This article provides absolutely vital knowledge about the mistakes you can make when selling your eCommerce business. Be sure to read all five – and get in touch if you are ready to get your business in shape to sell.
This article will lay out the top five critical mistakes to avoid when selling your eCommerce business.
You’ve put in the time, money, and years of sweat equity to build a successful online business, and it’s finally time to sell. You only have one shot and the stakes are high. A single mistake can now cost you tens of thousands of dollars, but making the right choices can result in a large financial windfall and a smooth transition.
So, how do you maximise the effectiveness of your efforts?
1. Getting a wrong valuation
Many people are afraid of undervaluing their business and leaving money on the table. However, entrepreneurs who overvalue their business are more likely to make the same mistake. This is because they let their emotions get in the way of making good decisions, which makes it hard for them to come up with a more reasonable value based on things like financial performance, comparable sales, industry averages, and so on.
Unfortunately, listing a business for sale with a high asking price is a surefire way to lose credibility with investors, especially those who have already bought businesses. It’s hard to get back when you’ve lost the trust of buyers, even if you cut the price a lot.
Try to still get the best possible value for it. However, there’s no point in wasting time and money trying to sell and hoping for a miracle unless your value is based on the truth.
So, what does it mean to say that a valuation is based on the truth?
Most small- to medium-sized internet companies are valued at 1x – 4x annual net income. If you arrive at a valuation far above this range, one of two things is likely to be true:
(1) your business appeals to strategic buyers, or (2) your business has been overvalued.
What is a strategic buyer?
Strategic buyers are investors who buy companies to integrate them into an existing venture to gain a net benefit. Because the acquisition adds significantly more value to their existing venture, these buyers are known to value a business significantly higher than its intrinsic value. For example, consider the owner of a SaaS company who acquires their only viable competitor, gaining patented technology and an effective monopoly in the process.
Unfortunately, very few “unicorn businesses,” and most small to medium-sized web companies, cannot generate strategic buyer interest. Instead, unless your business is exceptional (high barriers to entry, proprietary technology that no one else has, etc.), it will generally fall within a standard valuation range.
So, how do you prevent your company from becoming overvalued?
- Get a free professional online business valuation.
- Educate yourself on legitimate online business valuation methods.
- Locate comparable sales.
- Seek multiple professional opinions.
- View the business objectively, leaving your emotions at the door!