Starting an eCommerce business is a tremendously rewarding experience. It gives you the chance to earn a living in a flexible and free way. No more bosses, strict schedules, and, perhaps best of all, no more stuffy cubicles.
However, as with anything in life, there does come a time to move on. Luckily, though, with an eCommerce business, you can turn your decision to head for greener pastures into an opportunity to make some cold, green cash.
The eCommerce industry is booming, and this means there are lots of people chomping at the bit to take control of a company that already has their foot in the door. Selling your eCommerce business when you decide to move on is almost as good of a decision as starting it in the first place.
But how exactly do you sell an eCommerce business?
Well, the first thing you should do is hire a broker. These individuals will do an appraisal of your business, and then they will work to market it to serious buyers who are willing to pay what the company is worth.
However, it’s important you understand both how business value is determined and the process of selling a business. This will give you a big advantage when it comes time to actually go forward with the sale.
Here is how brokers and potential investors will determine the value of your business.
Sales and Revenues
Somewhat unsurprisingly, one of the first steps an appraiser will take is to look at your company’s sales and revenue figures for your company. This is because to start a valuation, brokers will first multiply your yearly revenues by 2.5. This gives them a base number to work with, which they will adjust according to several different factors—something we will discuss in a moment.
But value depends on more than just your current sales numbers. An appraiser will also look at growth prospects. If your company is growing, and you can reasonably expect it to keep doing so, this is going to raise its value above this 2.5x yearly revenue mark.
Because of the importance of these figures in determining worth, the first step in the process of selling your business will be to gather all relevant documentation. Income statements, bank statements, and tax returns will all be required, as both brokers and potential investors will want to verify any claims you make.
Brand image and market position
After using revenue numbers as a starting point, appraisers will then look at your brand image and market position.
Essentially, if you can demonstrate yourself as an authority in your industry, then you’re going to receive a higher valuation.
You could present numbers for brand recognition from your target audience, market share, or even the number of subscribers to your loyalty program. All of these show that you’ve made an effort to make your company something more, and that people have responded to these efforts. Companies with strong brands tend to make more money, which increases their worth, and the brand itself can also increase its value.
Business processes and systems
While there are standard mechanisms for determining the value of a company, we must remember the investor plays an important role, too. If your company has what they are looking for, then they will consider it to be more valuable. It’s as simple as that.
So, then, what are investors looking for? In short, most want a company they can take over, continue, and build upon. Many have plans to sell it again sometime in the future for a higher price, a process known as “flipping.” Demonstrating that this is not only possible but likely will go a long way towards fetching a higher valuation for your company.
When you put your business up for sale, you’ll need to write a Confidential Information Memorandum. This is a detailed report of how the business runs, from how it makes money to the systems you have in place for executing on a daily basis.
The easier a potential investor considers it to be to run your business, the more it will be worth. Investors are looking for turn-key operations, so if your business is a chaotic, confusing enterprise, expect this to be reflected in the valuation and also the offers you receive.
Risk management
Nobody wants to buy a business that’s at risk of going under. If you’re selling the company because you see the handwriting on the wall, know that both appraisers and investors will see it too. They’ll either stay away or try to lowball you. Generally speaking, though, people want to take over companies well-positioned to stand the test of time.
Of course, it’s impossible to entirely future-proof your company. But that doesn’t mean you can’t try. Make sure to include in your CIM the risks your company faces, as well as any mitigation strategies you have.
You’ll also want to demonstrate complete compliance with all relevant government and regulatory bodies. Make sure you can prove you’ve paid all your taxes and that you have done everything you need to make your employees legal. Being able to demonstrate that you’ve got everything under control will certainly go a long way towards securing a higher valuation.
SEO and Your Digital Presence
Since you’re running a business in the digital space, it should come as no surprises that your performance in this space will affect the value of your business.
SEO and social media are huge in eCommerce, so being good at both means higher offers. Make sure to have information on keyword rankings, backlinks, link-building, social engagement, and so on. All of these will help show to your broker and any potential investors you’ve got a foothold in the market and that there are opportunities to leverage what you’ve already done into new business and growth.
Find out what your business is worth today
As you can see, determining the value of your business is about much more than just multiplying revenues. There are a lot of factors to consider, and each one can have a significant effect on the overall valuation. The best thing you can do is to get in touch with an expert appraiser so that they can look at your specific case and give you an honest valuation. But now you know what they’ll be looking for, making it easier for you to see where their number comes from. Consider reaching out to a broker today to find out what your business is really worth.