Is Your Online Business Actually Ready to Sell? The Compliance Checklist Most Sellers Overlook

There comes a time in the lifespan of a business when it’s time to hand over the reins. Maybe the owner is ready to retire. Or perhaps they have a new business venture on the horizon. Or maybe they’re just ready for a change. Whatever the reason, preparing an online business for sale requires thoughtful consideration. This is the compliance checklist to get you ready.

If you’re getting ready to move on to the next stage in your entrepreneurial life, chances are, you’re focused on the numbers. Buyers want to be assured they’re making a good decision when purchasing an online business, so it’s important to demonstrate profitability and scalability. But prepping your online business for sale takes more than just getting financials in order. It’s also essential that your business is compliant with all local, state, and federal regulations. Failing to ensure your online business is in good standing before you list it for sale can help make the transition smoother for all parties involved. 

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Compliance: More than a Formality

It’s common for buyers to review a company’s compliance history during the selling process. They want to make sure they’re not taking on unnecessary risk. An online business with up-to-date filings, organized records, and clear documentation can be more appealing to a potential buyer. It sends the message that the business has been operated carefully and legally and has a demonstrated track record of staying on top of compliance obligations. 

If a business is not in compliance, it sends the opposite message. Late filings, overlooked annual reports, and missing corporate records may lead a potential buyer to wonder what else is in disarray. Keeping your business in good standing is like curb appeal for your home, it draws potential buyers in and assures them that what’s beneath the surface is also on the up and up.

Keep Your Business in Good Standing

When running the day-to-day operations of your business, it can be easy to overlook the seemingly mundane requirements set forth by local, state, and federal agencies. Depending on your business entity type and state of formation, this could entail filing annual reports, maintaining a registered agent, and keeping accurate and timely business records.

This can be especially complex for online businesses that operate in multiple states. If you formed your company in one state and have employees, facilities, or inventory in other states, you need to remain on top of the requirements in those states as well. Before listing your online business for sale, make sure you are in good standing in your state of formation and any other states in which your business is registered. Following are areas to check to confirm you are in compliance in each state prior to listing your online business for sale.

• Annual/biennial reports. Review your filing history to ensure you aren’t missing any required filings, and double check that the information on the reports is accurate and up to date. 
• Registered agent information. Review your registered agent information to make sure it is still accurate. 
• Doing business as/fictitious business name registration. Check to confirm that this information isn’t expired or outdated.
• Foreign qualifications. Determine whether you are required to register as a foreign entity in other states and confirm that all registrations are current.

Keep Your Tax Filings Up to Date

Unresolved tax issues can be a huge red flag for potential buyers. Not only do they show a lack of professionalism, but they also represent real financial liabilities. Before listing your online business for sale, it’s crucial to ensure your local, state, and federal tax filings are up to date. If not, resolve any outstanding balances, liens, or disputes ahead of time. 

If you have employees, it is especially important to ensure payroll taxes are accurate and up to date. Confirm payroll tax accounts have been established and updated as necessary, returns have been filed, and taxes have been properly deposited. If you work with independent contractors, make sure they are properly classified. Misclassification can create unnecessary tax and employment liabilities for business owners. Having employees in multiple states may mean you need to comply with employment, payroll, and tax requirements in each of those states.

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Review Economic Nexus

Because online businesses operate across states, they must be familiar with the concept of economic nexus with regards to sales tax. Nexus refers to a connection between a business and a state that can trigger sales tax obligations. There are different ways to trigger nexus, including having a physical presence in a given state, having employees or inventory in a state, or reaching certain sales thresholds. It’s important to keep track of your sales in each state to ensure you don’t achieve nexus unknowingly. 

Due to the variances from state to state, some ecommerce businesses can easily overlook their nexus obligations. Not only are businesses required to collect and pay sales tax in states in which nexus has been established, but they must also register for a sales and use tax permit in each state, if required. Prior to putting your business on the market, it’s a good idea to check your sales and ensure you are in compliance with nexus obligations. Depending on the type of business you conduct, your platform may handle these responsibilities for you. 

Prepare for Due Diligence 

When selling your online business, the prospective buyer will typically conduct due diligence to verify information about your company and identify any potential risks. The review may cover financials, legal and compliance history, operations, contracts, intellectual property and other areas relating to the business. Buyers may also conduct legal and operational due diligence, as well as industry-specific due diligence. Typically, the prospective buyer will make a due diligence request, so having the expected items at the ready can save time during the sale. 

In addition to financial documents, following are common documents requested, among many others:

• Articles of Organization or Incorporation
• Bylaws or operating agreements
• Employee contracts and compensation 
• Insurance policies and pending claims
• Vendor contracts, leases, and liabilities
• Intellectual property ownership
• Software and SaaS licenses and agreements
• Platform account standing and seller accounts
• Tax returns and tax registrations

Transparency is key when it comes to selling an online business. Being open and forthcoming during due diligence can help the buyer build confidence and prevent unexpected issues from surfacing later in the transaction. Addressing potential red flags before the buyer becomes aware of them can make the process smoother and more efficient. 

Get in Good Standing Before Listing Your Online Business for Sale

Deciding to sell your online business isn’t always easy. But once the decision has been made, it’s important to ensure your business is in compliance with local, state, and federal laws and regulations. A clean compliance record tells potential buyers that you operated the business professionally. It’s a clear value signal, making it easy for them to understand exactly what they’re buying. Preparing ahead of time allows you to address potential issues before they become major problems and possibly derail a deal. 

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Integrated Legal, Insurance, Finance and Payments

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