After successfully building an eCommerce business, you may be considering cashing out.
Whether you are ready to retire from the business or move onto new projects, selling a successful eCommerce store can help you achieve your goals.
In order to get the highest value possible from this sale, you will need to take a step back from the business itself and begin looking at it through the eyes of a buyer. You will have to scrutinize your business from the outside looking in.
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Determining the baseline value for the store is your first step. This can be easier said than done sometimes.
Every business is different from the next and there are quite a few different variables that investors will use to determine how much your business is worth.
Investors acquire businesses so they can turn a profit, which means you will need to pick your business apart and address each of the areas that the investors will be looking into.
To help ensure you’re going to get the highest offers possible, here are the main questions you will need to answer:
What is your annual sales volume?
The first factor buyers will look at is how much you’re currently generating on an annual basis. Most buyers will look at your sales volume averaged out over the last 3 years.
You want to make sure you’re able to show them that the business is stable and that your sales numbers can be easily verified. If it’s hard for an investor to verify what you’re telling them, the deal is going to fall through.
What are your profit margins?
On top of your sales volume, the buyers will want to know that you’re turning a healthy profit. Having a high sales volume means nothing if the profits are slim to none. Investors need to see that there will be an ROI after they acquire the business.
Before you look for buyers, you want to address your profit margins and increase them as much as possible — either by getting better terms and deals with your suppliers and vendors or by reducing expenses.
Is your store growing?
Many entrepreneurs make a grave mistake and wait until the business has begun to decline before they attempt to sell. Once the business is trending downwards, they get burned out and quit devoting energy to reversing the trajectory.
Most investors will offer a significantly lower price if the business is declining. They want to see positive changes or issues that can be fixed as easily as possible if the business is declining.
What sales channels are you using?
Buyers also want to see the marketing strategies you’re using to drive sales. You’ll need to outline your strategies. Explain if you are running promotions through influencers, running paid advertising campaigns. Or perhaps you’re relying on organic marketing, like SEO and social media.
How you are driving new sales to the store will affect the offers that investors will make. If they have to devote a significant amount of work to drive new sales, they’re not going to be willing to make high offers to acquire the business from you.
Is the growth sustainable?
As new orders are coming into the store, do you have the ability to properly handle each of the new customers you’ve acquired? Do you have the necessary inventory and shipping solutions you’ll need to handle a large influx of new customers? Can you properly support them?
Investors want to see that you are able to sustain large growth periods without them having to devote substantial amounts of time and energy to handle the growth. Your business will be more attractive if you already have plans for sustaining the growth into the future.
How much do you spend to acquire a customer?
Paying for advertising is just one strategy you can use to grow your store, but it’s one that will dramatically cut into your profit margins.
You will need to provide detailed statistics about how you’re buying the traffic, your average monthly ad spend, where you’re buying the traffic from, where you’re driving it to, and your average conversion rates for each traffic source.
Make sure this information is easy to verify.
How is your business positioned?
If your business is selling commodity products and any entrepreneur is able to replicate what you’ve built, the offers that you’re going to receive will be substantially lower.
Your business’ positioning in the market and how well you’re able to stand up against your competition plays a large role in the size of offers you’ll receive. You need to know who your competition is along with your own strengths and weaknesses and be able to accurately portray the information to investors.
Can your business be automated?
The level of automation in your business and how easily your buyer can take over the business without creating a new job for himself will play a big role in how much they’re willing to offer.
If you currently have to maintain an active role in the business, you’ll want to look into different ways you can outsource those processes, or use SaaS businesses to completely automate them for you. Your investors will make higher offers for businesses that are automated.
Are your systems and processes documented?
Having systems and process is different than having automation. There are going to be certain parts of the business that cannot be automated. For those parts, you need to make sure you have clearly defined procedures in place.
Your buyer will want to take over a business that requires as little work from them as possible. If they have to perform tasks or manage freelancers and employees, the will want to have a clear understanding of how you operated the business before they acquired it.
Part of being able to take over the business means understanding how you’ve trained your staff and how they can continue to do the same.
Once you have gone through and answered each of these questions, figuring out the value of your business will be easier to do.
To help you get in the general ballpark, eCommerce businesses that aren’t considered risky or have issues that need to be addressed will sell for around 2.5x their yearly net profits.
If your eCommerce store is generating $100,000 per year in profits, you can expect to be in the range of $250,000 in value. This is where negotiations will typically start.
To make sure you’re able to proceed through the negotiation and sales process even easier, here are a few things to complete before you start looking for buyers.
Ensure you’ve gathered the necessary paperwork. The numbers you’re presenting to your investor need to be 100% accurate and honest, and easy to verify. This will stop a deal in its tracks if your paperwork is unorganized or dishonest.
Have your systems and processes dialed in. Make sure that your business is as efficient as possible and that it’s easy for a buyer to take over once they acquire it from you.
Differentiate your products and services. Ensuring that your products aren’t a commodity and that your business is positioned strongly against your competition is critical to obtaining high offers.
Consider working with a broker. If you are new to selling businesses, it’s easy to become distressed during the process. If you find yourself getting frustrated and overwhelmed, consider working with a professional broker.
Clean up your business. If you know problems in the business exist, you want to address them and give the business time to stabilize before you start looking for a buyer.
It’s easy to see that selling a successful eCommerce business is far from a straightforward affair. There is quite a bit that goes into getting the highest value possible and many different factors that can affect a business’ valuation.
As long as you can honestly answer each of the above questions and look at the business through the eyes of a buyer, getting the most value possible out of the sale becomes a reality.