Business Valuation Blog | Understanding Buying / Selling a Company

What happens when an appraiser is valuing an online retailer?

Posted by Business Valuation Specialists LLC on Jun 27, 2018 10:23:00 AM

When you work in ecommerce, determining the value of your business can be a difficult proposition. Because the industry is still relatively new, it doesn't have decades or centuries of processes already available, making it more difficult to determine. But valuing an online retailer isn't impossible. It does require a particular skillset, methodology and approach that is unique to that industry. One of the most common questions we receive from clients in all industries is what happens during the appraisal process. Here's a quick look at how the process works when an appraiser is determining the value of an online retailer.


What happens when an appraiser is valuing an online retailer?

Businesses that engage in ecommerce have their own unique set of challenges when it comes to determining value. To start, there are any number of different setups for this type of business, from someone's garage-based business selling second-hand clothing to megasites like Amazon or eBay. The business may be strictly website based only, may have a hybrid model that sells both at brick and mortar stores as well as online, or could be just entering into ecommerce after many successful years as a business that has functioned only as a brick and mortar store. It may sell items that are kept in physical stock at a location owned by that business or may use third-party logistics and drop shipments to provide material goods to their customers, or may not provide any physical goods at all, providing ebooks, music or other media electronically.

To account for all these differences requires a specific approach, as does the reason for the appraisal. In some situations, such as legal proceedings, a specific methodology is required to determine value that will hold up in court. The appraiser will often take a look at the company's assets when there is significant value tied up in stock and digital equipment. The value of the company's branding and digital presence will be taken into account, which are often considered to be intangible assets. Business income and growth are also strongly considered, especially when a business sells digital media or services that may not be counted the same way that physical stock may be.

The business valuation specialist will also consider the market and your business' place in the industry. Does your business have a reputation for innovation or is it just one of many in the market that meets the same basic needs? Do you offer exceptional customer service, free shipping, free returns or other aspects that improves your company in the eyes of your customers and builds loyalty to your business? Are you focused on serving a specific industry or the general public? All these aspects will impact your business value.

By having a solid grasp of how the process of valuing an online retailer works, you can ensure that the appraiser you're working with is doing a great job at calculating your business value. One of the best ways to make sure you're working with a good appraiser who will provide you with a solid valuation report is to check whether they're certified and have experience in online retail. The certification process ensures that they have received the education needed to select the appropriate calculation methodology for not only your industry, but also your specific situation. 

Topics: valuing an online retailer