24 Jul Understanding the Valuation Process
Building a successful Digitally Native or FBA business is no small feat. From acquiring funding and developing a product to creating advertising materials and taking the product to market, growing a company takes a lot of work.
With so much time and money invested in your success, it can be difficult to price your business when it comes time to sell. Fortunately, there are several online resources such as our Free Value Estimation Tool that can help you determine what your business is worth.
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The Value Estimation Tool takes into consideration what kind of business you own, the category of product you sell, how long you have been in business, how many hours per week you spend working on the business, and your monthly revenue / expenses.
The type of business and category of product help narrow down what market your business would be sold in. The number of hours you put into the company determines the level of emotional investment required to assume ownership control. Finally, your average monthly revenue less your average monthly expenses equals your gross revenue, which is used to forecast the value of the business.
Once you input the appropriate information, the tool provides a preliminary estimate of what your business could sell for on the market. With that figure in mind, you can make an informed decision to move forward with the sale of your business.
THE NEXT STEP
In general, valuation tools can give you a sense of what you might expect to earn from selling your online or Amazon-based business. That information is valuable, but how you use it is arguably more important. The decision to sell your business is one only you can make, and a preliminary estimate can help reassure you that you are making the best choice.
So, you entered your company’s information into an online valuation tool and it spit out a number you’re happy with; now you’re ready to list your business for sale, right? Yes, but the answer isn’t quite that simple.
Any business broker can create a listing from a cursory valuation, but an experienced Mergers and Acquisitions Advisor can help you conduct a more in-depth analysis of your business and turn a quick and dirty figure into a real deliverable. The ability to follow through on that deliverable, then, is instrumental to the successful sale of your business, and is a service an M&A Advisor can provide.
Once you find an Advisor to act as your intermediary, they will start by reviewing historical financials for your company from the past two to three years in order to calculate your total cashflow and expenses. After subtracting cost of goods, employee salaries, utilities, and other overhead, the Advisor will apply a multiple to the business’ gross revenue to determine the sale price.
The multiple is derived from a thorough understanding of the business model, market segmentation, and customer concentration. Your Advisor will consider your strengths and weaknesses, as well as any liabilities your business may pose. If you have a unique value proposition and operate efficiently in a less competitive market, your business is more desirable. Consequently, the multiple will be higher than a less desirable business in the same space.
High or low, the multiple is usually given as a range of numbers from least to most ideal. Then, the gross revenue is multiplied by that range to obtain the sale price. While the dollar range is meant as a realistic representation of what you can expect to earn at closing, it is important to note that the best Advisors will always fight to get you the highest value for your business.
Example: Gross Revenue ($10 Million) x Multiple (Range 4-5) = Sale Price ($40-50 Million)
Don’t settle! It takes time and expertise to conduct a proper valuation, but the result is a more informed, more accurate sale price. Also, a thorough valuation will often yield a better outcome than a sale conducted without one. Understanding the process and having an experienced intermediary to help you each step of the way ensures that your needs are met and that ultimately, you walk away happy.
SHOW ME THE MONEY
Selling a business does not have to be intimidating. The key to success, as with all business, is to understand the product you are selling, which in this case is your business. With a comprehensive suite of online resources and the right intermediary to help guide you through the process, you can be sure you will get the best possible deal.
Global Wired Advisors is here to help you sell your Digitally Native or FBA business. We are Mergers and Acquisitions specialists with over 50 years of combined experience in selling online companies. Try our Free Value Estimation Tool to see what your business is worth.
We are committed to providing world-class customer service while earning you the highest value for your business. Our team is standing by – click here to speak with one of our Advisors today!!!