August 17th, 2021 | Updated on March 11th, 2022
While the momentum for e-commerce to thrive was already underway, the COVID-19 pandemic gave it an additional impetus and ensured that a vast variety of businesses – big and small – migrated their operations online.
However, there are several challenges faced by online businesses. Usually, such pursuits are labors of love and an entrepreneur may not always have the entire trajectory of the business outlined from the get-go.
But after a point, any shrewd business person would realize the need for an exit, no matter how successful the business. In such a situation, they may put their online business for sale.
When one realizes that the time to sell is near, they seek out the different buyers that would be willing to purchase the business. There are several avenues for the sale of such enterprises – selling privately, to a competitor, or through a broker.
However, before one zeroes down on the right buyer for them, they must understand the salability and scalability of their own business.
Factors Affecting Salability
There is no predefined recipe for the success of a business. The factors that make a business successful and give it its edge are also the ones that make it a worthwhile investment in the eyes of a buyer. However, perhaps the most important factor remains the valuation of a particular business.
Valuation tells a buyer not only the present value of a business but also what investing in such a business will bear in the future. Naturally, the focus of all businesses is on optimizing the valuation of their enterprise. Here are some of the factors that affect valuation –
Financials: Robust company financial statements that point towards the health of the enterprise are the backbone of any saleable business operation—records of finances that are verifiable lead to ease in finding potential buyers.
Good numbers in terms of revenues, profits, and other growth metrics can paint a compelling picture of the business.
Age: Online businesses that have been functioning for three or more years appeal more to buyers because weathering such a duration shows the strength and resilience of the business. If a business has exhibited steady growth over five years or so, it could fetch a good price,
Returns and refunds: The downside to running an online business is that the instance of returns and refunds is significant when compared to brick-and-mortar stores.
These eat into the margins swiftly. High numbers of returns and refunds could be a result of misleading descriptions and photographs and poor customer service.
Traffic: What sets apart an online store from a physical one is not just the front through which sales are made, but also the type of traffic or footfall received by the two. For online businesses, organic and paid website traffic is responsible for customer acquisition.
The steady growth of traffic across all sources, as well as the increases and decreases in website traffic, are crucial to getting a measure of the health of an online business for sale.
Buyers will also assess the average session duration, conversion and bounce rates, and the number of pages visited per session.
Brand recognition and value: A recognizable brand is more attractive to buyers on account of the fact that it comes with a loyal and established customer base along with a formidable presence on social media and the internet.
Types Of Attractive Acquisition Targets
The factors listed above mould a business, and only those enterprises that do well on all these metrics make for an ideal online business for sale.
However, buyers also assess a business based on the model on which it operates. Some of the commonly purchases business types are –
Drop shipping businesses: Drop shippers do not keep any inventory with themselves. Under this model, an entrepreneur fulfills retail orders by simply purchasing the products from a third-party manufacturer who assumes the responsibility of fulfilling the orders.
These are sought-after investments because the need for expensive processes like fulfillment and shipping, as well as inventory, are eliminated.
E-commerce stores: Several platforms online allow anyone to set up their store in order to sell its products. A good example is Shopify, where an entrepreneur can run a successful business. Buyers may purchase this business and continue operating it on the e-commerce platform.
Amazon FBA: As discussed above briefly, Amazon’s FBA provides third-party businesses with order fulfilment and shipping services in an automated manner.
The seller needs to simply sell its product, with Amazon tapping into its wide delivery radius and resources to offer fulfillment services.
Before you decide to put up your online business for sale, it is imperative to introspect and assess what it offers to a buyer. Understand more about how to sell your business online before you start the process.
Other than essentials such as the state of the financial records, brand recognition and logistics, one must also consider whether there is a demand for a business model such as theirs among buyers.