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How Do You Value Your Inventory for An E-Commerce Business?

Posted by Bill Gustin in Articles

Deciding how to approach the process of selling your e-commerce business can be overwhelming or even confusing if you don’t have the assistance of a knowledgeable website broker to guide you through. Inventory is no doubt required to run your business and you have probably established clear systems and processes to help you stay on top of all of that inventory.

It is frequently the case that you would include a normal level of inventory in the purchase price of your company when you decide to sell your e-commerce business. The primary purpose of this is to make a good faith effort to allow the business to sustain current revenues already being generated by the company.

This means that everything over this normal amount that you include in the purchase price has to be bought by the buyer in addition to the underlying business valuation. There are several different factors that must be incorporated in your consideration of your inventory cost, including:

  • Taking an inventory count and adjusting the sale price up or down prior to closing the sale with another party.
  • Valuing the inventory at cost. You also have the option of coping with an inventory amount that is higher than the normal level, which means that you might need to negotiate a price over that level.
  • Decide how the cost of the inventory will be factored into the sale using a percentage of retail price, the original invoice or a professional inventory firm.
  • Consider that not every piece of inventory is the same. Broken, aged or no longer in use inventory has to evaluated individually to determine if it could be sold and the price for these items would need to be negotiated separately. Frequently, this occurs by discounting the portion of the inventory, but this can also happen when the seller finances a portion and then the buyer pays for these items when it sells.

There are many different factors you can incorporate into the process of fine tuning and tweaking your business to prepare it for sale. The following factors can significantly enhance the value of your business beyond the inventory and current sales;

  • Predictable drivers of new sales.
  • A clean legal and financial history.
  • A high percentage of repeat customers and sales.
  • Traffic statistics that indicate a long history and regular traffic to your site.
  • Reliable and established inventory suppliers with back up suppliers established.
  • Potential for growth.
  • Documented processes and systems that are not reliant on you as the business owner.
  • A brand that has no legal, copyright or trademark concerns.

When thinking about selling your business, partnering with an established e-commerce sales firm can help you to accomplish many of your sales goals. A website broker should be familiar with the common tactics used to arrive at multiples, how to list your company online for sale, and how to vet potential buyers against who should make the short list for consideration. There are a lot of different factors that go into listing your company for sale, but you want the peace of mind and the confidence that your business broker is handling these processes as effectively as possible.