Forum Moderators: buckworks
As for training, it will depend on what the buyer wants. Training time or documentation is usually implied in the sale price, however some companies want more or even want to hire you on a salary for a pre-determined amount of time to make the transition as smooth as possible. The buyer will always make their wishes clear so I wouldn't worry about it, just include some training time in the sale price as well as your own time to be on call for a month or two.
A business broker or intermediary would say, "A business is worth what someone is willing to pay for it" but of course this is only the first rule - there are many ways to value a business such as book value, discounted cash flow, multiple of earning, etc. - the easiest but least accurate would be the multiple of earnings - just take your net profit before taxes and multiply by a number - I like 4 - but if you are running a poor business it may just be a 1 or 2 - if you own a popular patent, etc. it may be a 16. Anyway, this is only the tip of the iceberg - I own 6 or 7 books on buying and selling a business because I have been on both ends myself. Keep building your own business, create systems, keep accurate records, become more profitable and perhaps you will make a pretty penny - most busineesses that are put on the market never sell but even if yours does not you will have a better run and profitable business because hopefully you started improving the business a year or so in advance so the business will fetch more money on the open market. Buy 5 books on the subject from different authors with different views and you will become an expert - look at what other businesses are selling for in your category. Good luck!
Still, interesting to see that you can buy a developed shop on Ebay for £99 these days!
That's what most ecommerce businesses are worth, but I see asking prices way beyond all the time -- especially from brokers. I have no idea whether they are actually getting what they are asking.
IMHO, the most common mistakes people make in placing a value on ecommerce businesses is overestimating the value of software (i.e. a pretty website), and making a valuation based on revenue. Usually, the most valuable items are 1) unique supplier reationships, 2) organic traffic, 3) customer loyalty and/or store brand presence. Revenue is largely irrelevant (PROFIT is what matters), and just about any software can be replaced for a few thousand dollars.
I disagree with you pdivi in the statement above. A dry cleaner can have just as much risk as an ecommerce site. For instance, another dry cleaner could open nearby or an anchor tenant could move out of your shopping plaza, a landlord could not renew a lease. I think that ecommerce is now mainstream and deserve the same multiples as other businesses. However, there are different types of businesses in brick & mortar just as there is in ecommerce - this is where you should draw the line in creating different multiples. Of course, we both know multiples are not the best way to value a business - there are better methods...
You make great points in your last paragraph (unique supplier relationships, organic traffic) and we are in total agreement where profit is concerned.
One years profit plus stock at valuation.
ive used that formula to buy simple businesses like Newsagents, record shop and an antiques business.
