How To Value a Business?

[jon.a]

I'm trying to place a value on an existing E-commerce business. I'm stuck on multiples. The 2 most common methods seem to be a factor of gross sales or a factor of income. Does anyone have any good guidance or references to look at?

 

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[vinylawesome]

Flippa may be a good indicator for valuation as you are able to search by recently sold ecommerce sites.

https://flippa.com/websites/just-sold?site_type=ecommerce&sort_col=won_at&sort_dir=desc

I also found this article: http://feinternational.com/blog/how-do-you-value-an-online-business/ to be a decent reference.

 

[jpmartin]

I'm trying to place a value on an existing E-commerce business. I'm stuck on multiples. The 2 most common methods seem to be a factor of gross sales or a factor of income. Does anyone have any good guidance or references to look at?

Check out this article, median is about 2x Revenue. But this is too simple an answer... valuation takes time to do (I do it professionally).

 

[MTF]

EmpireFlippers list websites (including e-commerce) at 20x monthly net profit. Try this: http://empireflippers.com/how-much-is-my-website-worth/

 

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[jon.a]

Thanks guys.

 

[socalocmatt]

Depends on how easy it is to replicate the business. If it is an ecomm biz with inventory then 2 to 2.5 ODE (officer discretionary earnings, not revenue) plus inventory is the norm. Profitable but replicable? About 1-1.5 ODE. Not profitable yet? Depends on what the books show.

Btw, first post here. So, here's a short intro. I have 16 years exp. running websites and have sold a few. I've definitely have had my failures as well as some great successes. Currently working on a handful more after selling my last big project last March.

Sent from my SAMSUNG-SM-G900A using Tapatalk

 

[jpmartin]

Thanks guys.

Jon.a - might want to check out this for cross reference - you can check for ecommerce sites. A good resource: https://circleup.com/data/

 

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[JAJT]

I've talked to a few people about selling an Amazon business I own and it seems like everyone goes by 1-2x yearly net profit, not revenue.

If there was anyone buying amazon businesses for yearly revenue instead of profit I'd sell in a second

 

[Vigilante]

Looked relevant:

https://www.coursera.org/specializa...0Hl1kEF4EeWY6p0s1m-c3w~0Hl1kEF4EeWY6p0s1m-c3w

 

[fluffhead]

I'm in the finance world full-time (for now), so may be able to add a bit of perspective. I would suggest looking a comparable companies in the space, not just any regular e-comm business -- something that has comparable sales, assets, inventory, etc. Then, from what I can gather, most e-comm businesses are sold for 1-3x annual sales. If you ask me, that's extremely light, as traditional retailers get purchased for upwards of 8-9x sales. Hope this helps.

 

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[jon.a]

I'm in the finance world full-time (for now), so may be able to add a bit of perspective. I would suggest looking a comparable companies in the space, not just any regular e-comm business -- something that has comparable sales, assets, inventory, etc. Then, from what I can gather, most e-comm businesses are sold for 1-3x annual sales. If you ask me, that's extremely light, as traditional retailers get purchased for upwards of 8-9x sales. Hope this helps.

Sales or income?

 

[fluffhead]

Sales or income?

I've heard of online e-commerce businesses getting 1-2x SALES. Bear in mind that's mainly Amazon businesses. I think if you have actual brand equity and organic traffic/sales being derived from your own platform, that multiple should go much higher IMO. I've heard of anyone basing a multiple off of a net income number.

 

[jmomcc]

I've been talking to a business owner who wants to sell. Is it OK if I post the details in this thread and see if people come to the same conclusion as I did? I'm trying to learn to become better at this.

 

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[Clayton]

I'd start a new thread.

I've been talking to a business owner who wants to sell. Is it OK if I post the details in this thread and see if people come to the same conclusion as I did? I'm trying to learn to become better at this.

 

[fhs8]

It depends on a ton of factors. You'd try to determine how much to pay for it by calculating the total amount of net income from the life of the investment (or just do 30 years out) and calculate the estimated yearly ROI compared to other investments. For a small ecommerce businesses with no big future I would say that the amount paid should be roughly 5x-10x of net income which is the money left AFTER an owner's salary.

The bigger issue is trying to determine if the financials aren't BS. I would avoid buying a small business for that reason alone. Also why is the person selling the business if it makes so much money today? Maybe they know something you don't?

 

[illmasterj]

Hey @jon.a, I went through this recently - you may find these helpful:

https://www.shopify.com/blog/17642316-how-to-sell-your-ecommerce-business-for-maximum-value
http://www.vandelaydesign.com/how-to-value-your-website-before-selling/
https://feinternational.com/blog/how-do-you-value-an-online-business/
https://jaserodley.com/selling-my-website-business-lessons-learned/
http://wpcurve.com/what-is-my-website-worth/

Some are from the selling perspective and vice-versa but ultimately it's the same theories.

My main opinion is to get as much history as possible and track the trends. If it's volatile, try and learn why it's volatile and what can be done to improve the upward swings and minimize the downward swings.

 

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[JustAskBenWhy]

There is no value to e-commerce

When we speak of value, we mean equity. With physical assets, even those that produce income, there is a back-stop - intrinsic value of the bricks and mortar/replacement costs. If income goes to hell, at least there is that...

However, on-line, income-producing assets have short shelf life. I spoke to a friend who launched another e-commerce platform this year. He is looking at $400,000 of CF for about 8 months out of the year. Adding products to the line-up next year, and thinks he can do $1 mil in 2017. But, the going phrase is: I'll ride the sugar train as long as it goes, but I don't plan on this long-term...

My experience is the same. Real estate income is much more stable than IM. I create internet revenues, but I would not buy them...

 

[Camaro68]

I would never buy a business unless you know it inside and out, I mean really eat breathe and sleep it. Also I would never buy one unless there was something you could identify that you could do better for growth. Is there something that they are doing you could change and cut costs immediately to increase net profit? There are just so many variables that can be business or industry specific. What is the competitive advantage? I cant tell you how many times I read a business is for sale because the owner is retiring! Well that can mean a couple things, 1 the owner is 75yrs old and physically cant run the business anymore (then I would wonder why a long term employee, if there is one, wouldn't want to buy it if they knew it was for sale, or another competitor hasn't made an offer) and 2 (and more likely) they are really not going to retire, but if they got the money from the sale they might "retire" as in go do something else because they are burnt out, or the business is struggling and they can see the writing on the wall and want to get out while they can still make a case for the asking price. If I had a business in an industry or market and was getting my but kicked and had been for a couple years, the ship is sinking and I have no idea how to get back in the fight, I'd want to retire too. Take my money and run, leave the problems to some other sucker...

Just giving an example, I'm always leery of someone who is selling to "retire". If the business was running smooth and throwing off tons of cash, who the heck would ever want to retire!?!? Set the business up to run hands-off and collect the checks, continue to do the books and take pride in the fact that you have ran a successful business for years and continue to enjoy doing so. Also for every 10 businesses you look at, maybe, MAYBE one will be worth the time to dig deeper on. The vast majority are overpriced, inflated books, and a broker is pimping the sale. Tons of BS to wade through. Also, the majority of small business owners don't do a good job keeping business and personal financials separate. They just don't run it like a corp. They run it like its the family business and there is a blur between the company checkbook and their own, and that can create a ton of problems, especially as it relates to debt.

The real business to buy is one that the owner DOESNT want to sell. But that's a totally different topic and post. Like I said, always keep in mind, no matter how great it seems, how slam-dunk it looks, if the business was great, making good money, and set up properly, the owner shouldn't have to sell no matter what their age is or health condition. Cavet Emptor

 

[SteveO]

Obviously there is a multiple based on income. As was stated, there should be a consideration for startup ease and cost. There should also be a consideration for long term viability.

@biophase said something along the line of by the time he did the due diligence, he decided he had enough knowledge to start it himself.

 

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[SteveO]

I just saw how old this post is.

 

[Alexlewter]

I believe that it would be great if you could take a look at this book: "The 4 Stepts to the Epiphany" by Steven Gary Blank. It will give you a lot of insights into Business Value and other useful things.