You’ve spent countless hours, precious money, and poured your heart and soul into your e-commerce You’ve spent countless hours, precious money, and poured your heart and soul into your e-commerce business – your company has taken off and you’ve got consistent revenue, loyal customers, and great products. Now you find yourself wondering, what’s next? Perhaps it’s time to reap the rewards. Or perhaps your plan was always to sell from the beginning, or maybe you want to sell your business to invest in new opportunities with the proceeds. With so much of your equity & cash flow tied up in your business, selling can be a way to de-risk your investment and profit from being part of a larger organization.
Whatever your motivation, building your business has already taken a lot of planning and equity, so naturally you want the best value when you decide to sell your e-commerce business. But, how do you know if it’s the right time to cash out?
BRANDED’s team of e-commerce experts have put together this handy guide to help you decide if the time is right for you to sell and to help you make sure that if you do sell your e-commerce business, it is in the best position it can be for maximum valuation.
Even if you aren’t quite sure if cashing out is the right pathway for you, or if you aren’t quite ready to sell yet, you’ll find many best practices here that can help you run your business more effectively until you feel confident to take the next step.
What Makes My E-commerce Business Valuable?
To determine whether or not an e-commerce business is valuable, a buyer will want to see that your business is viable and that there is credible pathway for growth and ROI.
A buyer will look for the amount of risk involved in buying your e-commerce business – the higher the risk and the more time needed to grow the business the lower the price you can expect. Conversely, if your business is already in a profitable, healthy state with room for expansion, the higher the cash out you can expect.
If you know your business inside out, you’ll know where there are potential opportunities you haven’t yet taken with your company – it’s definitely worth pointing these out to any potential buyer. It might seem counterintuitive, but no-one expects your business to be perfect. Your buyer should be able to see a clear path to growth – if you can make it obvious to them where you haven’t been able to invest (but they should!), this will increase your valuation.
Even young businesses can hold value if they have been well managed and have good records and show stable performance. Perhaps your business has experienced good growth and has hit a performance plateau and you find that you need more capital, resources and time to take it to the next stage. This is a valuable time to cash out a business as your buyer can be reassured that they are getting a lower-risk, viable company.
To truly understand what makes your particular business valuable you must look at all aspects of your company with a critical eye. Consider what your strengths are and what your business is doing well, and take a close look at where improvements could be made or weaknesses that might affect a valuation. For example:
- Do you have strong Amazon rankings and reviews?
- Is your product or service unique or do you serve a particular niche in the market?
- Do you have any patents or IP that are solely in your control?
- What sort of traffic do you have coming to your direct e-commerce site; is it steady and sustainable?
- What is your growth rate YOY – is it stable?
- Is competition growing in your market?
- Are your records and bookkeeping up to date and accurate?
- Are you effectively managing your inventory and operations?
- Do you have a stable supplier relationship for key products?
- Are your logistics and delivery systems up-to-date and running smoothly?
Getting Prepared to Sell
Ultimately, if you’ve decided to sell your business, or even if it’s just something you’re carefully considering, there are several steps you need to think about taking as soon as possible:
Proof of Success
Get your historical data and systems up to date as much as you can – potential buyers will want to see as much as possible, and having this information will enable you to see exactly how your business is performing. If you have statistical intelligence to show your buyer, you’ll find it easier to sell and it will be quicker for your buyer to reach a favorable valuation. You’ll also add credibility to your asking price.
Make sure you’ve got data tracking showing where and how your customers find you. A buyer will want to see that you’ve got a regular source of revenue and a strong customer base – including where these customers are coming from. This tracking data will also be able to show what your conversion rate is, which products are performing well, and which have scope for growth.
Get your finances in perfect order. A buyer will want you to demonstrate that they are investing their money in a viable asset and not an unprofitable burden. Prepare annual financial statements, which show steady growth of your profit and turnover and any increase in your equity capital. A business that can show profitability over a year will be valued higher than a business which only has viable data for six months.
Make sure all expenses are accounted for and that you’ve got a proper business account from which all finances to do with your business are dealt with. Clearly identify your profit margins, your revenue, your taxes and keep a simple Profit and Loss statement to keep track of day-to-day running finances. This can be as simple as keeping a spreadsheet, or if you prefer, seek the services of an accountant or bookkeeper. There are also plenty of cloud-based accounting software tools available should you need them.
Optimize Your Channels & Marketing
Increasing traffic diversity and having active social media and online channels provides your business with extra viability. Partnering with influencers and selling on other e-commerce platforms shows that your business is successful across multiple avenues. Increase your value by maintaining an active customer list and a valuable and fruitful social media presence,
Make sure you also outline your marketing plan – including advertising spend and any SEO optimization- so that a buyer knows exactly what your strategy is and what costs you have anticipated and already invested.
Your buyer won’t want to have to spend time and money reconfiguring your website and decluttering your inventory. Spend some time making sure your products are up to date with decent imagery, accurate descriptions, and that you’ve delisted any out of stock items. Ensure your customer lists are up to date and that your UX is smart, clean and easily navigable.
Timing is Everything
If you have decided that it is right for you to sell your e-commerce business, then the best time to start planning your sale is when you don’t have time-critical or external factors. You need to have the time available to make any improvements to maximize your eventual valuation.
It’s important to know precisely where your business is in its lifecycle when you’re heading towards an exit plan – have you identified whether you’re still within the growth period or have you plateaued in maturity? Buyers can find value in acquiring a business at most stages within its journey, but you’ll be in a much better position to get the valuation you want if you’re able to convincingly demonstrate that your company is still experiencing growth or enjoying a stable and profitable period of sales.
Consider industry trends and how the market in your particular sector is performing. Is there an uptick in demand for a certain product due to external factors? Is this demand sustainable for your business and do you have the resources to meet any growth in this area to make this a viable potential business for a buyer?
Establish whether your business is making the right sort of profits to make it viable to sell – it’s likely that you’ll already have some sort of acceptable sale price in mind already, and you should have the data on your monthly revenues. If these two reconcile then it could be the right time for you to sell! On the other hand, if your monthly profits from the business mean that it would take years to achieve your sale price, it might be worth taking some steps to identify ways you can improve your business. A six-month window between deciding to sell and finding a buyer should give you enough time to reconcile any issues and improve your final valuation.
Planning the right exit time for your business is incredibly important, but the only real right time to sell is when you and your business is ready.
At that time, make sure you research the best fit for you! Guides like this one from eCommerce aggregators can give you a good sense of what specific buyers specialize in and look for.
At BRANDED we love finding micro consumer brands with great potential and, with our team of global experts on board, transforming them into global brands that people love and cherish.
We prioritize fairness and take pride in our partnership mentality, emphasizing a win/win approach as we grow your business together. We encourage our brand entrepreneurs to stay onboard, working on areas of the business they love and helping us retain the best of the brand. BRANDED prizes the continued success of the brand and ensures the highest earnout for you. You can expect honesty and thoughtfulness from a professional team, throughout every deal with us. Reach out directly to get in touch with our team.