How To Sell Your Online Business

Selling any business is a significant step for a business owner. After much investment, it’s time for someone else to take the helm. But how do you find the ideal buyer?

The process can be complex, but with the right guidance and documentation, you can be confident that your business will be in capable hands!

There are some differences between selling a physical store and an online store. A physical store is likely to have physical assets and lease assignments to consider, whereas an online business may not. These distinctions affect the selling process for an online business.

In this article, we’ll cover some of the key steps to help you successfully sell your online business in New Zealand.

Am I Running An Online Business?

Firstly, we need to confirm that you’re running an online business, not a physical one. If you have a physical store with a lease and business equipment, such as a company vehicle, then you have a physical store.

Online businesses typically lack these tangible assets. Some e-commerce businesses might hold stock, but transactions with customers are conducted entirely online. Consider whether you’re more likely to sell to customers overseas than in person.

Let’s briefly look at some types of online businesses.

Marketplace

Some online businesses operate as introductory services, connecting sellers to potential buyers to manage their transactions. Examples include websites like Trade Me or eBay – these are marketplaces.

Dropshipping

Dropshipping is a retail model where stock is ordered from the manufacturer or supplier only after a customer makes a purchase. This eliminates the need for the business to hold stock, as it goes directly from the supplier to the customer. The dropshipping model handles the transaction and payment.

It can be a bit complex, but it’s known for reducing costs and improving efficiency.

What Legals Do I Need?

So, you’re ready to sell your online business. What legal considerations should you keep in mind?

Contracts

The selling process involves various contracts. For instance, you may want potential buyers to sign a Non-Disclosure Agreement, as they’ll have access to sensitive financial information about your business.

Disclosures by potential buyers to your suppliers about the sale could risk your relationships with these third parties.

You’ll also need a standard Sale of Business contract, detailing the sale price, intellectual property (IP), and employee entitlements.

Finance

Be prepared to provide financial records to potential buyers, including tax returns and balance sheets. Consulting an accountant is advisable.

Consider your tax obligations, such as Goods and Services Tax (GST) or Capital Gains Tax (CGT), and consult with Inland Revenue to understand your responsibilities when selling a business.

Consent

If you have agreements with third parties for stock or supply, such as a Supply Agreement with manufacturers, you’ll need to transfer these to the new owner with the supplier’s consent.

Assets

Online businesses may not have physical assets, but often have intangible assets like IP, including your business name, social media accounts, trade marks, online content, and client data.

For instance, if you’ve hired software developers, you’ll need to check if they own the software they created and obtain their consent to transfer the IP licence to the new owner.

Privacy

Privacy is crucial for online businesses. Familiarise yourself with the New Zealand Privacy Principles, which outline your privacy obligations. If the new owner will use customer data differently, you must inform your customers.

If your business has an annual turnover exceeding NZ$3 million, the Privacy Act 2020 applies, and you must ensure compliance. However, some businesses must comply regardless of turnover, such as health service providers.

Regardless of your business type, it’s wise to have a lawyer help you draft an appropriate Privacy Policy.

What Is The Selling Process?

Having covered the key legal considerations, let’s look at the main steps in the selling process.

1. Value Your Business

As the business owner, you have the best insight into its value. However, it’s prudent to seek a professional valuation and research the market and competitors.

2. Negotiate

Negotiation can be intricate. Be cautious about the representations you make to potential buyers to avoid misleading or deceiving them.

Discuss the sale price, deposit, settlement period, and training during negotiations.

3. Sign The Sale Of Business Contract

A Sale of Business contract is essential. Have a lawyer draft one to ensure compliance with New Zealand laws. The contract should cover IP use, liabilities, employee entitlements, and potential issues.

4. Transfer Business To New Owner

After settling the sale, transfer the business to the new owner, including relevant agreements and IP licences.

Cancel or transfer your business name and other registrations as required by New Zealand law.

Tips For Selling

The selling process can be daunting, but these tips can help simplify it.

Consult A Business Broker

A business broker can provide professional advice on compliance and achieving the best selling price.

Outstanding Debts

Settle any legal disputes or debts before selling, as they can impact the final price.

Tell Your Employees

Be transparent with your employees about the sale and their future with the business or new employer.

Non-Disclosure Agreement (NDA)

Consider NDAs with potential buyers to protect sensitive business information.

Be Patient

The selling process can be lengthy, but finding the right buyer and price is worth the effort.

Next Steps

Consult a lawyer before making final decisions in the selling process to mitigate risks and ensure a smooth transition.

For an obligation-free chat, reach out to us at [email protected] or contact us on 0800 002 184.

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