The year 2020 was certainly one that no one will be forgetting about. The economy was unpredictable at best, and largely due to uncontrollable circumstances. The habits of many consumers were forced to change in order to continue doing day to day activities, resulting in a burst of growth for online businesses. Where else do you turn when you are quarantined in your house? This movement has opened the door for many businesses to thrive and has been a positive light to come out of an otherwise awful year. Online businesses that have the ability to adapt and scale quickly are flourishing right now. Are you thinking of selling your online business? You know how the saying goes, “strike while the iron is hot”. Demand has never been higher. Building your online business was difficult, and selling it will be no easy feat either, but the market is currently in your favor. In this post, you will learn the various factors that you should consider in order to realize the highest value for your internet related business.
What is your Online Business Worth?
Profitable internet related businesses are highly valuable, and they are currently in high demand! The valuation of these companies can range from a few thousand dollars to 10 figures. It is largely based on many factors, but profitability is the number one requirement. No one is jumping at the opportunity to work for free, especially when they are spending their hard-earned money. Translate that to the concept that it is unlikely that someone would be interested in an online business that isn’t profitable. The market is currently seeing online businesses with annual profit under $750,000 and growing sales and profitability selling up to a 3.5 multiple. Internet related businesses with profitability above $750,000 generally in the upper end of that range and can even go to a 4x or higher multiple. There are many other factors that go into the valuation such as trends with the business, industry, marketing diversification, repeat customer base, etc. Don’t mistake the uncertainty of these times. The shift from consumers shopping in retail brick and mortar stores to online shopping is not new, but 2020 has catapulted it forward to a whole new level.
How to Increase Your Online Business Value Before Selling
Below is a list of just some of the ways to increase the value of your online business before selling:
- Sales Channel Diversification: Ensure your online business is integrated across as many channels and marketplaces as possible. Make sure your business strategy is diverse and not dependent on any one channel, as that could be perceived as risky. Buyers are looking for the business’s traffic to come from as many channels and eCommerce marketplaces as possible including Amazon.com, eBay.com, Walmart.com, etc
- Invest in Mobile: Make sure that your website is enabled for transactions across all types of devices and the experience is responsive to that device. Mobile ecommerce sales now exceed sales placed via desktop computers. Consumers are shopping often times while they are doing other things, so making sure your website makes it quick and easy for conversion of your product or service is key.
- Repeat Customers: Increase the percentage of repeat buyers via email marketing, social, and retargeting. Having a steady, consistent repeat or returning customer base lowers the risk for investment.
- Reliable Inventory: Partner with suppliers of inventory and have backup suppliers to ensure a steady flow of orders with no dips in trending due to out of stock items. Another thing that 2020 taught us was to have a back up plan! Make sure your business is agile and able to pivot when necessary if something happens to a part of your supply chain.
- Private Label: Sell internet only brands or create your own private label brands. Creating private label also increases profit margin per product in most cases.
- Clean History: Ensure that you have no current or pending legal concerns. This is a surefire way to cause concern for a potential buyer and they will likely negotiate down the sales price if they feel they are taking on risk. Clean financial documents and tax returns are extremely important. Nothing will scare away a buyer faster than a messy or incomplete financial history. It will make it look like you have something to hide. Having this well documented supports a higher multiple and will also make the sales transaction exponentially smoother.
- Business Operations Manuals: Well documented processes and systems of running the business creates value to the buyer. Ease of hand off is taken into consideration for a new buyer investing in a business – the quicker they get up and running after a transition, the quicker they start receiving profits.
- Reduce Unnecessary Overhead: Anything that increases the profit margin on the business will influence the potential value for sale. Reducing extra staff, vendors, marketing efforts not returning profit, subscriptions, etc. will have a material impact on profit margin. If there are expenses that are not contributing toward the value of the business make any and all efforts to reduce or eliminate them.
Selling Process of an Online Business
The process of selling an online business, whether it is service based or an eCommerce business, depends on multiple factors but the 3 most important are the size of the company, industry/vertical and financial history.
The selling process of an online business is typically a 10-step process:
- The Decision to Sell
- Business Valuation
- Listing Agreement
- Sales Presentation and Due Diligence Preparation
- Secure a letter of intent (LOI) and/or offer to purchase (OTP)
- Due Diligence
- Asset Purchase Agreement
- Transitional Support
Sell Your Online Business with Acquisitions Direct
Acquisitions Direct is a nationally recognized Internet business brokerage firm that brings together Buyers and Sellers of Internet based businesses. With over 375 successful business transactions in the past 15 years ranging from $100k to over $20 million, our team of experienced business brokers have what it takes to ensure a smooth brokerage process for our clients. Our brokers and advisors have all created, managed and sold their own online businesses giving them the experience needed to guide you every step of the way.