2021 could be a successful year for e-commerce business owners looking to sell. With U.S. e-commerce sales up 40% in 2020, according to Digital Commerce 360, buyers are circulating.
Gary Huang, a quarterly e-commerce retailer on Amazon and eBay and founder of 7-Figure Retailers Collection, an ongoing free community event, says one of the biggest trends is year investors desire a funded institution like the unicorn Thrasio in buying and consolidating small e-commerce stores. Buyers in this sector have been raising money to invest since around 2018 but the trend has picked up in recent years, he says.
E-commerce store Gary Huang, founder of 7-Figure Retailers Collection
7-Figure Vendor Collection
Many are targeting Amazon businesses, he says. Institutional buyers will be like Amazon stores because they tend to generate stable money, he says. “Every fortnight, you get paid from Amazon,” he says.
Why is there so much interest now? “Because e-commerce is thriving,” says Huang. “In the pandemic, many consumers are switching their money online.”
That trend is expected to continue, as new groups of customers continue to aspire to e-commerce. “Americans over 65 are the fastest growing group of online shoppers,” notes Huang. And with the pandemic being a “growth serum” for businesses on Amazon, which controls nearly a third of online sales – buyers are recognizing that the trend is set to continue.
At the same time, with many brick-and-mortar retail chains filing for breach protection “online is far better than wholesale offline right now,” Huang said. “Investors understand this.”
That is good news for small e-commerce business owners. “For a one-man business, this is their most valuable asset,” Huang said. “It could be worth more than their car or home. By selling their business, this could be the biggest income they can ever get. “
If you run an e-commerce business, how do you make the most of the move? Here is some advice, based on my conversation with Huang.
Consider whether you are willing or able to invest the capital to grow your business. Many business owners with growth potential are finding that it will cost them more than they think will take their store to the next level. “To get from the seven to eight-figure level takes a lot of money,” Huang said. “There are a lot of entrepreneurs who are not willing to make that investment.”
Understand market trends. The most popular segments of online sales right now are baby products, health and fitness, and exercise gear, Huang says. Less desirable are fashion, which has been in decline, and electronics, which has thin edges, Huang says.
Go beyond that same killing result. Buyers tend to avoid stores that have a single “heroic” product that generates the majority of their sales, according to Huang. “You have to multiply,” he says.
Make sure you can make a strong financial case for your business. Successful sellers typically have a steady sales or growth above $ 1 million per year and actually $ 3-5 million, he says. These vendors typically price their business based on a 12- to 24-month trial sale. “You have to have strong performance,” Huang said. “They like hard edges at least 30% profit.”
It is essential that records are kept. Vendors looking for buyers have a ready profit and loss statement, balance sheet and other charts. “You need to have clean books and know your numbers,” Huang says. Retailers with attractive industries are seeing multiples of 2.5-3.5 earnings before interest, taxes, depreciation and interest (EBIDTA), he says.
Find out if your business can grow. Many institutional buyers want similar businesses to roll up and merge into one larger business, according to Huang. Buyers are looking for small stores that offer some room for improvement. “They want to make them more efficient and take advantage of economies of scale,” he says.
Their finishing game, he says, is to boost the valuation of the businesses by doing things like increasing the size of the average festival and moving them later, he says. If you can’t invest in doing so through more advertising but there is potential, your business could be attractive to a customer.
Be honest. Make sure you stay up to date with any challenges in the industry. “Buyers don’t like surprises,” Huang said. Markets can fall through if buyers don’t comply with Amazon rules and, for example, have asked for rave reviews or used many discounts to generate sales. “They are not sustainable from the buyer’s point of view,” Huang says.
That said, if you have all the pieces in place, it’s a good time to talk to a business broker, he says. “A lot of investors have money and are ready to buy it,” Huang said.