“If you are like most business owners, you started a business as you thought it would provide you liberty — to do everything you need, work on your own schedule, make the type of cash you deserve, and finally retire on the fruits of your labour.
“Unfortunately, according to John Warrillow, many owners find that selling their business is difficult because they have built a company that relies too heavily on their personal participation. Without them, their business — no matter how large or profitable — is basically useless. Fortunately, there are steps you can take to make a valuable, sellable company that can grow and thrive without you.”
In the publication, the company owner turns to his trusted friend and entrepreneur, who lays out an easy-to-follow strategy to transform his organization.
Warrillow describes an perfect business which is”built to market” as follows.
- “Teachable: A built-to-sell company offers products and services which you could instruct employees to perform, or program technology to deliver, as you sleep.”
- “Valuable: A built-to-sell business avoids price wars by focusing in doing something better than anybody else.”
- “Repeatable: A built-to-sell business makes a stream of recurring revenue where clients need to re-purchase often.”
Constructed to Sell and The E-Myth Revisited by Michael Gerber, which I said in “Keys of becoming top valuation for your ecommerce company,” a prior column, both offer a fantastic advice on core business principles to concentrate on to offer your ecommerce business to get a fantastic price, which is now between 3 and 6 times EBITDA — i.e.. “earnings before interest, taxes, depreciation, amortization,” about the yearly cash flow of your company. Both books have the same underlying theme of building an owner-independent and readily transferrable company with the goal of significantly increasing the valuation. In actuality, for those who have a couple of years before you’d consider selling your business, I recommend both books.
In a post from 2011, I explained the mechanisms of how to appreciate an ecommerce business and shared which valuation multiple between 2 and 3 times EBITDA is a market average derived from the sale of several little companies.
But now, a higher price of 3 to 6 times EBITDA is possible based on the number of things from the following checklist apply to your organization. None of the following should come to you as a surprise. It’s not comprehensive. But I it’s 70 to 80 percent of everything that will make your company a desirable acquisition.
- Age of the domain and business history of 6 decades and higher.
- Consistent or rising earnings through the history of your company.
- Loyal clients who rave about the products you sell and supply positive reviews.
- Ecommerce earnings unaffected by continuing Google updates.
- Your company should be in a business that’s growing.
- Business with mature processes which could be run without the participation of the operator.
- Many unexplored growth opportunities or guaranteed recurring earnings.
- Higher gross earnings; companies with revenue of $3.5 million or greater generally obtain higher multiples.
- Scalable applications platform. When an acquirer is an ecommerce series which also uses the identical platform you’re, the value created by this factor alone is enormous for the acquirer and he could be prepared to extend a higher offer than most other buyers that will have to switch platforms.
- Excellent relationship with providers rather than having a dependence on a few.
- Audited financials (for larger businesses ) or financials maintained by a CPA firm. This is far better than financial statements prepared by the proprietor.
- Niche or customized products.
- High gross profit margin: 40 to 60 percent and above range.
- Multiple sources of visitors — i.e., Amazon, pay-per-click, organic search, affiliates, social websites.
- Large opt-in email subscriber list.
- Either a reactive (mobile ready) site or a strategy to move to a responsive design.
The above list shows factors that will drive your valuation multiple greater. If you own a business which matches the description above, you’ve likely received an unsolicited offer.