by Jock Purtle, CEO of Digital Exits
You’ve spent a ton of time and money into developing a profitable ecommerce business, and you’ve decided it’s time to sell. You want to get the most you can for your business, but what makes a business attractive to buyers? Do you know what to do to ensure that you get the best possible price for your business?
No two businesses are exactly alike, and there are numerous variables that can affect the overall company valuation. Figuring out what your business is worth can be a difficult task. At Digital Exits, we make it our business to know what investors are looking for when purchasing an ecommerce company, and how those variables affect the sale price.
To begin with, it is essential that you come to terms with one important fact: there is one main reason someone is interested in buying your business – money! They want to make a profit. A potential investor will look at your business and ask, “When will I make my money back?” In order to get the maximum value for your business, you must look at things from an outside perspective and see your business as the buyer does.
You can start by making sure you have the answers to the following questions:
– What are your annual sales?
– What are your annual profits?
– What are your growth trends?
– What drives new sales?
– Are your sales sustainable?
– What are your customer acquisition channels?
– What do those channels cost?
– What is your market position?
How automated is the business?
What processes are in place to run the business?
Once you have those basic questions answered, you are ready to start your valuation.
Looking at the sales of other ecommerce businesses, and comparing your business to those is a logical next step. The image below gives the results of a study we performed using 245 sales with a total transaction value of $117 million between 2010 and 2014.
This data provides some interesting information. Perhaps the most important piece for the business owner is the average multiple of 2.51. This means that most businesses sold for roughly 2.51 times their yearly profit.
This means if John owns an ecommerce business that had a profit of $89,000 last year, and John wanted to sell his business, we could apply this average multiple and come up with a sales price of $223,390. This average multiple is not an accurate indicator of your business value, but it can give you a general idea of what other ecommerce businesses have been selling for, as well as an approximate value for your business.
There are several things you can do ensure you get the best possible price for your business:
1. Get your paperwork in order: have all your numbers calculated and be ready for the tough questions.
2. Streamline all routines and processes: make sure everything is running efficiently and trim any unnecessary expenses.
3. Differentiate your product or services: find a way to set your business apart from all the rest; figure out what makes you exclusive, and showcase it.
4. Use a broker: having help from an experienced third party can take a lot of the stress out of the process, and make sure your interests are protected.
5. Tidy up the business: fix any problems your business has, and make it attractive to buyers.
Selling your business for maximum value isn’t always black and white. If you would like some help with the sale of your business, contact us at Digital Exits today.
Jock Purtle, CEO of Digital Exits, has vast consulting and acquisition experience across a number of different firms. Jock has an entrepreneurial background and began his experience working in his family brokerage business. In 2009 he bought his first online business – an Adsense site for $10,000.