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What You Need to Know About the Multiple Of Seller Discretionary Earnings

Posted by Digital Market Group Adams/Freedman in Articles

Understanding seller discretionary earnings is extremely important when you are listing a website or an e-commerce business for sale.

Here at Website Closers, we have extensive experience helping you to determine the most appropriate valuation methodology so that you can charge the maximum multiple and receive a high profit from selling your company.  Many e-commerce business valuations will look at historical earnings of the business.  This is known as the net profit of the company for a minimum of the previous 12 months.  From that point, once the number is obtained, a multiplier is applied.  Some calculations can put the multiplier as high as five to determine the company’s valuation.  

Who Determines the Multiple?

At Website Closers, we sit down with you to explain how the valuation process works, as well as what you can anticipate when we help you to sell your company.  We believe that you should be kept informed about proper valuation methodologies.

Some companies or online business brokers might only charge a multiple of between 1.5 and 3.5, minimizing the possible opportunity for a return.  How your multiplier is determined is based on several different elements that buyers, sellers, and brokers will all agree are relevant.

A few of the most important factors to be aware of in advance before deciding to sell your business can help you to figure out what you can anticipate with the business valuation process.

Some of these factors include consistency, scalability, revenue growth in the business, and the amount of work required to operate that business.  The more pre-work you have done in advanced to remove yourself from the company and to enable other people to stop in and manage it can be extremely helpful.  The more favorable the factors that are presented, the higher the multiplier you will be able to achieve, and therefore the higher your valuation.  In these circumstances, it pays to have the experience of a knowledgeable online business broker who has been working in the field for many different years.

There are so many different valuation factors that go into determining an e-commerce business.  One of the most important of these is traffic because this is the heart of your online company.  You wouldn’t be able to make any sales if you didn’t have consistent traffic.

Putting some work into developing your traffic sources in advance is very beneficial.  Operations and other financial details can be helpful for illustrating the true value of the company, like supplier agreements, the underlying cost structure, product concentration, licenses and trademark, payroll, assets, liabilities, and future commitment.

Understanding how all of these different factors can contribute to the amount of money you charge when selling your business is extremely helpful and can give you a lot of peace of mind.  Our online business brokers work hard from the moment you contact us to help explain to you what you can anticipate so that you can make an informed decision about what to do next.