Guest blog post by Elizabeth Brown-Shook of Digital Exits.
So you have a business that you have nurtured and grown but now you've decided it's time to move on and sell it. But how do you know how much it is really worth?
Your goal is to get the most for the time you've put into your business but how can you put a dollar value on your e-commerce business? These four questions should help you become clear about what your business' value is, how you can possibly grow that value and how to proceed with selling it...
So, what is my e-commerce business worth?
Business valuation can be simple; take a look at other businesses with the same overall idea as yours and compare past sales and recent sales. These sales records can give you a rough idea of where to start, however it is important to keep in mind that all businesses have their ups and downs and personal statistics. Here are some common questions that can be asked:
● What do sales look like?
● What is your market position?
● Is the business significantly dependent on the owner?
● What are the growth trends?
As stated above, historical sales records are one of the best ways to get an understanding of what something is really worth. The following graph will display 245 total sales with an estimated value of $117 million (total of all businesses) between the years of 2010 and 2014.
Taking a look at the graph, you can see that the most important part is the 2.51 average multiple. This shows the average yearly multiple that the business sold for. For example, if a business is sold for $100,000, applying the multiple of 2.51 reveals that the business is making around $39,840 yearly profit.
What could make my business worth more?
A high rate of return on investment (ROI) on your business can attract a crowd of interested buyers. The lower the buyer’s risk, the more your company is worth. What really makes an ecommerce business stand out is eliminating the possibilities of failure in the future by having some of the characteristics provided:
- Having a clean legal history
- Large growth potential
- High percentage of repeat sales
- Providing good traffic stats such as Google analytics
- High percentage of repeat visitors to your site
- Having a secure supply provider with multiple backups
- No brand names, trademarks, or legal concerns
- Documented information
Who will buy my business?
You might be a little curious on who would be interested in purchasing your business. These people can be easily categorized into different types of personas:
- Baby Boomers: This generation is entering retirement age and are willing to explore the e-commerce side of business.
- Business Entrepreneurs: These kinds of buyers have a larger understanding about the business side of things, and could be buying just to add something else to their portfolio. Most of the time, it’s due to them selling an older business and trying to find something new to invest in.
- Corporate Individuals: This is usually someone getting ready to invest in an e-commerce business for the first time.
- Private Equities Company: These types of organizations tend to keep the same management in place and continue to attempt to grow the business with varying sized stakes in the business.
Why do buyers say “No”?
Sometimes deals don’t go out as planned and buyers will say “no” to your business. Here are some of the common reasons given:
- They just don’t like the business
- Financial, branding and trademarks used in the business
- Seller wants more money than the buyer is willing to pay
- The buyer’s funding could fall through and leave them unable to purchase
- Further investigations leads the buyer to find something he dislikes
- Incorrect stats or data provided
- Dislikes the small niche which the business is based around