SELLING AN ONLINE BUSINESS

An online business can be anything from a small boutique on Etsy to a company doing $1,000,000+ in gross revenue that operates globally. Selling an online business is valuable because of its ability to generate profit for the buyer 24/7/365, even while you sleep. This is a very attractive feature to potential buyers who would like to produce passive income with little-to-some maintenance, depending on the industry. Unlike a brick-and-mortar store which usually has a set of operational hours, an online business is always up.

What makes an online business valuable?

Provable income is one of the most important features that will make selling an online business more valuable and attractive to buyers. Make your business worth more by maximising the potential of future earnings. Maintain an active customer base through online marketing platforms.

Transferability of the business is another important feature which will determine the value of a business when selling. The reason online businesses are so valuable is because often the owner has set the business up so that it’s not reliant on him or her personally. This is vital in the business selling process as businesses that have high transferability will be more valuable. For example, an online business that retails phone cases is more transferable than a personally branded social media account that is used as a business platform. That is because of the personal tie to that business. In the case of the phone case retailer, after the sale, the buyer will simply take over the operations of the business with little need to change marketing strategies since the business is already successful.

Consider your business in future markets

Maintainability is an important element to consider when valuing your online business. When a buyer looks at your business, they want to see that the business has a future. Ask yourself if it will be around in five years time. So how do you ensure this? Start by being ever alert to trends in your market/industry. You need to be able to adapt to changing trends. This can be done by continuing your education, both in business generally and in your market. Here are some educational videos for you. You need to be able to change direction, add product lines, discontinue services or do whatever is necessary to keep abreast of the latest.

Scalability means that the business can be grown. Online businesses have an advantage over brick-and-mortar businesses because scalability can be built into the infrastructure. Scalability is about the growth of the business. For a business to grow it needs to be in a sector or a market that has the potential to grow. The sector should also be experiencing or will experience an increase in demand for its products or services. If there is evidence of this when you are selling your business then you will be rewarded with a higher price. Once all of these components are in order it is time to value your business for a price that a buyer is prepared to pay.

How to Determine Price When Selling An Online Business?

One of the hardest steps of selling an online business is determining the selling price. How much is the business you’ve worked so hard on really worth? What is the highest price buyers are willing to pay for your business? Here are a few methods that FE International recommends which will be effective in finding the correct selling price.

1) Discounted Cash Flow Analysis – This method considers the value of today’s dollar and what it’s worth will be in the future. By taking into account the online business’ free cash flow and discounting it to a predetermined multiplier, you can calculate an accurate figure for the selling value. The flaw in this method is that it is used for well-established business that have predictable cash flows, something majority of online business usually lack.

2) Earnings multiple – This method takes into account the seller’s discretionary cashflow and multiplies this but an appropriate amount. What’s the multiplier you ask? It changes for every industry and a great breakdown of finding the correct multiple can be found here.

3) Observing the Market – Past transactions between buyers and sellers in a similar industry as your business is a good indicator of your value. When doing this it is important to not only compare yourself to similar business but also a similar business size that is comparable to yourself.

How to Sell an Online Business for Maximum Value:

1. Fully systemise your business.
2. Keep the income of your business on an upward curve.
3. Keep up to date with lead generation.
4. Boost your social media presence and engagement.
5. Be continually adding to your product or service offering.
6. Find ways to differentiate yourself from competitors.
7. Make sure you are selling the business on its tax figures. The days of lying about your figures to the tax department are over.
8. Don’t allow labour costs to get out of hand.
9. Have your business valued at least every two years so you know how far you are from your target value. Watch our movie here to pick up some tips.
10. Use a combination of valuation methods to determine what price you should ask for when selling.
11. Stay relevant – no one wants to buy a business that isn’t going to be around in a few years, think smart.

Wondering how to sell an online business? Contact Tony Arena at  BCI Business Brokers to get the maximum value for your online business today.