While investors and larger companies have been buying and selling smaller businesses for a long time, e-commerce businesses and other web-based businesses are changing the face of more traditional models of business brokering. While this new digital edge doesn’t change the basic process or necessary components of a good business, it does introduce some new before taking on an e-commerce business.
What They Want
Buyers are investors; their main goal is to get a speedy return on their investment. This means that if a buyer bought your e-commerce business for $10,000, his or her only goal is to make $10,001 as quickly as possible, and then to continue making money through the e-commerce business. Understanding the buyer’s mindset is important because it allows you understand the importance of the profits and projected profitability of your e-commerceBuyers want to see that your business is profitable and that it will continue to be profitable. These two factors are the main determiners of the final sales price of your e-commerce business. The profits of your e-commerce business are determined just as they would be for any business. Simply look at how much money your business has after you’ve accounted for all of the operating costs. The annual profits of your e-commerce are important because they directly factor into the final price that a buyer will pay for your business.
The other important factor that buyers look at is the ability of your e-commerce business to keep making reliable profits. In order to understand the website worth of your e-commerce business, a buyer will assign what’s called a sales multiple to your e-commerce business. This sales multiple is a ratio that tells how much of the annual profit a buyer is willing to pay to acquire the whole e-commerce business. This ratio is almost always greater than 1, and it usually falls between 1 and 3. After the buyer assigns a sales multiple to your business, the final sales price is calculated by multiplying the annual profit of the e-commerce business times the sales multiple. So buyers will pay more for an e-commerce business that has solid profits and the prospect of these profits continuing well into the future.
What They Don’t Want
It might not seem too far-out to think that if you’ve spent your own money on your e- commerce business in upfront investments such as the creation of the website, the domain name and marketing to boost reliable traffic to the site, then the cost of these initial investments will just be added to the sales price of your business. However, this is not the case. These kinds of assets are factored into the profit of your e-commerce business, since all of these assets serve to increase the annual profit. So unfortunately, even while you may have bought these assets outright, they only boost the value of your e-commerce business in so far as they contribute to the profitability of your business.
Another thing that buyers aren’t very interested in when considering whether or not to buy your e-commerce business is “potential.” While you may be really optimistic about the direction of your e-commerce business, buyers tend to look solely at the numbers. Since mere potential falls outside of the range of profits and profitability, it’s not something that buyers are necessarily looking for.
What You Can Do
The first thing that you can do, now that you understand what buyers are really looking for in an e-commerce business, is try to get an idea for what your e-commerce business is worth. The easiest way to do this is to check out some different website worth valuation reports. These reports analyze the sales multiples, profits and final prices of many different online businesses. Simply find the businesses that are most similar to your own, and see how your e-commerce business compares!