How you build and operate your business can determine how valuable that business is when you decide to sell it in the future. Even if you’re not planning to sell your business anytime soon, you should be aware of certain mistakes you might be making that can make it impossible to sell. There are also a number of things you can do now to significantly increase the value of your business which is great for you while operating the business and great if you decide to sell in the future.
In this episode of eCommerceScale.com, Joe Magnotti from Empireflippers.com goes into detail on mistakes to avoid that can hurt the value of your business if you decide to sell in the future. EmpireFlippers.com is an online marketplace for buying and selling high quality websites. Joe and his team at Empire Flippers have helped sell over five million dollars worth of businesses to date, and have experience with all types of businesses. Even if you’re not planning to sell soon, use his perspective to make your business even more valuable. If you have any questions about this podcast episode, please feel free to contact us. [podcast] * Note that this blog post is derived from the transcript of the audio discussion. Please excuse any typos or odd wording.
Are Your Financials Well Organized?
The key to being able to understand the value of your business and communicate that to someone else such as a buyer, is to have well organized financials.
- You can use systems like QuickBooks or Xero, or any other accounting system that lets you track important metrics about your business.
- Make sure you are able to track basic metrics such as revenue, cost of goods, profit margin and other important financial metrics.
- Having this data tracked over time gives you important insight you can use to make day-to-day and strategic decisions, but is also absolutely critical if you decide to sell in the future.
Without having well organized financials, your business might be impossible to sell if you decide you want to sell in the future. It’s also important to keep business and personal finances separate. This might seem like common sense for established businesses, but it’s common to have certain personal expenses of business owners run through the business for tax purposes.
- If you run certain expenses that are more personal than business related through the business, these expenses can hurt your valuation when you are reviewing financials with a potential buyer.
- The buyer may use that expense against you to claim that the business is less valuable because the expense is in the financials.
Keeping your business and personal finances completely separate, at least in the 12 months leading up to a potential sale, will help eliminate this issue.
Document How The Business Operates
Your business should be able to run completely independent of you. This is a huge advantage for you even if you keep the business, but is absolutely crucial if you decide to sell the business.
- If the success of the business relies on your day-to-day experience and input, then a buyer is going to value your business significantly less since you will no longer be involved after the sale.
- While your business should be run mainly by your team, it’s important that the business does not rely solely on the experience and knowledge of your team.
- You need to document your processes so that your team can work those processes, and other team members can be added in the future without significant interruption to the business.
Below are a few types of processes to make sure you have documented.
- Basic customer service such as how to answer common customer questions, or handle common customer service situations.
- How to process orders and returns, as well as how to manage inventory on your website.
You can document these business processes using an online system like Google Docs or SweetProcess.com, or other systems. The main thing to focus on is making sure that processes are available to your team, ideally online, and are in a format where you can collaborate, and constantly update those processes with your team.
Are You Tracking Your Marketing Efforts
If you invest $10,000 per month in a marketing channel such as online advertising, and can prove with metrics that this produces $100,000 per month in revenue, then that marketing initiative is a great asset to your business. But if you’re not able to realistically show that a marketing expense produces a strong ROI, then that expense hurts the valuation of your business. Whether you’re looking to sell in the future or not, it’s important to be able to track the effectiveness of your marketing campaigns. Be sure that each marketing campaign you have has a clear way to measure success, and that you optimize the campaign over time. In the months leading up to the sale of your business;
- Pay close attention to which marketing campaigns are profitable, and
- Consider getting rid of campaigns that are not profitable.
This will help buyers see the effectiveness of your marketing, and limit the chance of unprofitable marketing campaigns decreasing the value of the business. Another important marketing asset is your customer email list.
- Building and maintaining your email list can make it an extremely valuable part of your business.
- By regularly contacting customers and prospects, and being able to show that this email list produces revenue for the business, you are able to show potential buyers the value of the customer list you have built over time.
Be sure to keep this list extremely valuable in the months leading up to a sale. For example, do not do a lot of promotions to unload inventory that you think a buyer would not want to keep or purchase as part of the sale of your business. There may be other ways to unload this inventory, but blasting your email list with promotions can burn the relationships you have with that email list, and make it less valuable in the future.
Use a Hosted Shopping Cart
- These platforms are very well known, which means buyers will be more confident in stores that are built with these platforms compared to other self-hosted platforms like, Magento or others.
- In addition to increased competence in your shopping cart, having a hosted shopping cart also means you have a larger market of potential buyers for your business.
- Many more buyers are familiar with these platforms versus other self-hosted or proprietary shopping cart platforms, which means you have more people to market your business to.
Although you should not change your shopping cart right before selling your business, if you are in a position where you are deciding what type of shopping cart to use for your business, heavily consider a hosted shopping cart instead of a self-hosted or proprietary platform. Even if you’re not planning to sell your business anytime soon, having organized financials, clear processes, effective marketing, an industry standard infrastructure can only help your business. This will make your business more profitable now, easier to run, and much more valuable if you decide to sell in the future.
If you want to learn more about how to increase the value of your business, and how selling your business works, visit www.empireflippers.com. They have an active blog, podcast, and social media channels with valuable information you can use in your eCommerce business. You can also reach out to Joe Magnotti at EmpireFlippers.com.
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