In late 2016, I sold my ecommerce company for $867,000.
One of the reasons I was able to easily find a buyer for my business was that I had built a business not tied to me. I had delegated many of the tasks that ensured the business kept on running smoothly after my exit.
In this article, I’ll discuss how to do just that for your business, too, so you can sell it for maximum value.
Potential buyers of your business are going to look at its current profitability when evaluating the purchase price, and then evaluate whether this profitability is sustainable.
In terms of purchase price, most eCommerce businesses are valued based on a multiple of their seller’s discretionary income (SDI). SDI basically includes your net profit and adds back the owner’s salary and other discretionary expenses like car allowances and travel. Most eCommerce businesses get around a 2-3x multiple of their annual SDI.
In terms of sustainability, buyers want to know that the business they buy today is going to continue its current profitability years down the road. There are many ways to demonstrate this sustainability including diversifying sales channels and products.
Note that one of the most important things is to have a business that is not reliant on YOU.
As entrepreneurs, we wear many hats. A potential buyer of a small business knows this. They do not expect you to be removed from every single task in your company. However, the potential buyer of your business wants to see replicable processes that will continue once you’re gone.
For most eCommerce businesses, the most common tasks can be broken down into a few categories:
Customer support is fairly self-explanatory and includes responding to emails, phone calls, etc.
There are numerous shipping and logistics tasks, such as creating Amazon FBA shipments and labels.
Advertising and marketing is a much wider assortment of tasks. It can include uploading products to Amazon or your Shopify store, sending out email campaigns, or monitoring PPC campaigns in Google or Amazon.
Accounting and financial means not only maintaining the books of your company but also monitoring product profitability.
Product buying and development is the heart of many eCommerce businesses. Without products, your eCommerce company can’t exist. If you’re a drop shipper this aspect of your business can include finding vendors and then choosing the top products to curate. If you’re a private label seller, this includes finding and developing products in China and elsewhere.
You don’t need to delegate everything in your business. Again, if you’re a small business doing $1 million in revenue the buyer of your company doesn’t expect you to have a full-time CTO, CFO, and other titles with fancy acronyms. But you shouldn’t have everything on your plate.
In a lot of Western countries, we often tend to undervalue the importance of customer support representatives (CSRs). CSRs perform the critical task of getting the owner (you) away from consuming all of their time on emails and phone calls.
More importantly though, for smaller eCommerce businesses, CSRs tend to understand the most important aspects of the business. They understand that Amazon accounts for most of their sales. They understand that white garlic presses outsell black garlic presses ten to one. They understand the most common problems people have with a product.
Many smaller eCommerce companies don’t necessarily have forty hours of work a week for a CSR.
This is where their tasks can often overflow into other areas such as shipping and logistics. In my previous business, maintaining adequate inventory levels at Amazon was a task we also had our CSRs perform.
Even if you only ever hire one person – a customer service rep – having this one person can assure the buyer that there’s going to be some level of continuity for existing customers and that orders are going to continue to be shipped. In other words, the cash register is going to continue ringing, at least in the near term.
As your business continues to grow and you start looking for a second hire, you’re probably looking for someone for your marketing and advertising department (yes! you can now say your small company has departments).
Marketing and advertising is a broad category and you have to be careful not to delegate too soon the tasks that are critical to keeping your company running. Managing advertising campaigns such as Amazon PPC, Facebook ads, etc. are the tasks I see entrepreneurs looking to delegate too quickly. Rather, I suggest a less critical role such as content creation and social media management.
What can this role of “content manager” look like? Here are some common tasks:
Most eCommerce companies are guilty of not creating and sending content frequently enough. Simply creating and sending content more frequently can lead to an easy increase in revenue.
As your company grows even more, you’ll likely look to hire either another CSR or someone specifically for shipping and logistics. You may also look for a bookkeeper to help manage the huge number of sales receipts you have at this point!
Often I see entrepreneurs making the mistake of trying to delegate high-value tasks first. The entrepreneur hates doing these tasks because they’re hard. Hard tasks are specifically the ones you need to keep for as long as possible and they’re also the ones a buyer will expect to have to absorb.
As I mentioned before, product development is one of the most important tasks for eCommerce companies. Whether it’s soliciting new drop shippers or developing a brand new product from the ground up, this is a task that is very difficult to delegate to a basic VA or other generalist.
Take a look at Apple. It is one of the largest companies in the world, yet it has failed to duplicate the success in product development that its founder had. This is because Steve Jobs kept a keen eye on this area.
By hiring just one or two key people – a customer service rep and a content manager – a potential buyer of your business will find ease in knowing that their acquisition will continue humming along even after you’re gone.
Even if you never plan to sell your business, delegating some of these basic tasks will create a more valuable business as you’ll have more time to focus on high-value tasks like product development.
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