potential for significant returns.

Moreover, businesses in the lower middle market often have more attractive valuations than their larger counterparts. This affordability and the potential for operational improvements set the stage for substantial value creation. By targeting these businesses, investors can achieve financial gains and contribute to the growth and development of companies on the brink of breaking into the next level of their industry.

The diversity within the lower middle market also allows for strategic portfolio diversification. Investors can spread their risk across various sectors and industries, minimizing the impact of market volatility while capitalizing on the growth opportunities that different markets present. This approach not only bolsters the financial health of the investment portfolio but also enriches the investor’s experience with a broader understanding of different business landscapes.

Biggest Opportunities of Lower Middle Market Private Equity

The lower middle market is not just about overcoming challenges but seizing opportunities. Let’s delve into some of the most promising prospects this sector has to offer:

Growth Potential

The agility and size of lower middle market companies make them perfectly poised for expansion into new markets or regions. With the proper strategic guidance and investment, these companies can quickly adapt and scale, tapping into untapped markets that larger, less nimble companies might overlook. 

Private equity investors have the opportunity to drive this growth, leveraging their expertise and resources to unlock the full potential of these dynamic businesses.

Acquisition Opportunities

The fragmented nature of the lower middle market means acquisition targets are abundant. For investors, this presents a chance to consolidate businesses, achieve economies of scale, and expand their market footprint through strategic acquisitions. 

Identifying and integrating complementary businesses can create powerful synergies, driving efficiency, innovation, and growth.

Limited Competition

The lower middle market tends to attract less attention from larger investment firms, offering private equity investors a competitive edge. With fewer players vying for deals, investors can often secure investments at more favorable valuations, enjoy greater negotiation leverage, and access a broader range of investment opportunities without the intense bidding wars common in larger markets.

Biggest Challenges of Lower Middle Market Private Equity

While the lower middle market is rife with opportunities, it’s not without its hurdles. These challenges can test the mettle of even the most seasoned investors, but with the right strategies, they can be overcome. Let’s explore some of the key obstacles:

Limited Resources

One of the most significant challenges facing lower middle market companies is the constraint of resources. Compared to their larger counterparts, these businesses often have limited financial, operational, and managerial resources. This scarcity can hamper growth and operational efficiency, making it difficult for them to scale or innovate at pace. 

For private equity investors, the challenge lies in identifying ways to augment these resources, whether through direct investment, strategic partnerships, or operational improvements, to drive sustainable growth.

Access to Financing

Financing growth initiatives can be particularly challenging for lower middle market companies. Traditional financing sources, such as bank loans or equity funding, may be less accessible due to these businesses’ perceived risk profile or smaller size. This limitation can stifle expansion plans and limit the company’s ability to capitalize on new opportunities. 

Investors can play a crucial role here by providing the necessary capital and leveraging their networks and expertise to secure additional financing options.

Market Volatility and Economic Uncertainty

Lower middle market companies are often more vulnerable to economic downturns and market volatility than larger entities. This sensitivity can lead to unpredictable performance, affecting revenue stability and growth prospects. 

Private equity firms looking to invest in this segment need to devise robust risk management strategies and contingency plans to safeguard their investments against the whims of the market.

What are the Main Capital Sources for Lower Middle Market Companies?

Navigating the financing landscape is crucial for lower middle market companies aiming for growth. Here’s a look at the primary capital sources for businesses in this segment:

Bank Loans

Traditional bank loans remain a common financing avenue for lower middle market companies. These loans can provide capital for expansion, operational improvements, or acquisitions. However, securing a bank loan requires navigating stringent eligibility criteria, including solid credit history and business performance. 

Investors can assist these businesses by optimizing their financials and leveraging banking relationships to improve loan terms.

Asset-based Lending

Asset-based lending offers a flexible financing solution for companies with significant physical assets. This type of lending uses the company’s assets, such as inventory or receivables, as collateral. It can provide quicker funding than traditional loans, especially for businesses that may not qualify for bank loans based on creditworthiness alone. 

The key advantage lies in its flexibility and the ability to secure funding based on the value of tangible assets. However, the risks include the potential loss of assets if repayments are not met, making it crucial for businesses to manage this financing option carefully.

Public or Government Sponsorship

Various public and government programs offer grants, subsidies, or incentives to support growth and innovation in lower middle market companies, particularly in specific industries or regions. These funding sources can be invaluable for businesses investing in research and development, expanding into new markets, or undertaking significant capital projects. 

Identifying and securing such sponsorship requires a thorough understanding of the available programs and how to navigate the application process effectively.

Choosing the Best Lower Middle Market Private Equity Investment

Selecting the ideal investment in the lower middle market requires a strategic blend of comprehensive due diligence and a keen understanding of your investment goals. Start by thoroughly evaluating potential companies, focusing on their financial health, market position, and operational efficiency to ensure they align with your objectives for risk, return, and growth potential. This careful examination helps pinpoint businesses with the resilience to navigate market uncertainties and the agility to capitalize on growth opportunities.

Beyond the numbers, the quality of the management team and the company’s capacity for innovation within its industry are paramount. Investments should fit within your broader strategy and offer opportunities where you can actively contribute to value creation—whether through strategic guidance, operational improvements, or leveraging your network. Identifying where you can make a significant impact is crucial for fostering long-term growth and achieving substantial investment returns in the dynamic lower middle market landscape.

Final Thoughts

Investing in the lower middle market private equity sector offers a unique blend of challenges and opportunities. While navigating this landscape requires a nuanced understanding of the market and a strategic investment approach, the potential rewards are significant. Investors can unlock the vast potential of lower middle market businesses by focusing on the right opportunities, employing thorough due diligence, and leveraging their expertise to drive value creation.

The importance of a disciplined investment approach cannot be overstated. It involves choosing the right targets and actively managing investments to foster growth and mitigate risks. Adapting to market dynamics, understanding the intricacies of the lower middle market, and building solid partnerships with portfolio companies are essential practices for success.

As we’ve explored, the lower middle market is a sector rich with potential for those willing to delve into its depths. With the right strategies and a commitment to understanding this unique segment, investors can create long-term value and contribute to the success of businesses poised for the next level of growth.

FAQ Section

What defines lower middle market private equity investments?

Lower middle market investments are those made in businesses with annual revenues typically ranging from $5 million to $100 million, occupying a unique niche between small businesses and large corporations in the private equity landscape.

Why invest in lower middle market businesses? 

These investments offer the potential for significant growth, attractive valuations, operational improvement opportunities, and portfolio diversification across various industries.

What challenges do lower middle market investors commonly face?

Key challenges include limited resources within target companies, difficulties accessing financing, and the heightened impact of market volatility and economic uncertainty.

What are the biggest opportunities for lower middle market investments?

Significant opportunities include tapping into growth potential through market expansion, strategic acquisitions, and benefiting from limited competition.

What are the primary sources of capital for lower middle market businesses?

Main sources include bank loans, asset-based lending, and public or government sponsorship programs, each with advantages and considerations.

How do you choose the best lower-middle market investments?

Successful selection involves thorough due diligence, alignment with investment objectives, assessment of growth potential and operational stability, industry expertise, and identifying opportunities for value creation.

Though filers may dread the annual process, tax collections are critical for all levels of government in determining revenues, setting budgets, and ultimately providing public services. While states and localities more heavily rely on sales taxes, property taxes, or other types of taxation for funding, many also depend on personal income taxes as part of their revenue mix. In the third quarter of 2023 alone, state and local governments collected $119 billion in individual income taxes, which represented 28.8% of total tax revenue.

State & Local Tax Revenue

The total amount of state & local tax revenue collected increased sharply in recent years

Source: Flippa analysis of U.S. Census Bureau data | Image Credit: Flippa

LEARN MORE

Building an online business from scratch is difficult. Fortunately, you can buy online businesses with established customer bases and proven revenue on Flippa. Buyers and sellers on our platform have a verified identity, platform rating, and platform history allowing you to trust the negotiation process.

The onset of the COVID-19 pandemic sparked a sharp disruption in state and local tax revenue due to the closure of many parts of the economy. Since mid-2022, however, the economy has remained resilient and produced strong state and local tax collections. Consumer spending on taxable goods has been high even in the face of inflation, increasing residential real estate values have boosted property tax collections, and incomes have risen during a run of low unemployment. These and other factors have led to a nearly 25% increase in state and local tax collections since before the pandemic began in early 2020.

However, many of these same factors—particularly inflation and real estate values—have made the cost of living in high-tax states even more expensive. States like New York, Connecticut, and California have the highest state and local tax burdens for their residents and rank among the most expensive locations for cost of living, leaving less in the way of discretionary income. Higher earners in these locations have been burdened further due to new limits on state and local tax deductions.

These expensive states have also seen flattening or declining populations in recent years as more Americans migrate to cheaper locations in the Sun Belt and Mountain regions. Some observers have noted that these states also tend to have lower tax rates as evidence that lower taxes might be motivating interstate movers. However, others suggest that people move for reasons independent of tax concerns and that, in fact, lower taxes in a location may result in underfunded services that make that location less desirable for movers in the long run.

Regardless of why people are moving and whether tax policy plays a role, the ultimate conclusion is that residents in the U.S. are subject to vastly different tax liabilities depending on where they live. For high earners, these variations can add up to tens of thousands of dollars in savings—or additional costs—on an annual basis.

Geographic Differences in State & Local Taxes

High-income residents in New York & California pay ~5X more in taxes than those in Texas

Source: Flippa analysis of IRS data | Image Credit: Flippa

New York and California stand out as the states with the highest state and local taxes for residents earning more than $200,000 per year. High-income households in both states pay around $45,000 in state and local taxes on average, enough to account for more than 7% of the average income among high earners. The average amount of state and local taxes paid in New York—$45,956—is nearly 15 times that of the lowest state, Alaska, where high earners pay an average of just $3,332. And fortunately for residents of the states with the highest earners on average—Wyoming, Florida, and Nevada—each of those states ranks in the bottom half of total average state and local tax payments.

Unsurprisingly, metros in New York, California, and other coastal states like Connecticut and New Jersey lead the nation in taxes paid for high-income households. Ten of the top 12 metros are found in California alone. High earners pay far less in cities in Florida, Texas, and select other states, likely in part due to those states’ lack of personal income tax.

Below is a complete breakdown of state and local taxes paid by households earning more than $200,000 for nearly 400 U.S. metropolitan areas and all 50 states. The analysis was conducted by Flippa—a marketplace for buying and selling digital businesses—using data from the IRS. For more information, see the methodology section.

Full Results

Methodology

The statistics shown are derived from IRS individual income tax data aggregated by the principal residence of filers with $200,000 or more in adjusted gross income for tax year 2020, the most recent year available. As such, the data represents the total amount of state and local taxes paid by residents of each location (regardless of where the tax was actually paid). To determine the locations where high-income residents pay the most in taxes, researchers at Flippa calculated the total amount of state and local taxes paid by high-income filers divided by the total number of high-income filers. These taxes include income, sales, real estate, and personal property taxes.

References

1. U.S. Census Bureau (2023). Quarterly Summary of State & Local Tax Revenue Data Tables. Retrieved on February 15, 2024 from https://www.census.gov/programs-surveys/qtax/data/tables.All.html.
2. Tax Foundation (2022, April 7). State and Local Tax Burdens, Calendar Year 2022. Retrieved on February 15, 2024 from https://taxfoundation.org/data/all/state/tax-burden-by-state-2022/.
3. Missouri Economic Research and Information Center (2023). Cost of Living Data Series. Retrieved on February 15, 2024 from https://meric.mo.gov/data/cost-living-data-series.
4. U.S. Census Bureau (2023). State Population Totals and Components of Change: 2020-2023. Retrieved on February 15, 2024 from https://www.census.gov/data/tables/time-series/demo/popest/2020s-state-total.html.
5. Tax Foundation (2024, January 9). Americans Moved to Low-Tax States in 2023. Retrieved on February 15, 2024 from https://taxfoundation.org/data/all/state/state-population-change-2023/.
6. Center on Budget and Policy Priorities (2023, August 9). State Taxes Have a Minimal Impact on People’s Interstate Moves. Retrieved on February 15, 2024 from https://www.cbpp.org/research/state-budget-and-tax/state-taxes-have-a-minimal-impact-on-peoples-interstate-moves.
7. Internal Revenue Service (2023, October 24). SOI Tax Stats — Statistics of Income. Retrieved on February 15, 2024 from https://www.irs.gov/statistics/soi-tax-stats-statistics-of-income.

Many Americans believe that another key ingredient for success is college attainment. Postsecondary education is strongly correlated with better employment outcomes, lower poverty rates, and higher lifetime earnings. However, as college costs have increased in recent decades, the public has become increasingly skeptical about the return on investment of a college degree.

But between the earning potential for business owners and the financial and opportunity costs of college attendance, it’s no surprise to find that more than 7.5 million Americans who own a business never attended college.

Business Owner Educational Attainment Over Time

Amid record-high inflation and tuition, more business owners are forgoing college

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

College education has become more common in the U.S. population over time, which has in turn led to a decline in the share of business owners opting out of a college education. In 2000, nearly half of all business owners—47.2%—had never attended college, but as of 2022, that figure sits at 41.9%. However, after nearly two decades of declines, this trend is showing signs of slowing or even reversing. College costs have risen by more than half since the year 2000, from $17,376 to $26,903, and many college attendees continue to take on significant debt loads to finance their education. At the same time, record inflation in recent years has further strained Americans’ finances, while high interest rates have increased borrowing costs for student loans. As these trends have converged, it makes sense that more business owners are deciding against a college education.

Changes in Educational Attainment by Industry

The share of business owners who never went to college increased in 7 out of the nation’s 10 largest industries

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

College credentials are often a requirement in many industries and occupations, which can close off some of the potential options available for non-college educated business owners and make other fields more desirable. Among the nation’s 10 largest industries (measured by number of business owners), the share of owners who never went to college exceeds 50% in all but three: real estate (23.0%), consulting (8.9%), and legal services (5.1%). Furthermore, the proportion of owners who never went to college increased in seven of these 10 largest industries between 2020 and 2022.

While the statistics pertaining to the nation’s largest industries may not be surprising given their nature, what is more interesting is that these trends are also affecting many unsuspecting sectors. For example, between 2020 and 2022 the concentration of non-college educated business owners increased in a number of tech and finance-related fields, such as design services, securities investing, insurance, advertising, and e-commerce.

Geographical Differences in Business Owner Educational Attainment

States located in the broader Appalachian and Ozark regions have the most business owners who never went to college

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

Business owners without college credentials are also more common in some geographies than in others. The concentration of college-educated business owners in a location tends to correlate with that location’s rates of educational attainment overall. Many of the states with the highest share of non-college business owners are found in parts of the country where fewer people go to college in general. For example, more than half of all business owners in Arkansas (51.6%) forwent college, and the state has the third-lowest rate of college attainment. Similar trends hold for other states in the Appalachian and Ozark regions, including Louisiana, Oklahoma, West Virginia, and Mississippi. In contrast, more educated states tend to have fewer business owners without college experience, led by Colorado where less than one-third (32.8%) of business owners did not attend college.

At the metro level, cities in these regions like Oklahoma City (49.6%), Tulsa (44.4%), and Memphis (43.4%) also tend to have higher shares of business owners who didn’t attend college. But business owners’ rates of college attendance can also vary across metros within regions. For example, the San Francisco metro—known for its high-paying tech industry—has one of the lowest shares of business owners who never went to college, while other California metros including Riverside and Fresno have among the highest.

Below is a complete breakdown of the areas with the most business owners who never went to college across over 240 metros and all 50 states. The analysis was conducted by researchers at Flippa, a global online marketplace to buy and sell online businesses and digital assets, using data from the U.S. Census Bureau. For more information on calculations and methods, refer to the methodology section below.

Large Metros With the Most Business Owners Who Never Went to College

Midsize Metros With the Most Business Owners Who Never Went to College

Small Metros With the Most Business Owners Who Never Went to College

States With the Most Business Owners Who Never Went to College

Methodology

To find the locations with the most business owners who never went to college, researchers at Flippa analyzed the latest data from the U.S. Census Bureau’s 2022 American Community Survey. The researchers ranked metros according to the share of self-employed workers who completed high school or lower. To improve relevance, only business owners with positive income and metropolitan areas with sufficient self-employment populations were included in the analysis.

References

1. The State of Small Business Now. (2023, April 10). U.S. Chamber of Commerce. Retrieved January 15, 2024, from https://www.uschamber.com/small-business/state-of-small-business-now
2. Headd, B. (2021, August). Small Business Facts: The Importance of Business Ownership to Wealth. Small Business Administration. Retrieved January 15, 2024, from https://advocacy.sba.gov/wp-content/uploads/2021/08/Small-Business-Facts-Business-Owner-Wealth.pdf
3. How does a college degree improve graduates’ employment and earnings potential? (n.d.). The Association of Public and Land-grant Universities. Retrieved January 15, 2024, from https://www.aplu.org/our-work/4-policy-and-advocacy/publicuvalues/employment-earnings/
4. ​​Edge Research & HCM Strategists. (2022, September 28). Where Are the Students? Bill & Melinda Gates Foundation. Retrieved January 15, 2024, from https://usprogram.gatesfoundation.org/news-and-insights/articles/gates-foundation-probes-college-enrollment-decline
5. Dorn, E., Dua, A., & Law, J. (2020, April). The rising toll of student debt: More than graduates can sustain? McKinsey & Company. Retrieved January 15, 2024, from https://www.mckinsey.com/industries/education/our-insights/the-rising-toll-of-student-debt-more-than-graduates-can-sustain
6. 2022, Educational Attainment, annual: Bachelor’s degree or higher by state | FRED | St. Louis Fed. (n.d.). Retrieved January 15, 2024, from https://fred.stlouisfed.org/release/tables?eid=391444&rid=330
7. American Community Survey 1-Year Estimates [Data set]. (2022). U.S. Census Bureau. Retrieved January 15, 2024, from  https://www.census.gov/data/developers/data-sets/acs-1year.html

Full Results

But the story is not so simple. Many millennials entered the workforce during or shortly after the Great Recession, when job openings were low and unemployment was high. On top of that, most who attended college experienced dramatic increases in the cost of higher education without proportional rises in wages. More recently, the housing market witnessed exploding costs right as millennials entered peak homebuying age. And while high inflation in the last two years has affected all parts of the economy, younger households have been especially challenged. The economic headwinds facing millennials have meant that members of the generation have, in many respects, fallen behind previous generations in reaching life milestones and creating wealth.

These challenges extend to millennial entrepreneurs. With more personal debt, lower savings and wealth, and other financial difficulties, millennials who are interested in starting or owning a business have more barriers to overcome before doing so.

Millennial Business Owner Income Over Time

Millennial business owners have historically earned less than the average business owner

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

Among business owners, millennials have tended to bring in below-average income. According to the latest Census Bureau data, the average income of all American business owners surpasses that of millennial business owners by roughly $14,000. This discrepancy is partly linked to the younger age of millennials, resulting in newer and less established businesses. However, there’s a positive trend: over time, this gap has diminished. While the income of all business owners has remained relatively steady since 2009, millennial business owners have seen a significant increase, more than doubling from $30,064 to $62,914 during that period.

LEARN MORE

If you’re looking for a great investment opportunity, consider buying an established online business with Flippa—where you can buy, sell, and browse blogs, domains, apps, and much more. You can even buy Shopify stores. Start your path to business ownership today.

Business Owner Income Differential by Generation

Baby Boomer business owners earn significantly more than their employee counterparts

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

Millennial business owners lag behind older business owners not just in income overall but in income relative to non-business owners. A typical baby boomer who owns a business earns nearly 20% more than one working as an employee, while for Generation X, a typical business owner earns 4.7% more than an employee. For millennials, however, the difference between business owners and employees is just 1.1%—around just $700 per year.

Millennial Business Owner Income by Location

Millennial business owners in North Dakota earn the most compared to their employee counterparts

Source: Flippa analysis of U.S. Census Bureau’s American Community Survey data | Image Credit: Flippa

For millennials in some parts of the country, however, business ownership can prove much more lucrative than working as an employee. In North Dakota, the typical millennial business owner earns more than twice what their employee counterparts do, and in other states like Nebraska (+63.6%), Mississippi (+40.4%), and Kansas (+38.9%), business owners maintain a substantial earning premium. But in 16 states, millennial business owners earn less than millennial employees, including Wyoming (-27.3%), Connecticut (-25.3%), and Massachusetts (-16.0%).

One factor that may impact the income differential is the quality of jobs available for employees. At the metro level, some of the locations with the most favorable differential for employees are full of jobs with generous pay, like finance jobs in Bridgeport, CT (-33.5% differential for business owners) or tech jobs in San Francisco (-33.2%). The cities that have the best differential for millennial business owners are locations where higher-paying industries are not as well established, lowering the opportunity costs for potential entrepreneurs.

Below is a complete breakdown of the areas with the most successful millennial business owners across the top 100 metros and all 50 states. The analysis was conducted by researchers at Flippa, a global online marketplace to buy and sell online businesses and digital assets, using data from the U.S. Census Bureau. For more information on how each statistic was computed, refer to the methodology section below.

TRENDING

If you’re looking to start a business quickly, buying a ready-made mobile app is a great way to go. Not only will it save you a lot of time and effort trying to develop your own, but you’ll also benefit from a proven business plan. Browse and buy apps conveniently—and safely—with Flippa.

Methodology

To find the locations with the most successful millennial business owners, researchers at Flippa analyzed the latest data from the U.S. Census Bureau’s 2022 American Community Survey. The researchers ranked metros according to the difference between the average income for self-employed and employee millennials. Millennial workers were those individuals ages 26 to 41 in the year 2022 who worked and earned income in the prior 12 months. To improve relevance, only the top 100 metropolitan areas by population were considered for the analysis.

Asset Sale vs. Share Sale

What is an Asset Sale?

In an asset sale, the buyer purchases the assets of the business, such as databases, inventory, intellectual property, and goodwill. The seller retains ownership of the legal entity, which is usually dissolved once the sale is complete.

What is a Share Sale?

In a share sale, the buyer purchases the shares of the business, which represent ownership in the legal entity. The buyer assumes ownership of all the assets, liabilities, and obligations of the business.

Asset Sale

One of the main advantages of an asset sale for the seller is that it allows them to retain ownership of the legal entity. This can be beneficial if the seller has other assets or liabilities that they wish to keep separate from the business.

Another advantage of an asset sale is that it can be easier to negotiate the sale price. This is because the buyer is only purchasing the assets that they want, and can leave any unwanted assets or liabilities behind. This can be particularly beneficial if the business has significant liabilities that the buyer is not willing to assume.

Pros of an Asset Sale

1. Reduced Liability: One of the primary benefits of an asset sale is that it limits the buyer’s exposure to potential liabilities associated with the business. Since the buyer is only acquiring specific assets and not the entire company, they can choose which liabilities they want to take on and which ones they want to avoid. This can be particularly advantageous for buyers who are concerned about potential legal or financial liabilities associated with the business.
2. Tax Benefits: Another potential advantage of an asset sale is that it can be more tax-efficient for the seller. In an asset sale, the seller can allocate the purchase price among the assets being sold, which can result in lower capital gains taxes. Additionally, any losses associated with the sale of the assets can be used to offset other capital gains, further reducing the tax burden for the seller.
3. Greater Flexibility: Since the buyer is only acquiring specific assets, there is more flexibility in the negotiation and structuring of the deal. The seller and buyer can agree on which assets are being sold and which ones are being retained, and can negotiate the price for each asset individually. This can be particularly advantageous if there are certain assets that the seller wants to retain or if there are specific assets that the buyer is particularly interested in acquiring.

Cons of an Asset Sale

1. Reduced Value: One potential disadvantage of an asset sale is that it can result in a lower purchase price for the seller. Since the buyer is only acquiring specific assets, they may be less willing to pay a premium for the business as a whole. Additionally, the seller may need to sell certain assets at a discount in order to facilitate the sale, which can further reduce the overall value of the transaction.
2. More Complex: An asset sale can be more complex than a share sale, as there may be a large number of individual assets that need to be transferred. This can require additional legal and accounting fees, which can further reduce the overall value of the transaction.
3. More Time-Consuming: Since there are more individual assets that need to be transferred, an asset sale can be more time-consuming than a share sale. This can result in additional delays and expenses for both the seller and the buyer.

Share Sale

Pros of a Share Sale

1. Simpler transaction: A share sale involves the transfer of ownership of the company to the buyer, which can be a simpler transaction than selling individual assets. This is because it avoids the need to negotiate and document the transfer of each asset.
2. Tax advantages: In some jurisdictions, share sales can be more tax-efficient than asset sales. This is because the sale of shares may be subject to a lower tax rate than the sale of assets. Seek legal advise on your specific circumstances. 
3. Retention of liabilities: In a share sale, the buyer typically takes over all of the liabilities and obligations of the company, rather than just those associated with the assets being sold. This means that the seller may be able to avoid any ongoing liability for the business after the sale.

Cons of a Share Sale

1. Lower sale price: Buyers may offer a lower price for the company in a share sale because they will be taking on all of the company’s liabilities and obligations.
2. Reduced control: In a share sale, the buyer becomes the new owner of the company, which means that the seller may lose control over the business after the sale.
3. Due diligence: A share sale typically requires more extensive due diligence by the buyer, which can be time-consuming and costly for the seller. The buyer will want to ensure that they are fully aware of all liabilities and obligations of the company before purchasing the shares.
4. Approval requirements: In some jurisdictions, the sale of shares may require the approval of a greater number of parties, such as the board of directors, shareholders, or regulatory authorities. This can add complexity and time to the transaction.

What are the Tax Implications?

One of the most significant differences between an asset sale and a share sale is the tax implications for both the buyer and the seller.

Tax Implications of an Asset Sale

In an asset sale, the seller may be subject to taxes on the gains from the sale of each individual asset. For example, if the seller sells a piece of equipment for more than its book value, they may be subject to capital gains tax on the difference.

The buyer may also be subject to tax implications in an asset sale. When purchasing assets, the buyer may need to allocate the purchase price to each asset based on its fair market value. This can result in different tax consequences for the buyer depending on the asset.

For example, if the buyer purchases a piece of equipment for more than its fair market value, they may be subject to depreciation recapture tax. Depreciation recapture is a tax on the difference between the purchase price and the adjusted tax basis of the asset.

Another example of a tax implication in an asset sale is the allocation of the purchase price to goodwill. Goodwill is an intangible asset that represents the value of a company’s reputation, customer base, and other non-physical assets. When an asset sale includes the sale of goodwill, the buyer may need to allocate a portion of the purchase price to this asset. This allocation can have significant tax consequences for both the buyer and the seller.

Tax Implications of an Share Sale

In a share sale, the tax implications for the seller and buyer are generally more straightforward. For the seller, the proceeds from the sale of the shares are subject to capital gains tax. The tax rate on capital gains can vary depending on a number of factors, including the length of time the shares were held and the seller’s income tax bracket.

For the buyer, the cost of the shares can be added to the tax basis of the business entity. This can have significant tax benefits for the buyer, as it can reduce the amount of taxable income for the business in future years.

One example of a tax benefit for the buyer in a share sale is the step-up in tax basis of the assets of the business. When the buyer purchases the shares of a company, the tax basis of the assets is adjusted to reflect the purchase price of the shares. This adjustment can result in a higher tax basis for the assets, which can reduce future tax liabilities for the business.

Conclusion

In conclusion, there is no one-size-fits-all answer to the question of whether an asset sale or a share sale is better for a seller. The choice between an asset sale or share sale will depend on a number of factors, including the goals of the seller, the structure of the business, and the tax implications of the sale. It’s important to carefully consider all of these factors and to work with experienced professionals to ensure that the sale is structured in a way that meets the needs of both the buyer and the seller.

In this article, we’ll take you through the process of preparing and accepting an LOI, explaining what it is, why we recommend it, and how to format it. Then, you can quickly find out all the valuable information you can include in this document.

What Is a Letter of Intent?

The Letter of Intent is a legally binding agreement between two parties. It includes the details of one party’s intent to complete a significant transaction with the other, whether they’re buying a home, business, or something else from the other party. The detailed document includes critical elements, such as:

• Opening Paragraph – The first paragraph allows one party to include a statement on the agreement between themselves and the other party. It provides a brief description of the transaction and what it entails.
• Statement of Need – Use this statement to explain why this transaction needs to occur, whether you’re buying a home to live in or investing in a business you plan to take over.
• Transaction Details – The LOI should include details of the transaction, including how and when it will occur.
• Requirements and Timelines – Be sure to include details on the requirements that must be met to complete the transaction, along with any specific timeline put in place to complete steps taken to get to the end goal.

While these are four key elements included in the Letter of Intent, other features added to the document could consist of budget details and credentials needed to complete the project or transaction process.

Why It’s Good to Have a Letter of Intent

It’s beneficial to have a Letter of Intent because it’s a legal document that proves what one party plans to do for another party. It includes the details of any deal made, along with the commitment one party makes to the other in terms of selling something to them or completing a project for them.

Benefits for the Seller

Those selling their homes can benefit from getting an LOI because it lays everything out on the table, including the steps involved in the selling process and a detailed timeline for when everything will be completed.

Benefits for the Buyer

Getting an LOI from the seller allows buyers to feel safer knowing that the seller is in agreement with them and won’t begin striking up deals with other potential buyers.

Both sellers and buyers of homes can benefit from getting the Letter of Intent to protect themselves and the investment they’re looking to buy or sell.

Why Is the Letter of Intent Useful in Business Negotiations?

The LOI is useful in business negotiations, especially when buying and selling businesses, because it helps with the negotiation process and prevents miscommunication. The document ensures that both parties are on the same page before completing the transaction so that there are no discrepancies or misinterpretations involved.

How to Format an LOI

It’s crucial to format the LOI correctly. The top of the page should address the person for whom it’s for and then state that the letter sets forth the proposed terms of the buyer’s purchase of assets belonging to the seller. It must include pertinent details, such as:

• Execution Date
• Subject Property 
• Definitive Agreements
• Due Diligence
• Suitable Financing
• Expenses
• Confidentiality
• Miscellaneous

(You can find a list of definitions at the bottom of this post, including definitions for some of the above terms.)

At the end of the document, it’s necessary to sign and date it while including a list of any purchased assets. 

The Letter of Intent is a must-have when buying and selling assets, such as businesses. It’s one legal document you don’t want to avoid obtaining when completing such a significant transaction.

You can download Flippa’s LOI template here and simply fill in the buyer and seller details, business name, and the terms and conditions you want to put in place for the negotiation.

Terms and Definitions

• Execution Date: The period from the date of the LOI for the buying party to review the Business and the Assets with financial and operational data that the seller party shall provide.
• Due Diligence Period: The period from the date of the LOI for the buying party to review the Business and the Assets with financial and operational data that the seller party shall provide.
• Purchase Price: The purchase price is the total value of the transaction, including assets such as inventory (if applicable).
• Miscellaneous: Other terms, details of the deal, like payment structure, can be defined in the this section.

Now that you have a clear understanding of an LOI, you’re ready to find a digital asset and start negotiations.