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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.

How Much Is My Business Worth – Is This The Right Question To Ask?

One of the most frequent questions that I get from business owners is: “How much is my business worth?” Before we can answer that question there are other things that we must answer and do before we can get a complete and accurate answer.

First things first: If you have a desire to attract the most compatible, ready, willing and financially able business buyer, you must first present your business in the best possible light.

A few questions that you should ask first are:

Do I have a business that has been profitable for at the least 3 years?

Do I have verifiable tax returns and financial statements to show proof?

Anyone can start a business but it takes a very smart and capable person to turn it into a profitable business. As the owner of a business, can you be honest with yourself and say with 100% certainty, that you’ve been a successful and efficient business owner?

Another consideration and question to ask is: Have a prepared for the sale of my business by putting a stellar exit plan in place to provide for a orderly sale and transition?

If you own a business and you’ve not put your exit plan in plan, you’re causing a considerable decrease in value. If you attract a buyer that is ready, willing and ready to do things on your terms and your transition plan is chaotic, expect the buyer to want a discount on the finally selling price as a result of having to smooth out the “rough edges”.

Have you discussed in complete detail with your family about your desire to sell the business? Not doing so can cause headaches during to sell process and many business owners end up caving into the demands of their families and often times hinders the sale of the business.

You may be thinking “how do any of the above effect how much my business is worth”. The answer to that is– preparation. Preparation is going to answer the question: How much is my business worth.

Ideally you should start the process of getting your business prepared for sale about 2 years prior to putting it on the market for sale. The preparation that is involved will greatly affect how much your business is worth.

Many business owners do not take these things into consideration when they decide to sell their business and are extremely disappointed when the official appraisal is provided and the numbers don’t live up to their high expectations.

Every business owner has the right to believe their business is worth a certain amount but the reality is, did you prepare? Be honest with yourself.

If you did not prepare you could be in for a disappointment in the event that you need to sell immediately.

Before asking “How much is my business worth?”, read the above, let it sink in and if you’re in need of any help get in touch and I am sure I can help you put a plan in action.