Valuation and Selling Your E-Commerce Website
Whatever method you use for selling your business, it is essential that you carry out the valuation process thoroughly and arrive at the right figure
E-commerce has grown increasingly ubiquitous. With so many brands vying for e-commerce market share, competition has become increasingly cutthroat.
Many online businesses may seek an exit for different reasons. But before they can begin the process of finding a buyer, they must evaluate their business to get a sense of the price at which to sell. There are a number of methods that can assist with determining the value of a business; the seller can hire an M&A advisor, or list their business on a broker’s website. Another way to sell their business is by contacting a strategic acquirer, also referred to as an aggregator: growing trend in the digitally native e-commerce space.
Methods of valuation
Growth and revenue-based methods: More often than not, EBITDA and SDE are sufficient to evaluate a company. However, sometimes it is necessary to get a sense of the earnings that the business will make based on future growth and revenue.
Discounted Cash Flow Analysis: Discounted cash flow analysis (DCF) estimates the return on investment upon buying the company after it has been adjusted for inflation. This analysis helps potential acquirers understand the value of the company based on future cash flows.
Competitor Sales/Comps: Estimating the sales of other companies in the same market does not offer a complete picture of the company's valuation, but can be beneficial in helping potential acquirers understand the company's potential. The companies being used for comparison should be of a similar size and turning similar revenue.
Factors driving valuation
Irrespective of your methodology, the factors to be considered when evaluating a company remain similar. Here’s a look at some of these factors:
Financials: A company's financials are the most important factor determining value that a potential acquirer is willing to pay. E-commerce businesses with well-kept and verifiable financial records have an easier time finding a buyer.
Age: Buyers typically refrain from acquiring businesses that have been operational for less than a year. In fact, most go for those that have been around for a minimum of two years.
Returns and refunds: E-commerce businesses tend to process more returns and refunds than traditional brick and mortar stores. These can easily impact the margins of your business.
Traffic: Organic and paid traffic is crucial to your e-commerce business, and potential acquirers will often use these metrics to gauge the potential of your business.
Logistics and inventory: Fulfillment of orders lies at the core of any e-commerce business. Online businesses can elect to handle all fulfilment on their own or outsource it to third parties.
Process of selling
There are a variety of reasons why you may want to sell your business. At the end of the day, what’s most important is a successful exit. To ensure this happens, it is important to review all of your selling options; you can engage an M&A advisor to tap into their network of qualified buyers and get a full service, although the fees are high. Alternatively, you can sell your business on a marketplace or auction website for a listing fee. You can also sell directly to a buyer and manage the deal yourself.
The aggregator business model: It can be intimidating to sell your business. Many e-commerce businesses are side projects for the owners, and few owners have a formal education in business or finance. As such, the entire experience can at times feel overwhelming. Strategic acquirers, also referred to as aggregators, were created to solve this very issue.
Strategic acquirers are companies that acquire well-performing e-commerce brands on Amazon and other DTC marketplaces. They optimize all aspects of the business – from production to marketing - by leveraging their team of in-house industry experts with experience across all areas.
Here’s what you should keep in mind before selling your online business to a strategic acquirer:
· The valuation of your business and the minimum price at which to sell
· Whether you want a clean exit or would want to stay involved in some capacity
· What you’re looking for out of the brand that acquirers your business. Is there a vision you would like them execute?
Whatever method you use for selling your business, it is essential that you carry out the valuation process thoroughly and arrive at the right figure. As mentioned earlier, there are a number of ways through which you can make sure that your business qualifies for a healthy valuation. Your e-commerce business is the product of the efforts and time you devote to it. Naturally, you may be hesitant to sell off your business entirely. But with an e-commerce marketplace aggregator, you can choose to stay involved while making use of an opportunity to grow and scale your business.