Selling an online store in Canada

An online store looks easy to hand over, since it is mostly accounts and passwords. Buyers know that too, so they look hard at whether the sales will keep coming once you stop running the ads, answering customers and placing supplier orders. Most of the work in selling is showing clean numbers and a store that can run without you. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of an online store, whether it runs on Shopify, another platform or a marketplace, ask the same questions early. Have clear answers ready before you list:

• Sales and profit. Monthly numbers for two or three years, and whether they are growing, steady or falling.
• Ad spend. How much you spend on ads, on which channels, and what each sale costs you.
• Traffic. How much comes from search, email, social, marketplaces and paid ads.
• Customers. How many buy again, and the size of your email and SMS lists.
• Suppliers and fulfilment. Who makes the products, who ships them, and the terms.
• You. How many hours a week you spend on the store, and on what.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Numbers that match the bank

Online sales leave a good paper trail, which helps you. Pull monthly sales, refunds, discounts and payouts from your store platform and payment processor, and make sure they match your bank deposits and the sales on your tax and GST/HST returns. Then build a simple monthly profit table: sales, product cost, shipping, payment fees, ad spend, apps and software, and other costs.

Show ad spend by channel next to sales, because a buyer will want to know what happens to sales if ads are cut back. Include refunds and chargebacks too. If you pay yourself a wage or run personal costs through the business, list them clearly as add-backs with proof. If sales have dipped, explain why rather than hoping no one notices; see selling when sales are down.

Traffic and repeat customers

Buyers pay more for sales that do not depend on one source. A short report of sessions and sales by source for the last year or two, from your analytics and store reports, shows how much comes from search, email, social, marketplaces and paid ads. If most sales come from one ad platform or one marketplace, say so early, since a change there can hit the business hard.

Repeat customers are often the most valuable thing in an online store. Show how many customers ordered more than once, any subscriptions and how long they last, and the size of your email list with typical open and click rates. Reviews and ratings help too.

Moving the store, domain and accounts

Make a full list of every account the store uses, who owns it and how it moves: the store platform, domain, email, hosting, payment processor, ad accounts, analytics, social media pages, marketplace seller accounts, apps and subscriptions, shipping accounts and supplier logins. Shopify lets a store owner transfer the store to a new owner from the admin, and says a custom domain has to be transferred separately. Shopify also says a store with Shopify Capital or Shopify Credit cannot be transferred, so check that early.

Some accounts cannot simply be handed over. Marketplace seller accounts and payment processor accounts are tied to a legal identity, and some platform agreements do not allow transfer without consent. In an asset sale the buyer often opens their own payment and ad accounts and you move what can be moved. In a share sale the company keeps its accounts, but you still need to update owners and admins. Plan the handover in your handover plan and change every password on closing day.

Suppliers, fulfilment and inventory

List each supplier and manufacturer with what they make, pricing, minimum orders, lead times and any written agreement, and do the same for your warehouse or fulfilment company. If one supplier makes most of your products, a buyer will want comfort that they will keep supplying the new owner. In an asset sale, supply and fulfilment agreements may need consent to be assigned; see transferring contracts and licences.

Stock on hand, in a warehouse or on its way is usually counted on closing day at cost and added to the price; see selling a business with inventory. Note slow or dated stock separately, and agree how orders paid for but not yet shipped, open returns and gift cards are handled in the closing day adjustments.

Your email list and CASL

Canada's Anti-Spam Legislation needs consent to send commercial emails and texts. Section 10(12) says that when a business is sold, the buyer is considered to have the same existing business relationship with those customers that you had, so implied consent from recent purchases carries over. The usual time limits still apply, such as two years from a purchase. Section 13 says the person who claims consent has to prove it, so keep your sign up records, forms and dates, and hand them over with the list.

Customer privacy

Customer names, addresses, emails and order history are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has agreed to use it only for the deal. The federal privacy law has a similar business transaction rule for businesses it covers. Many sellers share totals and anonymous reports first, under a confidentiality agreement, and hand over the full customer data at closing. See telling customers and suppliers.

Brand, trademarks and content

A buyer is paying for the name customers know. List your business name, any registered or pending trademarks, product photos, videos, copy and designs, and who made them. Under the Trademarks Act a trademark can be transferred, and a registered trademark's transfer can be recorded with the Canadian Intellectual Property Office. If a freelancer took your photos or designed your logo, check that you own the rights you are selling. Also see goodwill when selling.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, the brand, inventory and equipment. See asset sale vs share sale and taxes when selling a business. If you run the store on your own without a company, see selling a sole proprietorship.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. In British Columbia, PST generally applies to taxable goods sold with the business but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. If you are registered to collect sales tax anywhere else, list those registrations too. See GST and PST when selling.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale, and how does that change which accounts move?
• Which platform, marketplace, supplier and fulfilment agreements can be assigned, and whose consent do I need?
• How should inventory, open orders, returns and gift cards be handled in the price?
• Can the buyer keep emailing my list under CASL, and are my consent records good enough?
• Do I own the trademarks, photos and designs I am selling?
• How should we split the price between goodwill, the brand and inventory?
• Can we use the section 167 election for GST/HST, and how are PST and any other sales tax registrations handled?

For more, read what your lawyer and accountant do. Selling a shop with a storefront instead? See selling a retail store in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.