by Jock Purtle, owner of M&A Consulting Firm and Digital Exits
Nowadays increasingly more of our business is happening online. Men and women throughout the business world have been capitalizing on this emerging e-commerce and creating new patterns of buying and selling a small business in the process.
Now that these patterns have become more ingrained and reliable, we can take a look at what to do and what not to do in order to sell your e-commerce business for the highest possible price:
What to Do.
The most important thing that you can in order to maximize the sales price of your e-commerce business is to widen your profit margin as much as you can. The final sales price is directly proportional to your annual profit, so the higher your profit, the higher your sales price. Make sure to keep detailed and accurate reports of your sales and profits from the beginning of your e-commerce business. Then you’ll be able to easily show your success to your prospective buyers.
The next important thing to bear in mind is the profitability of your e-commerce business. The profitability describes the likelihood that your business will continue to make money. If your business is likely to continue making money, it is perceived as a less risky investment for buyers. After buyers asses the risks associated with buying your e-commerce business, they assign a sales multiple to your business. The sales multiple is a ratio that represents the perceived risk of buying your e-commerce business. It is almost always greater than 1, and it usually falls between 1 and 3.
The final sales price of your e-commerce business is determined by multiplying your annual profit by the sales multiple. So, if your business is making $10,000 a year and a buyer gives you a sales multiple of 2.5, you can expect your e-commerce business to sell for $25,000. In this way, the profit and the sales multiple, which is a reflection of the profitability of your e-commerce business, both directly reflect the final sales price of your e-commerce business.
What Not to Do.
One of the biggest mistakes that sellers make is overvaluing their e-commerce business. While your e-commerce business is definitely precious to you, giving it too much value can drive buyers away. The best thing to do to avoid this mistake is to look at plenty of different web valuation reports, which show the characteristics and sales prices of hundreds of different e-commerce businesses. Then you can compare your business with other similar business and start to have a good idea about the actual value of your e-commerce business.
Another thing to keep in mind is that the selling process is usually pretty quick. The sale of most e-commerce businesses takes less than four months. During this time, it’s important not to get pushy or impatient, especially when dealing with prospective buyers. Remember, you’re the one who’s trying to make money, and they’re the ones who are putting their money on the line. Don’t run them away with a bad attitude!
By following these to-dos and not-to-dos, you can begin to maximize the value of your e-commerce business. Of course, there are many other ways to make your e-commerce business more enticing and valuable to buyers. You should try different techniques to see which ones suit you best. Just remember that the principles that we discussed here will be, for the most part, universally applicable.
Jock Purtle is the owner of M&A Consulting Firm and Digital Exits. Jock has been featured in Featured in the publications, Forbes, CNBC, Entrepreneur, Business Insider and Inc.com for his knowledge and experience in e-commerce and entrepreneurship.
