You have put your time, effort, and money into your eCommerce business. Despite all that hard work, an opportunity to sell might come up that you just can’t refuse. You want to be an informed seller. There are several conditions to consider when selling a digital enterprise. We will cover them all in order to help you get the highest possible price when the time comes to sell.
Let’s get down to business.
The worth of your eCommerce business
There are many factors that must be considered when calculating the value of an eCommerce business. Some are affected by external elements, such as the price buyers are willing to pay, the state of the market at the time of sale, and your particular type of business. Nevertheless, some common variables to consider include:
- Market position
- Growth potential
- Documented systems and processes for operations
- New sales drivers
- New customer channels and their breakdown
The image below represents the results of our analysis of 245 eCommerce business sales between 2010 and 2014. Those sales resulted in an approximately $117 million total transaction value.
The 2.51 average multiple is by far the most important number in this graphic. It means that the average business sold for 2.51 times its annual profit. For example; if a business had $475,000 in profit in 2012, then on average, that business sold for roughly $1.19m [$475,000 x 2.51]
The relative price of businesses
Buyers are generally interested in one ratio: the return on investment versus the risk incurred. The higher the risk, the higher the asking price, and vice versa. The following ingredients diminish a buyer’s risk of future failure:
- Traffic that is growing or at least stable, from several different sources
- A long history of traffic stats from a reputable source
- Demonstrated key drivers of new sales
- Documented systems and processes facilitating operations
- Good relationships with existing suppliers, and backup suppliers in place
- Potential for growth
- A high percentage of repeat customers and visitors
- Clean legal history
- A strong brand with no trademark, legal, or copyright problems
Average sales of eCommerce businesses
Our analysis, as evidenced by the graph below, shows that the majority of eCommerce businesses sell somewhere in the $100,000-5m revenue range.
The selling process
The selling process is fairly straightforward. However, sales of larger businesses can be more complex and take additional time. Most sales will happen in the following progression:
- The decision to sell.
- Valuation obtained.
- Prospectus assembled, (a legal document containing all facts and figures relating to your business).
- When the prospectus is completed, buyers are sought (on your own or with broker assistance.
- Terms of the deal, including price, are negotiated.
- Money and assets transferred.
- Train the buyer to run the business (after the sale).
Making the Most out of the Deal and Avoiding Problems
When selling an eCommerce business, remember the following advice:
- Be aware that offers have a tendency to change after the due diligence period. This is especially true if the buyer notices problems with the business that the seller hasn’t previously disclosed. Honesty is always the best policy.
- Sell the business while it is still growing to ensure the highest valuation.
- Multiple offers increase your chance of closing a sale. It also helps increase the offer of other parties looking to secure the deal over their competition.
- Sellers who offer to finance often fetch a higher price.
- However, the terms of the deal matters more than the overall price. For example, a business could sell for $1,000,000 to one buyer who 100% finances the sale. In this case, the seller risks not having the repayments made. The same business could sell for $850,000, cash upfront. In many cases, I would choose cash.
- Be patient, especially during negotiations. Pushy selling and sales tactics don’t work when selling a business.
- Start at a higher asking price and negotiate down. Make the negotiation feel like everybody is getting some of what they want. Remember, you will have to work with this person after the sale in order to train them to run the business.
- Document, document, document. You will not have a legal leg to stand on down the road if the deal starts to go bad and you have only an unwritten agreement on something. Remember that a judge can only rule on what he or she can see.
It’s never an easy decision to sell a business. Yet, there are multiple avenues for you to find a buyer and sell your business. If you follow the tips in this post, you’ll be in good shape.