Inventory Internet Business
Range For Purchase Price As A Multiple Of Cash Flow
Update: 1st Quarter 2009 Buy The Numbers – Inventory Internet Business
What Inventory Internet Market? Perhaps a bit caustic, but the current market is not the early 2008 market. Multiples have softened to a 1.7 to 2.8 range; and the time on market which was normally seven months on average has extended to something over one year.Sellers also need to offer financing. The HELOC (home equity line of credit) that Buyers depended on to make an Internet Business Opportunity has disappeared. Even Buyers with above a 720 FICO score are not scoring financing.The recent increase of SBA financing contained in the Obama Stimulus package may have an affect in the 3rd Quarter of this year. SBA financing had typically become available for Inventory Based Internet Businesses.———————
Update: 1st Quarter 2008 Buy The Numbers – Inventory Internet Business
The Buyer’s Market that began in 2Q 2007 continues into 2008. I had projected that we would return to the Seller’s Market, which had pervaded from early 2003 until the middle of 2007, by late 2007.The prevailing economic sentiment and tight money continue to play in favor of Buyers.The present multiples for a Inventory based Internet Business Opportunity have declined slightly to a range of .8 to 2.5.The SOLD Internet Business Opportunities indicate that some Internet businesses, in the Inventory category, with less than three years of history are selling for .4 to .8.———————
Update: 2nd Quarter 2007 Buy The Numbers – Inventory Internet Business
The trend shifted this quarter to a buyer’s market. The current range is now 1.2 to 2.8.
Sellers with 3 years or less of provable income will fall to the lower end of the range; while more mature niche sellers will garner near the top of the range. One example is a niche Internet Business Opportunity that sells wooden wagon wheels, and other wooden products, made by Amish communities. They have been in business for seven years and have long established relationships with the makers of the products they sell.———————
Update: 12/23/06 Buy The Numbers – Inventory Internet Business
During the 2nd quarter of 2006 the number of buyers seeking inventory based eCommerce businesses has increased; while at the same time the number of inventory eCommerce businesses for sale has decreased. This cause and effect has strenghtened the valuation multiple by .5 to .7 of a point. The current range is now 1.7 to 3.4.
I would expect these higher multiples to remain throughout the year, and into the first quarter of 2007. Most potential sellers I’m working with in this category are noting 20% to 40% sales growth year over year (comparing 2005 to 2006 for the same period).On another note, see PPC Income for a slight downward trend in valuation multiples.———————
June 18, 2006 Buy The Numbers – Inventory Internet Business
1.2 to 2.7 is the current multiple of ACF when buying an E-commerce inventory based business.This article refers to a “buyer” acquiring an E-business. This is quite different than an “investor” buying an E-business. A buyer\’s focus is on the historical information to determine value. An investor\’s focus is on the future of an E-business to determine value. An investor focuses on a “future” multiple of revenue or profits. A “buyer” does not. The “value” of an E-business to a “buyer”, as with any other type of business, is based on a “multiple” of “revenue” or “adjusted cash flow” (often referred to as Seller\’s Discretionary Earnings, or SDE). To determine the “adjusted cash flow” (SDE) you review the historical expense of the business to determine what costs are at the “discretion” of the owner. Some examples of discretionary costs of an E-business are auto payments, health insurance, trips to Jamaica (wink), cleaning services (the housekeeper is NOT a required expense of a business) and long distance phone expense.
These “discretionary” expenses are “added back” to the profit side of the E-business.Once a buyer has determined this “adjusted cash flow” he can apply a “multiple” to assign a purchase value to the E-commerce business.An E-commerce business that sells and product, and retains inventory of that product to fulfill customer orders, is valued at a premium compared to a “brick and mortar” store selling the same product. The multiplier ranges from 1.2 to 2.7.
Time in business and extent of competition are key determiners that affect whether the value will be at the low, or high end of the range.Note, included in the valuation is a typical amount of inventory. Many inventory based E-business owners carry “excess” inventory. It seems they view inventory as a form of “savings account”. This is not an efficient means of running the business. The buyer and seller need to work closely to reduce this excess prior to closing the transaction.
Related Listings:
During the 2nd quarter of 2006 the number of buyers seeking inventory based eCommerce businesses has increased; while at the same time the number of inventory eCommerce businesses for sale has decreased. This cause and effect has strenghtened the valuation multiple by .5 to .7 of a point. The current range is now 1.7 to 3.4.
I would expect these higher multiples to remain throughout the year, and into the first quarter of 2007. Most potential sellers I’m working with in this category are noting 20% to 40% sales growth year over year (comparing 2005 to 2006 for the same period).
On another note, see PPC Income for a slight downward trend in valuation multiples.
Update: 2nd Quarter 2007
The trend shifted this quarter to a “buyer’s market”. The current range is now 1.2 to 2.8.
Sellers with 3 years or less of provable income will fall to the lower end of the range; while more mature niche sellers will garner near the top of the range. One example is a niche Internet Business Opportunity that sells wooden wagon wheels, and other wooden products, made by Amish communities. They have been in business for seven years and have long established relationships with the makers of the products they sell.
Update 1Q 2008:
The Buyer’s Market that began in 2Q 2007 continues into 2008. I had projected that we would return to the Seller’s Market, which had pervaded from early 2003 until the middle of 2007, by late 2007.
The prevailing economic sentiment and tight money continue to play in favor of Buyers.
The present multiples for a Inventory based Internet Business Opportunity have declined slightly to a range of .8 to 2.5.
The SOLD Internet Business Opportunities indicate that some Internet businesses, in the Inventory category, with less than three years of history are selling for .4 to .8.