So, you’re a proud owner of an online eCommerce business that is growing in revenue, and now you want to sell it. You have probably invested countless hours of hard work and capital in building a profitable website, and now your goal is to get the most out of your investment.
The overall process of sale could go smoothly. But before the sale, your website should be fully prepared. Below we will look at how to sell your eCommerce business and also, we will consider how to maximize your business’s overall selling price.
What Makes an Online Website Valuable?
The main reason why e-business has value is that the buyer can expect a return on investment (ROI). This formula is globally used by financial and investment specialists but knowing how to calculate it is essential for anyone who is considering making an investment of any possible sort. The value of an online business depends on many business-specific factors, but the buyer’s amount depends on the relative risk involved.
Buyers want their money back as quickly as possible. They are willing to pay based on the perceived risk and likelihood of making a profit, and whether it is worth the time.
“The process of selling it itself is straightforward. There are special platforms where buyers and sellers of eCommerce businesses meet. But it’s understanding the financial basics that make sales and investments successful.” – as mentioned by Exchange Marketplace in their recent press release.
Costing a Business Online
Recommended for you: BigCommerce Enterprise vs Magento Commerce – Which One is Better?
Estimate How Much You Will Earn
For an accurate assessment, one would need to determine profit or net income. For some businesses that have an approximate net worth of around nine or ten million, the seller’s discretionary profit method is almost exclusively used.
SDE Formula and Calculation
The SDE formula is quite straightforward and easy to understand not only for financial professionals. The cost price and any other possible expenses should be deducted from the gross income. If the owner manages the business and gets a salary, it should also be included in the income.
Including the owner’s salary in the income helps reveal the true power of business income. Personal travel or any other expenses that the business owners decide are also examples of expenses that can be added back to the gross revenue.
EBITDA Formula and Calculation
Online enterprises with an approximate worth of around nine or ten million dollars generally have a number of owners at different levels. With regards to EBITDA, money that the owner received is regarded as a proper expense to the business and does not get included in the gross revenue.
EBITDA is an indication that shows how profitable a business is before non-controlling expenses are taken into account.
Evaluating the Income and Growth of a Business
For many online companies, either of the above-mentioned methods (EBITDA and SDE) should be sufficient to determine profit. Whereas for online businesses that grow quickly and are well funded, neither of these formulas may help in their evaluations.
Revenue-based profit projections are usually more fragile compared to business predictions and forecasts according to the SDE or EBITDA method. These methods are based on growth only. For this reason, none of these methods are suitable. In some cases, a mixed-method can be applied, and these two methods can be included in revenue-based projections.
Working Out the Value of Stock
For eCommerce businesses with stock, when it comes to selling them it is negotiated aside from the business value.
For example, it could be so that a business that generates roughly $250,000 using the SDE formula would need $1 million worth of inventory in order for it to run it. The money needed to make a profit would be so significant that probably, the business wouldn’t be worth the cost of inventory.
You will find that some buyers require that the final price has the inventory already included. They argue that inventory is necessary for doing business so that it cannot be dealt with separately.
It doesn’t matter if the inventory’s worth is calculated separately or if it is included in the final price. It will generally work out to be the same. If you negotiate the inventory, the buyer will always pay the cost price for it.
A discount is usually given for any inventory that is old and has not been moved for a long period of time because moving it will be difficult.
The best approach is to value your business at a fair price, multiple of the SDE calculation, and include in the purchase price any inventory that has been sold in a period of fewer than 12 months.
Preparing to Sell Your eCommerce Business
Preparing for sale 6-12 months in advance can give you a better profit.
Keep Your Budget as Low as Possible
There is the right period for long-term investment. Twelve months before the sale is not the right time.
Why not? Your selling price is calculated using your current annual earnings. This way, any money you can save will come back to you 1.5 – 3 times the transaction amount. You don’t want to do something unethical that could hurt future business prospects for a potential buyer. It is best to limit voluntary spending as much as possible.
Prepare your subscription for the year ahead to get a small discount. Look carefully at the money you are spending and reduce anything that is not necessary. At any stage of calculations, it could be a good idea to look for a consultant to help out with all the formulas and estimations. Actually, some experts specialize in leading the whole process of preparing the business for the sale and the particular process of selling.
Sort Out Your Bookkeeping
Like most people in business, your books are probably not in order. An idea is to get an accountant who is able to put all your finances in good order. Even if you think they are fine, it would never do you harm to go over your documents and finances some extra time with a professional just to make sure there is nothing that could make it even better.
Dirty books mean that the person that buys your business will have to put in great amounts of effort (and maybe money as well) to effectively recreate the profit and loss account if your numbers are not in order. It will harm the terms of the deal and the final price.
A business whose ledgers are in order, despite myriad distractions, is organized, reliable, and able to make a deal. It also reassures the person that is buying your business that it is probably going to be “as advertised”; the buyer will not find any unpleasant surprises as soon as he opens his hood while working hard.
Know the Costs Involved in a Firesale
Proper planning may affect a lot of things and among them – is the price of your business. If you plan ahead, you are almost guaranteed to get a better price for your business. However, each case is different and unique; there is absolutely no guarantee the wisest idea for your particular circumstance to wait for long.
It is important to work out if it’s worth paying more than 12 months to get your eCommerce business in order to sell, considering your circumstances. If you limit your expenses that are unnecessary, profits can be increased and income can be generated. Using this income trend, it is possible to get a 2.75x conversion rate on the sale.
Will it be worth it to delay for a year, get a little investment for your work, and get some additional income? That is a decision only you can make when being fully informed. Regardless, this is an exercise you must do to get an idea of how much money you can potentially leave on the table if you decide to sell quickly.
Online platforms usually have their own plugins and templates. Online businesses that use their own software, means that the technology that will be used will be very complicated.
In order to provide the highest revenues for your online business, there are some important steps you need to take so that your business is appealing to customers.
Limit Technical Barriers
The e-commerce business is often very attractive for non-technical goods buyers, who represent a significant market share. A survey was conducted on our customer network; it showed that the vast majority of customers are not at ease with technology.
Online stores that use custom software are more complicated and have many barriers to entry because the market is competitive. Developers that are able to work on non-free software can be much harder and more expensive.
You may also like: 8 eCommerce Trends We See More of in 2020 & Beyond.
To Sum Up
Prospects for eCommerce look truly promising. Some experts believe that it is on its way to becoming a trillion-dollar business in the United States alone. And, it looks like it will scale quickly. There is definitely a strong market for qualified buyers actively seeking to acquire a successful, growing e-commerce business.
So, if you feel like selling an eCommerce business somewhere soon, it could be the right time to start the preparations today.
Looking for more advice on how to prepare your business for sale? Read this article about extra steps to take to prepare your business for sale.