Even though you may have never given any thought to the possibility of selling your eCommerce business, many entrepreneurs find themselves in the position of wanting to sell at some point in their career.
In general, one of the biggest mistakes you can make is to decide to sell the business and then try to get it sold within a month of making the decision.
This is going to leave you in a situation where you’re scrambling to find investors and are more willing to accept a lower offer.
Instead, you’re going to want to make sure that you’ve thought about the possibility of selling the business long before you actually make the decision. This will help you make the business more attractive to investors, and help you get a higher asking price when you do list it for sale.
To help make sure you’re getting the most money from the sale, here are five areas you need to address to ensure your eCommerce business is attractive to investors.
1. Look at value like a pro
When you’re trying to get the most value out of the sale, you’re going to need to understand how investors are going to look at your business and then give them what they want to see.
Right now, one of the most common valuation strategies is the Discounted Cash Flow Valuation. It is similar to how brick and mortar businesses are valued and looks at how much cash flow you have left in the business after paying expenses, salaries, and taxes.
Most brokers aren’t going to use a DCF model to determine the value of your business, but it is a good starting point for you to figure out what it may be worth.
Instead, investors are going to rely on a multiple of your DCF. For instance, if your business generates £10,000 per month after expenses, taxes, and salaries, a multiple of 12x to 36x could be applied to the DCF model, giving you a business that’s worth between £120,000 to £360,000.
To find the multiple, they are going to look at your competition to find out where your strengths and weaknesses are, and how well you have positioned yourself in the market.
They will also want to focus on how profitable the business is going to be in the future. This is why the multiple is applied to your DCF valuation, because it is estimating the potential profitability over the next 1-3 years, or longer in some cases.
2. Improve your traffic numbers
Another area that both investors and brokers will look at is your traffic. They want to see that you aren’t only generating a large number of visitors, but that those visitors are converting into new customers for the store.
Simply getting more traffic to the store doesn’t matter if that traffic can’t be converted into revenue.
There are a few easy ways to increase your conversion rates, as long as you’re driving quality traffic to the store:
- Make it easier for your customers to find the products they want, and then eliminate as many steps as possible between them putting a product in their cart and submitting credit card details.
- Implement new ways to continue following up with your existing customers. Email marketing, retargeting, and push notifications are great ways to do this.
- Make sure you’re creating content that you can distribute across different channels, from the search engines to social media, blogs, and in your emails.
- Don’t neglect certain traffic sources, like organic search traffic or social media traffic. Both require different strategies, but both can generate high-quality traffic.
- Focus on reducing your cost per click and increasing your lifetime value for each customer that you bring to your store.
3. Dial in your finances
At the end of the day, your financials are going to make up the bulk of your valuation and will determine how attractive the business is to investors.
That means you want to make sure your financial statements are detailed, accurate, and easy to read. You want to be able to show investors your revenues and profits, inventory costs, expenses, taxes, salaries, and other operating costs.
Your financials are a document that continues to evolve as your business evolves, and helps you understand areas of the business that need to be addressed or corrected so you can continue growing.
Here are a few different areas of your financials that you need to focus on if you want to improve the value of your eCommerce business:
- Your cash flow – Is there enough cash flow in the business to handle unexpected problems. Having a healthy reserve is attractive to investors.
- Your accounts – Do you have accounts that are more than 30 days past due? 60 days? 90 days? If you are slacking on your collections and billing, you’re leaving money on the table.
- Your products – Are you currently selling products that customers aren’t buying? Are there gaps in the market you can fill with new products? Are you overly dependent on one or two products?
- Your payroll – Are you currently employing the right people with the right skills, and making sure their salary is competitive for the industry?
- Your liabilities – Are you properly managing your obligations, debts, and taxes?
- Your assets – Are you properly managing your assets? Are you holding assets that could eventually become liabilities?
- Your CPA – Are you overpaying to acquire new customers while neglecting strategies to bring your existing customers back again?
4. Delegate, Delegate, Delegate
When you started the business, you probably had to wear a bunch of different hats.
However, for investors, if your business requires them to work 60 hours a week to maintain it, you may have a hard time getting them to offer you a high value to purchase the business.
On top of that, you may end up burning yourself out by trying to be everything to everyone and doing too much in the business on a daily basis.
This means you need to start delegating certain tasks to people that are capable of handling them, while you focus on handling tasks that generate revenue. The more you’re able to delegate, the more efficient (and valuable) your business will become.
When you’re thinking about increasing the value of your eCommerce store, you need to address each of these areas.
Your goal should be to make the store not only great for you to own but attractive to investors that may want to buy it from you when you finally decide to sell.