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  • How to value your ecommerce business

    If you have launched an ecommerce business, you may need to know its worth, either to raise funding or if you are looking to sell it to a third party. Valuing an e-commerce business differs to those of bricks and mortar companies, because of the potential to scale and reach a much larger market. There are two main methods used by the industry - our guide gives you the key metrics used for online company valuations. In order to create a realistic valuation, you need up-to-date financials, including the profit/loss, assets, liabilities, and loans of the company. Once you’ve prepared these, you should determine your firm’s earning power, which can then be applied as a multiple to arrive at a business value. It’s important to note that the two most common approaches to valuing an eCommerce business include Sellers Discretionary Earnings (SDE) or Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA). However, these two methods may not give the true value of fast-growing businesses that are investing heavily in technology and growth. In this situation, you’ll need to forecast revenue and growth and then use those figures to arrive at a realistic valuation, so long as your projections are realistic. Avoid relying on the growth-based method if you’re using SDE or EBITDA, which are discussed below. As a rule of thumb, SDE is used to value smaller companies, while the EBITDA metric is more commonly used when valuing large online companies. Let’s briefly go through how each method works. SDE: SDE is a valuation method using the Total Owner Benefit a business produces. It is based on the owner’s total cash flow which includes salary, benefits, and depreciation, and benefits received by the owner from the business. All of these items are added to the profit of the business to arrive at a valuation figure. EBITDA: EBITDA valuations involve using earnings before deducting interest expense, taxes, depreciation expenses, costs, and amortisation. Simply add depreciation or amortisation expenses to your operating profit to reach the EBITDA value. The figure will represent the underlying earning power of your company. Now that you have a ‘net income’ figure through either the EBITDA or SDE method, it’s time to determine the multiple. This is a figure multiplied by your SDE or EBITDA to attain your final business value. So, how do you determine this multiple? The most critical factors affecting your multiple include: Financials: Your eCommerce business’ financials will be the most critical and most complex factors. A business with comprehensive financial records and with up-to-date Income statements, Balance Sheets, and Cash Flow Statements, independently verified, will be considered reliable. From the buyers’ perspective, the more transparent you are about the eCommerce business, the more likely they will consider buying the business. Quality of Web Traffic: This is one of the most complex factors used to determine the revenue multiple. Common metrics used to evaluate traffic quality include pages per session, bounce rate, conversion rate, and average session duration. Apart from traffic quality, your backlink profile, trends in web traffic, and concentration of web traffic into specific resources will also be considered in calculating a multiple. Considering the complications involved, it’s best to consult a business sale broker who offers independent business valuations. Intellectual Property: As an eCommerce business owner, if you own any patents, copyrights, or trademarks, their value will need to be determined. Value of Customers: This is an obvious factor in the calculation of a revenue multiple. Your aim here should be to highlight any loyal customers who keep repeat ordering; relying on one or two suppliers can be perceived as high risk Running Costs: Operating costs, such as rent for your eCommerce business’ office space, will also affect the revenue multiple You should now have a clear idea of what you need to determine your ecommerce business valuation. If you are planning to sell your ecommerce business, it’s usually easiest to get a free independent valuation from a trusted professional. Contact us today for a free, independent business valuation for ecommerce businesses.

  • Attracting the right buyer for your business

    If you’re looking to sell your business, it’s essential that you determine the type of exit and buyer you want so you can market the business accordingly. Determine Your Business Qualities Before trying to attract the right buyer, create a list of the company’s positive attributes that make it an attractive investment opportunity. This will help you to create adverts, presentations, and pitches that highlight these positives and make the business case more compelling. Namely: Location: are you relocatable or do you have loyal local customers? Scaleablity & Growth: can you expand into new markets or scale easily? Have you identified new products or markets that will allow you to increase revenue? Reputation: do you have positive reviews and testimonials? Profit margin: is your profit margin in line with industry averages? Can it be improved? Asset value: what equipment, property or intellectual assets does the company own? Management team: is the company overly reliant on an owner wishing to exit or have you ensured a smooth handover process with a strong management team? Loyal customers: are you over-reliant on specific customers, or can you easily weather the loss of a valuable client? Flexibility: can your business easily adapt to changing market conditions such as an economic contraction or does it have cash in hand to do so? Once you have determined the strengths of your business, you need to identify the type of buyer who would find such a proposition attractive. Create your ideal buyer profile A buyer profile helps you to define which acquirers will have the means and the will to purchase a business like yours, while achieving your post-exit objectives, such as staff retention. A buyer profile might include preferences for: Ethical positioning (you may be willing to take a lower valuation to secure future jobs) UK or foreign buyers Synergies Monetary position such as cash-rich instead of heavily leveraged Sectors of interest Minimum revenue requirements Builders of businesses rather than “restructuring” private equity firms Draw Up A Target List Once you have drawn up the ideal characteristics of a buyer, you can create more detailed targets, possibly drawing from the following sources: Competitors Synergistic companies that are expanding Foreign buyers moving into the UK market Key customers that could save money by acquiring your business If you have significant revenues or are in a very specialist space, the range of potential buyers could be quite narrow. Many business owners will be able to easily identify their top five potential acquirers, but it is wise to research the market extensively to reach a wider pool, including international targets if that is of interest. Brainstorm what concerns potential buyers may have so you have a compelling answer for every question. Marketing Your Business After creating a buyer profile, you can craft a compelling advert to market your company on business sale directories. Use positive, upbeat language in your advert, emphasizing the potential to increase revenues and profit. In our experience, some sites have a far better return on investment, and the best outlet varies according to the type of business. It pays to research the best sites for your sector or use a business brokerage to advise you accordingly. When advertising your business for sale, in most cases it makes sense to maintain confidentiality. You don’t want your competitors flagging your potential sale to your best customers as this could affect their relationship with you. Using Your Network Another great way to attract potential buyers is through your network, albeit discreetly. LinkedIn Premium also gives you the advantage of contacting target acquirers directly. By reaching out to people you trust who might work in these businesses, you can prepare for any pitch more effectively as well. Keeping a Buyer’s Interest It’s vital to be prepared before advertising your business or approaching potential buyers. Make sure your financials, contracts, manuals, handbooks, insurance, and legal matters are all up-to-date and easy to review so you can answer any buyer questions promptly. One of the fastest ways to lose the interest of a good buyer is to take too long in responding to their questions. Getting Professional Help Attracting the right buyer can take time and involve a steep learning curve. If you are focused on running your company, business brokers can help speed up the process and find the right buyer much more quickly. We know the best ways to advertise businesses for sale, where to find the right buyers, and how to pitch the business to interested parties on your behalf. The best business brokers have an extensive database of ready buyers keen to invest in the UK market. Our team can quickly match most businesses with a great fit. Interested in finding out more? Contact our team today for more valuable advice or to get a free business valuation from our business sale experts.

  • How to sell a business fast

    Are you a business owner looking for a new direction in your life? Maybe you want to retire or start a new venture? Or perhaps economic conditions have caused the business to struggle and you want to exit before things become more difficult? ​ Depending on your situation, you may be hoping to complete the process quickly, but for a business to be sold fast, it’s important you follow certain steps, and use the services of experts when needed. The most significant driver when selling a business is the asking price. When setting a valuation, take into account your profits, debt, and the value of current assets.  It always helps to get an independent valuation to give reassurance to buyers, and to ensure you are entering the process with realistic expectations. Set a Realistic Valuation: Determine the fair market value of your business based on its assets, revenue, profitability, growth potential, and other relevant factors. Pricing it competitively can attract more potential buyers and speed up the sale. It always helps to get an independent valuation to give reassurance to buyers, and to ensure you are entering the process with realistic expectations. Prepare Financial Statements: Organize your financial records, including balance sheets, income statements, cash flow statements, and tax returns. Having transparent financial documentation readily available can instill confidence in potential buyers and streamline the due diligence process. Enhance Business Operations: Prior to listing your business, optimize its operations to maximize efficiency and profitability. Address any operational inefficiencies, streamline processes, and eliminate unnecessary expenses to make your business more attractive to buyers. Identify Potential Buyers: Utilize various channels to reach potential buyers, such as business brokers, industry networks, online marketplaces, and social media platforms. Additionally, consider reaching out to competitors, strategic investors, private equity firms, and other individuals or entities that may have an interest in acquiring your business. Marketing and Promotion: Develop a comprehensive marketing strategy to promote your business listing. Create professional marketing materials, including a detailed prospectus or information memorandum highlighting key aspects of your business, its value proposition, financial performance, and growth opportunities. Leverage online platforms, industry publications, and networking events to reach a wider audience of potential buyers. Flexibility in Negotiations: Remain open to negotiations and be flexible with terms and conditions of the sale. While it's important to have a clear understanding of your bottom line and desired outcome, being too rigid may deter potential buyers and prolong the sales process. Engage Professional Advisors: Consider hiring experienced professionals, such as business brokers, attorneys, accountants, and financial advisors, to assist you throughout the selling process. They can provide valuable guidance, negotiate on your behalf, and ensure that all legal and financial aspects of the transaction are handled properly. Be Prepared for Due Diligence: Anticipate and prepare for the due diligence process, during which potential buyers will scrutinize your business operations, financial records, legal agreements, and other relevant information. Having all necessary documentation organized and readily accessible can help expedite this phase of the sale. Maintain Confidentiality: While marketing your business for sale, ensure confidentiality to protect sensitive information and avoid disruption to your operations. Implement non-disclosure agreements (NDAs) and limit the dissemination of confidential information to serious, qualified buyers. Work with Pros: Working with an experienced business broker is the easiest way to sell your business fast. A good business broker will guide you through the entire process, including valuation, and marketing, as well as assess the financial position of interested parties, while protecting the confidentiality of your business. Moreover, they already have access to a large network of funded buyers who have already been vetted, speeding up the sales process considerably. By implementing these strategies and remaining proactive throughout the selling process, you can increase the likelihood of selling your business quickly and efficiently. However, it's important to prioritize finding the right buyer who shares your vision and values, rather than solely focusing on speed as this will dramatically increase your chance of a successful business sale.

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