How Much Is Your Ecommerce Business Worth?

From time to time, I get emails from customers saying that they have decided to move on from having an online business and they are wondering if I can tell them how much their online business is worth.

Business valuation is a tough one and we certainly are no experts in that arena. But we do have some insights on the topic. Here are some of the factors that a prospective buyer will likely consider in determining what they will pay.

1. Customer Base

There is no question that a large and active customer base is a great asset. If you have 30,000 account holds on your website, that would likely have value to a prospective buyer. Building a customer base and continually communicating with them is an important practice on many levels.

2. Inventory

You need to consider whether you want to sell just your website or all the product inventory that goes along with it. Some buyers will be quite interested in your inventory and others will just want access to your customers.

3. Website

As you know, investing the money in a professional website as well as the time to build out all the content is significant. Buyers who are knowledgeable about what it involves to build a full-featured site will understand the value.

4. Domain Name

A great domain name could be worth as much as anything else you have to offer. Of course, you need to have a really awesome name. The market for domain names has declined from the fervor in the early 2000s, but a solid name still has value.

5. Brand Recognition

If you have been successful in building some recognition for your brand and business that will be worth a lot. If you have done nothing to contribute online and establish your brand in your industry, you likely won’t get much of a bump.

6. Revenue and Financials

As with any business transaction, the value often comes down to your financial statements. That is no different with an online business. Be prepared to show sales data and financials to prospective buyers.

7. Traffic and Search Placement

A buyer not only wants to understand your current financial position, but they are going to do their best to determine whether a business acquisition is going to grow and prosper in the future. A strong signal (assuming they are wanting to take over your website) is your site traffic trends. If your traffic is consistently trending upwards, that is an important factor.

Related to your traffic is your current search engine placement for important phrases. If you can show that you have established your website in the search engines, that can be worth quite a bit to a buyer. We all know that strong organic placement is not an overnight process!

Conclusion

One of the key elements for any successful business is a clearly defined exit strategy. Although it is very hard to determine exactly what someone else might pay for your business, we encourage you to start thinking about the factors we have listed so you have a compelling package to offer when the day comes for you to test the waters with putting your business on the market.

What is My Business Worth?

Small business owners all over the world usually fail to stop and ask themselves just what their business is worth until they are attempting to sell their business or preparing for retirement. However, gaining early perspective concerning the worth of your business from a third party can greatly benefit the future of your business goals and overall direction. If you are at the point of selling your business or planning for retirement, succession, or divorce, this simple question has no simple answer. Depending on what value is being calculated, a third party could conclude on a much different price when assessing fair market value versus another calculation like most probable selling price.

For the sake of simplification, only the most probable selling price method will be discussed here. Since you are probably hoping to determine the value of your company so you can sell it or pass it on to an heir, this is the method that will be determined. Three approaches can be taken, including market, income and asset approaches. Market approach is when your business is compared to similar businesses that sell the same goods or services and how much they were sold for. This cannot be the only approach however, as comparing businesses in different states that are different sizes from one another can throw off findings.

Income approach calculates how much money your business is generating for you on a yearly basis and determining a reasonable price it could be sold at. Since small businesses are a risk and not guaranteed to generate income, an accommodation must be made for the risk factor. Cash flow is identified through a process known as recasting which involves dissecting tax returns and determining how much money actually benefited the business owner. By following trends of past years, you can calculate estimated future returns the business will make for the new owner.

The final approach is called asset approach. Also known as cost approach, this method deals with physical assets but does not provide much value for goodwill. Many businesses place a good amount of emphasis on goodwill, meaning this would not be the best approach. However, if your business has a number of investments in outside sources, this could be a very beneficial method of determining how much your business is worth. As you prepare to put your business up for sale, understand that negotiations will undoubtedly occur and the market will be the ultimate determining factor of what you can sell your business for.

Buy A Business Worth At Least A Million Dollars And You’ll Never Have To Deal With Crooked Sellers

I am always railing on and on about why people should buy businesses worth at least a million dollars or more. That are big, with lots of cash flow and with a management team already in place who know what they are doing — so you can just sort of step in and let things go “as is” and not have to think about it.

However, besides all the financial reasons, there is another — very powerful — reason to only go after large businesses like this. A reason almost nobody ever talks about and yet, is probably a more important reason than any other.

And that reason is, quite simply, people who own large businesses, that have good numbers, and that can prove their business is what it is, are almost always straight-shooters and not crooks.

It’s true. I have been doing this for over 50 years and I can tell you right now, the chance of you running into a person that has a business making a million a year that doesn’t have a good word or isn’t a good person…is almost zero percent. There may be exceptions to this, but I have never, in all these years, run into one that wasn’t a man of his word and didn’t genuinely want the deal to go down fairly, squarely and exactly as we agreed to.

Does this mean they are all going to be your best friend?

No. In fact, I have run into one that I haven’t gotten along with. But at this level, where there’s a lot of money at stake, they’re basically all nice people. They’re easy to get along with. And keep in mind, one of the main reasons they are so nice and friendly is because they know you have cash. When you pay cash (using investor financing) you do all the talking. You’re the one who is really in control, and they know it.