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What's Your Business's Market Value? How to Value a Company
Are you wondering what your business's market value is? Read this article to learn how to value a company fairly so you can sell fast and make a profit.
How to Value a Company
What’s Your Business’s Market Value?
Are you wondering what your business's market value is? Read this article to learn how to value a company fairly so you can sell fast and make a profit.
How to value a company
You’re finally ready to sell the business you’ve worked so hard on. The first step of the process is valuing how much your company is worth.
But if you’re new to selling a business, likely you won’t have a clue where to start. Thankfully, there are several ways to work out the market value of your company.
Ultimately, your business is worth whatever you decide it’s worth. But you can make your estimation using various ways to value the company and can choose a mix that reflects your final thoughts.
Keep reading to learn how to value a company.
Work out the Value of the Assets
If you’re wondering how to value a business, the first thing you should do is add up the value of everything the company owns. This includes all the equipment and inventory. Then, you’ll need to remove any debts or liabilities.
After all, a buyer would need to purchase all the same stuff if they were starting the business from scratch, so the company at the very least is worth the replacement cost.
While this doesn’t provide an efficient whole evaluation of a business, it’s a great starting point for understanding a business’s worth. Your final balance sheet will offer a good indication of the value of your business’s assets.
Remember that the company is probably worth a lot more than its assets though. Consider how much revenue and earnings the company pulls in.
Base It on Revenue
This leads us to another method on how to value a company. You can base the value of a company on its revenue.
How much does the company make in annual sales? Work that out and determine, using a stockbroker or a business broker, how much a company within your niche may be worth for a level of sales. For example, it may typically be worth about three times sales.
Explore Beyond Financial Formulas
It’s important not to just base your assessment of your company’s value on figures. For example, maybe the location of your business is extremely sought-after?
Always consider the value of your business based on other factors too, such as geographical location.
How to Value a Company for New Sellers
When considering how to value a company, these are some of the best methods to start with. However, one of the best ways to assist with the process is to consider professional help.
Here at Biznexus, we can help. We help match business owners with the best business intermediaries to help you sell your company for great value, on optimal terms.
The service is free for business owners, and we aim to help improve entrepreneurs’ chances of having a positive experience of selling their business. To learn more about how we can help, check out our website.
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How to Buy or Acquire an E-Commerce Website for Sale
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
How to Buy a Digital Business?
E-Commerce Website for Sale
Buy an E-Commerce Website for Sale
Want to own and run your own online digital business? You basically have two options:
Establish a new company and start from scratch.
Skip the startup cluster consider acquiring an existing e-commerce website business already on a clear upward trajectory, and apply your creative entrepreneurial pivots and experiments while enjoying the benefits of “cash flow” (something startups were expected to think about prior way back in the dark ages of the early 21st century).
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
What Type of Business Do You Want and Can You Buy?
If you are planning to buy an e-commerce business, it is important to sit down and think about two things – your lifestyle goals and financial needs. Your goal here is to analyze your current situation and try to stay true to your budget, day to day operational involvement interests, and values, -all keys to successful entrepreneurship over the long-term.
What Are Your Future Objectives?
You should never stop dreaming big, but when it comes to setting the objectives, it is important that they remain realistic. Ask yourself, why are you buying an e-commerce business? This will help you to stay focused with realistic objectives that will shape up your business model.
If you are a beginner, you may be purchasing a company to learn all the tricks of the trade before you engage in starting a business from scratch. In this case, you may want a helpful and experienced e-commerce entrepreneur that wants to sell their e-commerce website who is willing to share essential details about how they made the e-commerce venture that you are consider buying into a profitable business.
You may also think that you have the necessary resources and skills, which is why you want to save time and buy a company that has already positioned itself in the market. This way, you can invest improving resources, and scale the business to the next level.
It is also vital to consider how much time you can dedicate to the business that you are buying. If you plan for this to be your full-time job, that’s great. But if you consider e-commerce business as an additional income, it is important that it won’t take you more than a couple of hours in a day to operate the e-commerce website.
What is Your Passion Aligned with Your Skills?
When choosing the market in which you will purchase an e-commerce business, it is vital to consider two areas – your passions and skills.
We all have our favorite market segments within an industry – some of us are crazy about clothes, others are health freaks that care about staying in shape, or you may be into tech products and gadgets. It would be great if you could buy a business in one of the market niches that you are passionate about. This way operating the e-commerce business won’t be merely a job, but it is aligned with your passion as well.
It is also important to consider your knowledge and skills. If you have graduated from an art university, you may consider selling homemade art or crafts and other related products.
It can also be very helpful if you have tech-related knowledge. Knowing more about website optimization and SEO can help you with search engine page ranking. Being a good writer can be of great importance in preparing unique content to promote brand awareness and increase conversion rates.
The crucial thing is to ensure that you have the right skill set to run the business. If it's necessary, consider hiring someone else but make sure that you can incorporate that expense into your budget.
Think About the Resources You Have
Yes, you need to consider financial capital, which means that you should have enough money to purchase and invest in the business to take it to the next level.
But we are also talking about other resources. You need to ensure you have enough time to run the business, a computer or laptop you will use for administration, etc. You can also use your current social media accounts if you are popular on Facebook or Instagram.
How to Determine the Price for an Ecommerce Business
It varies from one e-commerce website business to another, and ultimately depends on your estimation and business valuation, but the general rule says that an e-commerce website business can be valued anywhere from 10 to 24 times its monthly profit. In other words, if you have a business that secures $3,000 per month, you will need at least $30,000 to purchase it. The price may vary depending on the potential of that e-commerce business’ ability to increase profit.
The main idea is to buy a business that is profitable and can remain profitable as this should be your primary goal when running e-commerce business. The estimated monthly earnings should be high enough to motivate you to work on growing the company.
Here is more about how to evaluate the worth of an ecommerce business
Naturally, business owners wouldn't want to sell their business for less than its worth. There are a number of valuation methodologies you can use to determine the fair value of a business. Let's take a look at what it takes to fairly evaluate an e-commerce business for its worth.
There are a few ways you can determine the value of an e-commerce business.
Multiple of Seller Discretionary Earnings. You might evaluate a business's worth by looking at their historical earnings. When favorable factors are agreed on, the businesses expected worth will be higher during the valuation.
Discounted Cash Flow (DCF) Analysis isn't the primary way to evaluate the worth of an e-commerce business, but it is a useful analysis.
Online business sales fluctuate more widely than those of traditional businesses, which make this analysis less suitable for e-commerce. These can include a company's size, years in business, yearly revenue, and so on.
A company with an active customer base and positive market outlook will be worth more than a company without active customers or a profitable niche.
Evaluating the worth of a company doesn't come easy, however, it's a necessary step you must take before finalizing a sale.
Where to Find an E-commerce Website Business to Purchase
Once you have the required capital, the preferred market niche, and other desired variables, it is time to look online and find an e-commerce business to buy. The good news is that there are numerous marketplaces where you can buy and sell e-commerce websites.
However, we advise you to stick to the reliable ones, such as:
Shopify Exchange – exclusively designed for Shopify stores, and an excellent place to find a website fast. The great thing about this website is that it is free, and there is no success fees or other charges.
Flippa – you can choose between thousands of different business, which means you have a vast range of websites to pick from when buying.
Empire Flippers – it is interesting to note that every website put up for sale passes through the screening process of the administrators.
BizNexus - Inventory of online businesses for sale 100% vetted by expert online brokers from all around the world. Sellers are prohibited from posting directly on the site so there is a built-in level of vetting required as every listing on the site is a business that a broker see’s as sellable, and that a broker has initially vetted themselves.
How to Be Sure You Made the Right Decision
You’ve found e-commerce business that seems like an attractive purchase, but you are not 100% sure that you made the right choice. If you want to be certain in your decision, just follow these steps.
Don’t Hesitate to Ask Questions to the Seller
The chances are that the seller has listed some basic information about the website and themselves, but it is always wise to ask for more details. Start by trusting yourself and conducting online research on the owner and the business.
See if the seller has LinkedIn or other social media profiles, and ensure that they are a real person, and not someone hiding behind a fake identity. Do an online search for the business, too, as it may encounter user reviews and other valuable information.
Here are some other questions to ask the seller:
How long has the business been running – the longer the better and bigger chances for success. Businesses with longer operation period provides a lot more data for making an informed decision.
Why they are selling the business –look for an authentic reason. Perhaps they bought another company, or they got a better job. Maybe they are moving to another country. Whatever the reason, you need to make sure that they are telling the truth.
Tell me more about yourself – that includes the previous experience in e-commerce business, other business they own, and anything else that may be relevant to your purchase decision.
It is also vital to acquire as much information as possible about how the business is operated. Some e-commerce websites have documents that are official standard operating procedures. That will make you're taking over a lot easier as you have a set of rules to follow. Additionally, ask them if they run the business themselves or hire additional staff.
Ask for Sales Data and Website Visits
You should always demand the seller to send you a profit and loss statement for the previous year. That includes detailed information about revenue, gross profit, cost of goods sold, operating expenses, net income, etc. In other words, you want a comprehensive financial report that would prove the claims that the seller makes about earnings.
Furthermore, you may want to check the website traffic. The best way to do that is to ask for access to Google Analytics. There is no need for the seller to worry about anything as the access can be read-only option for this tool, and this is all what you need...
Here are some things to keep in mind:
If you notice a bounce rate less than 30%, or higher than 90%, and session duration lower than at least 45 seconds (or less than two opened pages per session), it may be a sign that the traffic sources are untrustworthy.
You want to ensure that the website has had a constant number of visits over the last several months. If the number has significantly increased lately, make sure to determine the reason for that.
Make a difference between organic, referral, direct, and paid traffic, as well as the one coming from social media. Any option that seems legit and doesn’t require any investment is acceptable.
Finalizing the Sale
If you think you made the right choice, and want to finalize the deal, it is time to enter the negotiation phase. Since you asked so many questions to the seller, it is only natural to introduce yourself. Tell them a bit more what makes you a reliable and trustworthy buyer.
Once you establish trust, you can talk about your plans with the business. It is something that a seller might want to know, especially if they care about their e-commerce business. Finally, ask them about the price, or give your offer. However, make sure to explain why you’ve chosen to offer that amount of money (estimated monthly earnings, future potential, etc.).
Now, once you agree on the price, you may want to ask an attorney to analyze all legal aspects of the deal. That might not be necessary if you are buying small e-commerce online business and using a marketplace as a mediator. However, make sure that the seller confirms there are no lawsuits currently related to the business.
Finally, determine all the details about the payment. You may want to pay in installments, but the seller needs to agree on that. You should also ensure to agree on a support period during which the seller is obliged to answer any question or concern that you have about the business. Also, make sure to negotiate social media accounts, mailing lists, product images, and other resources that may be a part of the transaction.
Final Take
If everything goes right, you will soon become the owner of an e-commerce website. As you can see, the process is not complicated. However, it will take a bit of time and effort to choose the right company, and make sure everything goes smoothly. Once you finalize the transfer, it is time to design a strategy to skyrocket your e-commerce business and boost your profits.