No, this is not about Starbucks!  It is about Sellers that are not realistic, do not understand the market, do not understand the economic reality or even their own business marketplace, especially in relationship to selling their businesses!

You have no idea how many calls and e-mails we get each week – from E-commerce Owners, in particular – who have ten (10) people visiting their portals a day, earn a Net of $6.00 a month, have been in business for seven (7) months and want to sell for $500,000 in the name of “potential”.  What are you people smoking!?!?!?

(A.   We never said we were nice people.)

(B.    You may not like what we say, but we are painfully honest with our comments…)

We are not picking on E-commerce people, but we mention them because they seem to be the most exaggerated in their demands, since history actually did permit a greater amount of elasticity for the sale of such companies.  But that is just it:  It is history!

Several things affected the erosion of the E-commerce market.  First, it was the Dot-Com debacle of 2000-2001.  Market multiples in the sales of Internet-based companies of all kinds declined, markedly.  And the market in businesses of all kinds slid in a downward manner, simultaneously.

Second, the market crash of 2007-2008 caused a further erosion of business values of all kinds.  The resulting Revenue declines marked a complete change in the way Buyers and Lenders viewed market trends and what they looked at, in buying or funding acquisitions.  No longer will either party simply assume that a Revenue decline that has appeared to stabilize, will do so on a long term basis, and they will wait to be assured of that fact.  And no longer will a strong increase be viewed as a long term trend, until such a trend is proven.  This means that a startup will normally not be able to be funded, or even taken seriously by a Buyer, until it has proven it can (usually) withstand three (3) years of financial strength, fully supported by Tax Returns.

Third, funding has become much easier to obtain, in purchasing a business, since 2008.  But businesses without Real Estate or other tangible assets to convey, or Buyers without tangible assets for a Lender (and/or SBA) to use as security for the debt, are still difficult.  That lets out high multiples and startups.  Any loan secured by the SBA for more than $350,000 must undergo a valuation by an outside appraiser.  Again – this lets out high multiples!

Finally – and this is specifically directed at E-commerce Owners, although it is applicable to some, others as well – the market has softened, even in areas where growth is evident.  In fact, that growth is specifically why the market has softened.

What we mean here, is that E-commerce companies have experienced exceptional Gross Profit Margins, until relatively recently.  But with the increase in the number of such companies, even some of the most mature, some of the most immense E-commerce companies have seen a reduction in their Margins.  This is common in any industry where competition grows quickly, and E-commerce is not immune to such an impact.

Even if your business has not been adversely affected in this area, if it is happening to the industry leaders, Buyers will assume that it will undoubtedly catch up with yours, sooner or later.  And they will either offer a radically low amount for your business, or (fearing they might insult you,) they might walk away without ever making an offer.

THIS DOES NOT MEAN THAT E-COMMERCE IS BAD!

IT DOES NOT MEAN THAT BUSINESSES CANNOT BE SOLD!

In fact, the market is very robust, right now.

But what is does mean is that the Sellers have to be reasonable with their expectations.  They need to understand the pressures that are endemic in their markets.  And they need to understand that – again, back to E-commerce, in particular – they may have to take a note for a fairly large portion of the financing of their businesses.

The times, they are a-changing, and every-changing.  We need to keep ahead of the curve and change with those times.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

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