E-Commerce business sale valuation- how much?

[Mate]

I'm going to sell my e-commerce business very soon and there are interested people at the moment.
I'm struggling to evaluate my business sale price. Basically the business generates £3000-3500 net profit monthly before tax for one person working.
What multiplier should i use when negotiating the sale price?
The business has a good reputation among the customers, one part of the business is related to eBay with a long and excellent reputation. Included are 3 websites and facebook pages.
please help me with the pricing.
thanks

 

[GraemeL]

As with another thread on this same subject, are you making a net profit of £3k after paying all costs INCLUDING a good salary to the 'worker'.

Is the worker staying with the business? Is it you?

The goodwill value will be almost nothing if the worker does not stay.

What is the asset value on the balance sheet? Thats a good guide to the company value. Annual profits might be taken into account, but it depends, a lot, on the workers position.

Lots of questions before you will get an answer mate!

 

[GraemeL]

This was the thread on same subject

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=228594

Possibly your worker trying to sell your business also!

 

[Mate]

As with another thread on this same subject, are you making a net profit of £3k after paying all costs INCLUDING a good salary to the 'worker'.

Is the worker staying with the business? Is it you?

The goodwill value will be almost nothing if the worker does not stay.

What is the asset value on the balance sheet? Thats a good guide to the company value. Annual profits might be taken into account, but it depends, a lot, on the workers position.

Lots of questions before you will get an answer mate!

It is me who runs the business, but if someone buys then employing someone would be a great idea to increase the volume of sales, as there will be more time to develop the business further.
annual profits are £40-50k depending on how hard you want to work. Monthly it is £3000-3500 after all costs and vat, net profit before tax.
As it is an e-commerce business, the assests i have is the stock at value of £5000.
Based on this information, what realistic number am i looking to?

 

[madrilian]

Admit it ... your business just now is not profitable.

The profits do not substract the cost of the work involved. If that would taken into account, there would be no profits, as £40K is aprox. the cost of a worker who is able to run a business on its own.

You are not selling a business. You are selling a job. This makes the potential value of the whole thing very limited I would think.

Still, your business can have a higher value, if it has a good potential for growth and it cannot be easily replicated from scratch.

It is very difficult to value a business only by that numbers you have shown. I think other factors would be much more important than merely the current financial factors.

 

[GraemeL]

It is me who runs the business

And are you getting a good salary (above average) in addition to the profit of £40k?

G

 

[90DC]

Mate,

Could we have a figure for the value of assets? Also, for my benefit, could you define exactly what the business does?

Please bear in mind that a business (Like anything else) is only worth what somebody is prepared to pay for it. So in my case, I value it at £14k + assets and with my bank on side, could and would pay that tomorrow, leaving me, and Santander with a healthy ROI. Obviously, you've mentioned having interest in the business and by attracting all possible interested parties into a sale, you increase the likelihood of receiving a better offer.

Good luck with the sale.

 

[JamieM]

It is me who runs the business, but if someone buys then employing someone would be a great idea to increase the volume of sales, as there will be more time to develop the business further.
annual profits are £40-50k depending on how hard you want to work. Monthly it is £3000-3500 after all costs and vat, net profit before tax.
As it is an e-commerce business, the assests i have is the stock at value of £5000.
Based on this information, what realistic number am i looking to?

I have recently sold a few ecommerce sites.

In my opinion I would say that if the net profit in the last year is sustainable and has growth opportunity then I would value it on the last years profit minus the wages cost it would take to hire someone to operate the business. So for me the important question would be how much time is spent per week doing all the necessary tasks to run the business, packing orders, ordering new stock, updating website, customer service etc. Say only 20 hours a week was required then you only need someone part time at approx £8,320 (based on £8/hr). If the net profit was £40k then the real net is more like £31,680. Providing the business had longevity I would then value and advertise based on this figure at 2 times profit so £63,360 plus stock at valuation with a view to negotiating down to around 1.5 times

There are obviously other variables like will the running costs be the same for the buyer as they are for you, what are the barriers to entry etc. The previous years figures may have a significant bearing as well. I would say that if a high proportion of the business is eBay related then that devalues the business a bit as well.

Also consider that maybe you are running the business from home but the buyer might not be able to do that adding significantly to operating costs. On the other side the buyer might already have an ecommerce portfolio and be able to slot it in to their existing business with minimal expense. The value is will differ from the buyers point of view depending upon their current situation.

There are loads of contributing factors but overall my view is that if you can offer a buyer a strong business (at this small level) where they will recover their investment in 18 months - 2 years then it is an attractive opportunity.

 

[Lucan Unlordly]

Apologies for the thread hijack but is has some relevance to the OP's request....

I run an online contacts database in a niche market that has been established for several years. It was free at first and now I simply monitor and manually renew subscriptions which takes less than a minute and could be automated. It currently takes a few hours each week at peak times (albeit spread over a few minutes here and there each day) and can be left for a week or so without any problems. Income is £25k a year and hosting requirements are minimal. So minimal that I don't currently seperate from my other online web business so lets say a grand a year?

So... in direct 'competition' with the OP's situation my setup has minimal need for staff and an extremely healthy margin, albeit in a market that is unlikely to expand. I have interest from a competitor who would dearly love to get their hands on what I have, and with money to burn.

Accepting that I could probably pitch in high, what sort of starting point would you suggest for negotiations based on the income?

 

[Mate]

Mate,
Could we have a figure for the value of assets? Also, for my benefit, could you define exactly what the business does?
Please bear in mind that a business (Like anything else) is only worth what somebody is prepared to pay for it. So in my case, I value it at £14k + assets and with my bank on side, could and would pay that tomorrow, leaving me, and Santander with a healthy ROI. Obviously, you've mentioned having interest in the business and by attracting all possible interested parties into a sale, you increase the likelihood of receiving a better offer.
Good luck with the sale.

The value of assets is around £5-6000.
I'm going to give more details only to the prospective buyers.
Are you making me an offer?

I have recently sold a few ecommerce sites.

In my opinion I would say that if the net profit in the last year is sustainable and has growth opportunity then I would value it on the last years profit minus the wages cost it would take to hire someone to operate the business. So for me the important question would be how much time is spent per week doing all the necessary tasks to run the business, packing orders, ordering new stock, updating website, customer service etc. Say only 20 hours a week was required then you only need someone part time at approx £8,320 (based on £8/hr). If the net profit was £40k then the real net is more like £31,680. Providing the business had longevity I would then value and advertise based on this figure at 2 times profit so £63,360 plus stock at valuation with a view to negotiating down to around 1.5 times

There are obviously other variables like will the running costs be the same for the buyer as they are for you, what are the barriers to entry etc. The previous years figures may have a significant bearing as well. I would say that if a high proportion of the business is eBay related then that devalues the business a bit as well.

Also consider that maybe you are running the business from home but the buyer might not be able to do that adding significantly to operating costs. On the other side the buyer might already have an ecommerce portfolio and be able to slot it in to their existing business with minimal expense. The value is will differ from the buyers point of view depending upon their current situation.
There are loads of contributing factors but overall my view is that if you can offer a buyer a strong business (at this small level) where they will recover their investment in 18 months - 2 years then it is an attractive opportunity.

I spend around 5-6 hours a day for the business, half of it i would say will take for the customer services like emailing and phone calls.
The business model has a very good longevity and there is a huge potential for growth which i haven't yet started to implement, there are lots of things which can be done. I worked hard so far to improve the margins and the return in the business and all look just beautiful, for example with a full time work on may and june i've achived a net profit of £4700 and £5100 monthly with just working alone. Nobody would believe on this and for me it was difficult to tell anybody as most people would just say that it's a kind of a scam...
I'm reluctant to sell my baby for a low price, i'm not sure about the pricing but i think i would be interested to sell it for around £30k mark i guess considering a multiplier of 6-7??
Let's see

 

[GraemeL]

"I'm going to give more details only to the prospective buyers."

Quite understandable, but its just plain silly to ask for valuations on the forum without sufficient info.

My assumption is that your £40k profit is not profit at all, but represents a moderate salary. So actually its a life style business making no profit. Value is asset value plus goodwill, say £10k. 6/7 times earnings is less than that!

G

 

[Alicatt]

I sold an ecommerce business this year.

There are plenty of buyers out there looking for this type of business - I would suggest getting a few business sale agents to have a look and give you a realistic valuation (just be very careful what you sign if you decide to use an agent).

The one thing that may cause a problem is the ebay side. Strictly, it is against ebay rules to transfer an ebay account and as you are a sole trader the ebay account will not be in the limited company name. I'm sure lots of people do transfer accounts but there are pitfalls.

Happy to provide more details by PM if you wish.

 

[Rhodes100]

There are technical valuations of businesses based on ROI, and then value based on how saleable the owner has made the business, and how comfortable a new owner would feel running it.

Too many business owners think that it is all about the amount of profit they are making and ignore the other drivers buyers look at in making a decision, meaning the "mutliple" is drastically reduced because the risk is increased.

There is a valid point on here dont expect a definitive answer based on incomplete information, but I can tell you your business is probably not worth half as much as you think it is.

 

[Mate]

Where can i get a template for the sales agreement designed for e-commerce business sale? I would really appreciate to look into it and the points i should consider during the transfer stage. Thank you!

 

[KeithGreen]

Hi to the OP. If you are still looking for some assistance with your business valuation please send me a PM. I have sold a few e-commerce businesses this year (acting for clients) and will be happy to assist you. No obligation at all.

 

[newbiehelp]

Hi i have just sold my current business and would be intrested in purchasing your business i am currently researching eccomerce businesses as this is something i would like to invest in please get in touch so we can take matters further.