Imagine you’re trekking through a jungle. You have a huge, heavy, sharp, and cumbersome machete with which you are hacking away at the obstacles blocking your route. It’s grueling, backbreaking work, and you’re sweaty and struggling. You’re just barely moving forward.
Now imagine that you’re with five other people, who happen to have a variety of more effective tools, and all of them are in front of you hacking a path. Will your trek through the jungle be easier?
This example perfectly illustrates what you have to do if you’re trying to sell your ecommerce business. When buyers have a built-in path to growth, they don’t feel like they’re stuck in the jungle, barely able to move past everything in their path. They feel supported by your efforts, having the right tools and resources to move forward and they will pay more for your business.
For a business to sell, there has to be an additional perk for the buyer – that perk is growth. Not only growth but a clear-cut road to growth. To maximize your business’s value from their perspective, you need to consider five levels of growth.
#1: Top-Line Trends
The first place a buyer will expect to see growth is with year-over-year revenue. That means the worst time to sell is when your numbers are lower than last year. In this case, your best bet is to increase the trends to at least match the prior year or brace yourself for serious buyer concerns.
What kind of trends do buyers expect to see? At about 24 months old, a business should display colossal year-over-year growth. It’s in its infancy and should be just starting to take off. Businesses that are five and six years old should show growth, just not at the same pace as the first few years. Obviously, the more growth of the business relative to its stage – the greater the buying incentive.
For the seller, a three or four-time multiple may be an excellent payday. For the buyer, a three or four-time multiple means it will take three or four years to break even if revenue stays flat. However, a business that’s growing at 25 percent a year and selling at a 4x multiple will pay back the buyer’s money in 2.7 years—assuming the 25 percent growth continues.
#2: Seasonal Growth
Two years ago, I sold a steadily growing business that earned 90 percent of its revenue in November and December. Their value came in around $2 million, and we sold it to a buyer who used SBA lending.
Because we knew buyers look at seasonality, we focused on preparing the business for sale and listing it in the summer. This way, the buyer would get their windfall shortly after purchase to sustain them through the next year. We closed the transaction in mid-October, and by January 1 the buyer had a considerable amount of money in his bank account.
Timing your sale with seasonal growth lets you hand off your business at its peak, and that’s appealing for a buyer. You’re not trying to squeeze the last bit of revenue for yourself—you’re preparing the business for the next person who will own it.
Let them start on the upswing instead of at a disadvantage. Trying to sell just after your seasonal peak will be a tougher sell and it may not sell at all.
#3: Growth Opportunities
Buyers aren’t looking for an ATM to dispense their income. Most of the time, they want to make an investment, grow that investment, and eventually sell it for a higher value. For that to work, there must be some untapped growth.
What does your customer base look like? Is it a small amount that you’ve already captured, or have you secured 2 percent of something enormous? Assuming the opportunity for growth exists, how clear is the road to opportunity?
If you have 16 stable SKUs, are there more the buyer can launch over the next two to four years? If there are 10, do you have a path for the buyer to launch three more in the first 12 months? What can you bolt onto your SaaS business that will keep customers coming back, paying more the next year, and the next, and the next?
In terms of getting your buyer a solid return on their investment, these paths to growth are crucial. Buyers are much more willing to hand over money when they can see the business’s overall path.
#4: Built-In Paths to Growth
A few years ago, I sold a business with 16 SKUs, seven of which had been launched in the six months prior to listing the business for sale. In just 6 months, those seven SKUs represented 20 percent of the total trailing-twelve-month revenue.
All the buyer had to do was close on the business and wait—all seven SKUs were going to create significant growth in the next few years. The path was clear, and it was already built-in.
The buyer of that business tripled revenues in the 12 months after his purchase. The seller achieved his own financial goals and moved on. Sure, he may have left some money on the table, but he slept well at night, was debt-free, and was able to move on to his next adventure unencumbered.
Any buyer would be hard-pressed to find a more exciting growth opportunity than the one already cleared and built-in. Don’t be afraid to do some of the clearings for the next owner. Launch some new SKUs, add content, or tweak the code to boost monthly recurring revenue. Whatever your business model, buyers will love it more if there are built-in paths to growth.
#5: Investment Opportunities
Think twice about making a substantial investment three months before you list. It could be a really good investment, but if you won’t earn back that money while the business is still yours, skip it and let the buyer decide.
Hold onto those opportunities and make them part of the growth plan for the coming year. You might even rank them in terms of potential return on investment, risk, cash outlay, the time it takes to get it back, and how labor-intensive it will be.
Then it becomes a path to growth that the buyer can choose to pursue. It’s not something you’ve locked them into – at no benefit, or at a negative benefit to yourself and potential risk to them.
To buyers, having a clear path to growth is hugely important. Remember, it’s a jungle out there, and it’s up to you to make sure they aren’t forced to slog it out alone with nothing but a machete to help them.
Simply put, clear the paths so the next owner can view the lucrative growth that lies ahead. If you don’t, you’ll have a hard time selling your business for the value you want.
For more advice on how to sell your business for maximum value, you can find The EXITPreneur’s Playbook on Amazon.