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The Significance of an Exit Plan

Summary

You’re an ecommerce business owner. Your earnings and profit are increasing. In “Ecommerce Trends Point to a Bright Future,” we affirmed the business is growing and solid. Why on earth would you consider an exit strategy? First, let us define”exit […]

You’re an ecommerce business owner. Your earnings and profit are increasing. In “Ecommerce Trends Point to a Bright Future,” we affirmed the business is growing and solid. Why on earth would you consider an exit strategy?

First, let us define”exit strategy.” Typically, it means the sale of your company. It can also simply mean taking yourself from daily operations and promoting or hiring an executive team to handle the company. Even in the event of a sale, you might stay involved in the company in some role. Exit plans take many forms. But typically, they involve owners cashing out and moving on to a new phase of their lives.

Reasons For Having an Exit Plan

Here are reasons why you must always consider your exit plan — even for those who don’t have any immediate intention of promoting your company.

  • Unusual offers may come up. Since the ecommerce industry becomes more competitive and bigger players search for expansion through acquisitions, smaller businesses may search for mergers to get a bigger market share and purchasing power.
  • Health or family crisis. Sudden illnesses or household issues take some time away from the focus on your business.
  • Economic change. A recession may negatively affect your company.
  • Technology trends shift. If you’re not making the transition to mobile devices, you might be left in the dust.
  • You need choices. Should you choose to sell, you’ll wish to have options prior to selling to a competitor at a very low value.
  • Age. Sooner or later, you might want to retire and you’ll want to catch the value of your organization.
  • Product trends change. Many small ecommerce companies are highly dependent upon a single product or product line. A change in trends may decrease your revenues.
  • Tear and wear. In my case, I just grew tired of the sameness of handling a midsize ecommerce company. I wanted to do something different and reap a few of the benefits of my hard work. I addressed it all in “Ecommerce Owner Sells the Company; Explains the Procedure.”
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What would you do if you have an unexpected call, with an offer to buy your organization? In case you have an exit strategy, you’ll have the ability to have a meaningful conversation, with an understanding of your business’s worth.

Why Plan Your Exit?

It requires more than placing a listing on BizBuySell, BuySelleBiz or employing a business broker. Consider selling your house. The most common advice is to make big repairs, paint the house, spruce up the yard, and eliminate clutter. Probably, you will still need to engage a professional agent who knows valuations, regulations, and contract negotiations.

Determining a Value

There are several factors that affect the evaluation and overall marketability of your organization. A successful sale of your business will depend on how you’re executing these crucial factors.

  • Net cash flow. For many small companies, the single most significant element in its own valuation is the net money that’s paid or accessible to the owners in the shape of salary, distributions, or other compensation, such as company car, telephone allowances, and company club memberships. Typically the total value of your company is a multiple of your internet cash flow.

    By way of instance, if your net cash flow is $100,000 and your company is the industry leader, has consistent traffic and revenue, has a fantastic infrastructure and organization that’s self-sustaining with no skills or direction, you might have a multiple of up to seven times your cash flow — a valuation of $700,000.

    Conversely, if your revenue is falling, the majority of the company knowledge is in the operator’s head, and you’re operating the company with a 10 year old online store, your multiple might just be 1.5 times cash flow, or $150,000.

  • Shop traffic, sources, and trends. It’s important to have consistent and developing traffic, page views, time on site, and all things associated with visitors. Your visitors sources are equally significant. You need to demonstrate diversity without having a enormous dependence on a single referral source.
  • Products and stock. What’s the breadth and depth of your product line? What are your gross margins? How strong is your supply chain? What is the evaluation of your inventory and what’s the turnover? How many obsolete, unsalable goods are available? How do you eliminate them?
  • Customer base. Buyers want to understand your client base. What’s your conversion rate for new clients? What is your retention rate for present ones? What is the lifetime value of a client? How many times a year do they purchase? What is the chance to get more revenue per client?
  • Revenue. Beyond gross earnings, buyers want to comprehend your average order value for new and present customers. They wish to look closely at trends and understand seasonality, market trends, and product trends.
  • Search advertising metrics. Search engine optimization and pay-per-click campaigns are vital to the success of the majority of ecommerce businesses. Search positions are huge. The thickness and scalability of your PPC campaigns are also quite important.
  • Likes, followers, and readers. Social networking presence is a large element in ecommerce. The dimensions of your following isn’t quite as important as the influence from the various outbound marketing platforms. Buyers will want to determine the amount of Facebook Fans and understand the effect of your interactions on purchases. The same goes for Twitter and Pinterest. Email advertising in ecommerce still provides the maximum rate of conversions and will be evaluated carefully.
  • Online store. A huge element is whether your website is current. Including the overall design and, furthermore, includes navigation and search, personalization, merchandising, and the overall customer experience. Support for tablet computers and smartphones is crucial. If a buyer is looking at a significant website redesign or platform change, your evaluation and general scalability will be adversely affected is the website isn’t mobile friendly.
  • Infrastructure. This is your personal computer system, ecommerce platform, fiscal system, order management, offices, warehouse, and telephone systems. An integrated and well-supported infrastructure will add value to your organization. One which is held together with duct tape, so to speak, won’t.
  • Organization. This is a massive element for mid-sized companies. If you’ve got more than a few workers, buyers will want to know how much of the company can be conducted by the present staff and whether they’ll have the ability to retain that employees.
  • The owner element. I’ll end up with the biggest factor. Buyers want to know whether the company is self-sufficient with no owners or how long and effort it takes to replace the owners’ contribution. If your purchaser is in the company, this is less of a factor. For those who have a buyer who’s new to ecommerce, this is enormous.

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Conclusion

There are lots of moving parts that will affect your company’s valuation. Arranging a strategy to offer your company starts with assessing potential buyers and what’s going to be important to them. Then assess your strengths and weaknesses with each of the main factors discussed above. Collect all of the facts and information for each variable and include it in a prospectus, probably with the support of a broker. At that time, you can estimate a valuation. If it’s too low, invest some effort into enhancing the essential factors or in increasing your net cash flow.

The most prosperous exit strategies are those which were planned years ahead of time. Often, they leverage one or two important factors like profits, customer experience, supply chain, or business. Think about an exit strategy for your company and plan ahead. You can then decide when to behave.

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