By Vishal Bharucha, President of VNB Business Brokers, a leading M&A advisory and business brokerage firm.
Covid-19 set the world in motion – everything has changed. Our way of socializing, working and doing business. Many online business owners are keen to quit, but fear it is not wise due to the pandemic. However, this is not the case. Online businesses provide clear opportunities for investors looking for low-risk, recession-resistant investments, and they can deliver that value to them.
Online commerce is booming
According to IBISWorld Report 45411A (paywall), large companies have been able to increase their profits by taking advantage of economies of scale through the acquisition of online businesses that align with their strategic business goals.
With the unprecedented digital access available to consumers, it is expected that online business revenue growth will increase due to operational and business aspects that will continue to drive demand in key markets as consumers feel more secure. comfortable with engaging businesses through digital channels.
Many online business owners who have designed a proven business model for scalability are looking to opt out for profit taking purposes to enable them to start a new business venture. Owners tend to invest in it, grow it based on its key performance indicators (KPIs), and sell it with little to no strategy. These are entrepreneurs who have identified a gap in the digital marketplace, translated this concept into a full service online business and are now ready to move on.
There are different motivations for selling a business online as opposed to traditional businesses – and most online businesses are sold while they are still very successful, successful, and very profitable.
For online businesses, the business model is driven by increasing consumer spending, and with more people online than ever before, every consumer with an Internet connection in every market has the potential to become a customer. The rapid adoption by the general public of the use of mobile devices has boosted confidence in digital engagement and online experiences. IBISWorld reports that industry revenues have grown at an annualized rate of 12.1% over the past five years, reaching a present value of $ 645 billion.
Online business valuation
The First Quarter 2020 Market Pulse Report indicated that while Main Street valuations have worked in the past in the 10% range, many advisers predict that the market will be a sellers market for companies valued between $ 2 million and $ 5 million.
While physical businesses consider assets, goodwill, and profitability, when it comes to online business marketing analytics, forward-looking percentages are critical because they directly indicate how scalable a business is. . Online businesses offer excellent scalability, so a significant portion of valuation hedges on forward-looking metrics, as well as cash flow valuation and auditing similar businesses to determine value.
When it comes to market trends, there is a strong demand for online businesses operating in software development, search engine optimization (SEO), and mobile app development – these industries have not. end in sight because they have evolved alongside a key way of life in which we live and work. With the rise in talk about smartphones, these industries are poised to generate real growth and create new value for buyers, thus placing sellers in a valued position to sell their business to a captive buyer’s market.
Online businesses have intangible assets that include high social media engagement, high search engine placements, web traffic analytics, and other relevant digital metrics to measure their success. Quantifying this value to buyers is as easy as positioning the business using these metrics to determine or predict future revenue. With online businesses, these KPIs will translate into revenue and increase revenue. And, while these aren’t necessarily easy to quantify, it’s critical to convey the rhetoric of the company’s future growth to an interested buyer.
If you are considering getting an appraisal for your business online, contact a company that specializes in appraisal or appraisals for online businesses, usually a CBA, which is a designation for a valuation expert.
KPIs to consider when selling your business online
It is highly recommended that online business owners have a clear and holistic picture of what is going on in their business. As with traditional businesses, make sure you have identified the risks in the processes and take care of that. See any operational improvement as a strategic mechanism to achieve maximum value for your business. If you have systems that need improvement or implementation, be sure to ensure a smooth transition for them to a new owner.
Consider hiring a professional CPA to audit your financial statements so you can start a financial overhaul. This is especially important if you don’t have detailed analysis that a buyer would like to see. If you have data at your disposal, evaluate it and identify some patterns that could help you create a complete due diligence pack. For an online business, metrics and analytics are important to present to buyers before going to market.
Do you need an exit strategy for an online business?
All business owners need an exit strategy from the day of acquisition. By understanding the milestones you want to achieve, you will be able to present a definitive timeline of achievements to investors. These metrics make it easy for investors to understand the business and its potential, which is relevant for online businesses.
Where to go from here?
A good go-to-market plan is to hire a Certified Business Intermediary or Certified M&A Professional for companies worth up to $ 10 million. (Full Disclosure: My company provides these services.) During the consultation, the business intermediary will identify the strengths of the business and develop an understanding of the business in order to compile a valuable opinion and then produce creative assets that describe the operational and strategic narrative of the business. business for investors.
Key points to remember
In summary, online businesses:
• Provide clear opportunities for investors looking for low risk investments.
• Benefit from unprecedented revenue growth expected to increase as digital engagement continues to soar.
• Are valued in the same way as traditional businesses and should also audit key performance indicators to determine value and predict future revenue.