The more cash flow an ecommerce business generates, the more that business is worth to potential buyers.
You built a solid ecommerce company. You put in countless hours. You’re proud of what you’ve accomplished, but you want to move on. You’ve decided to sell your business.
What can you do to maximize the sales price?
Think about it from the buyer’s perspective.
Buyers view your business as an investment. They are calculating how quickly they can recoup their investment and much more money they could make.
In short, they are most interested in cash flow. They are looking to invest in a company that will produce more cash than other alternatives, including other businesses.
Profit is different than cash flow. Profit includes noncash expenses such as depreciation on fixed assets. Potential buyers care more about the cash that ends up in the bank.
Here are four actions to boost the cash flow of your business.
4 Ways to Boost Cash Flow
Raise prices. Small business owners are often hesitant to raise prices because they are afraid of losing customers. This may be true for commodity items that are sold in many places. For those items, customers can simply go somewhere else to get the same product at a lower price.
However, if your product is unique, and your customers have shown that they value what you offer, raising your prices incrementally will likely not scare them away.
In fact, the opposite may be true. It may even increase the perceived value of your product.
You don’t know how much your brand is worth until you raise your prices.
Increase ROI from marketing. Take a close look at your marketing expenditures. Determine which channels produce the highest return on investment. Focus your efforts there and discontinue poor performers. Do not necessarily decrease your overall marketing budget. Simply refocus it to top performing campaigns.
Moreover, converting cold leads to customers typically costs a lot of money. It pays to resell and upsell to your existing customers as much as possible.
Repeat customers are your best customers. They know your product and don’t require advertising dollars to entice. If they are satisfied with prior purchases, they are likely to buy from you again.
Reduce cost of sales. Evaluate your cost of sales regularly. This includes the cost of goods (inventory costs) and your shipping costs (picking, packing, and shipping fees).
Look for ways to reduce each of these. For inventory, negotiate better pricing from your vendors. Consider other suppliers if necessary.
Examine shipping costs. Request discounts from your shipping carriers. Run lean shipping operations to avoid unnecessary fulfillment costs and excess transit fees, such as dimensional weight fees, weekend delivery, and improper addresses. Remember, money spent on shipping reduces cash flow (and profit).
Reduce overhead expenses. Overhead expenses can add up quickly. Scrutinize the efficiency of your operations and identify excessive expenses, to reduce.
One example is payroll. As a business matures, the owners often hire too many employees in my experience. Review your staff. Every employee should be improving cash flow and profit.
Frequently, software subscriptions, trade memberships, and other recurring payments can be downgraded or discontinued to reduce overhead and preserve cash.
Cash Is King
The adage of “cash is king” has never been truer, especially when it comes to selling a business. To attract potential buyers for the maximum selling price, start now to increase cash flow.