How to value an ecommerce business.

Start with profit a new owner can reproduce

Bring together monthly trading records for at least the last year, with earlier periods where available. Reconcile store sales to payment receipts and accounts. Make refunds, discounts and tax treatment visible, and use the same reporting basis throughout. A good month should not hide a weak season.

Then work through the costs of running the brand: products, freight, fulfilment, payment fees, returns, advertising, software, people and overheads. Separate costs that would continue under new ownership from genuinely exceptional items. If the founder does unpaid work, show the role and the likely cost of replacing it.

Seller’s discretionary earnings (SDE) is an earnings measure used in discussions about owner-operated businesses. EBITDA means earnings before interest, tax, depreciation and amortisation. Do not compare a price based on one with a benchmark based on the other. Agree the definition, accounting period and adjustments first, and have an accountant review them.

A worked example: the replacement cost matters

Imagine a brand reports £120,000 annual operating profit before any pay for its founder. The founder manages buying, customer service and marketing. A buyer estimates that replacing those responsibilities would cost £45,000 a year.

On those simplified assumptions, the earnings available after replacing the founder would be £75,000. That is a different starting point from £120,000. The example illustrates a cost adjustment; it does not establish a market price, a recommended multiple or the value of your business.

Explain what makes those earnings dependable

A buyer needs to understand why customers choose the product and whether they will keep doing so. Look at repeat orders, returns, discounting and margin by product, rather than relying on a single blended growth number. Show how much new-customer demand is paid for and whether it remains economical after fulfilment and returns.

Map concentration: the biggest sales channel, supplier, product and customer group. One strong channel can be valuable, but the consequences of losing it should be visible. Supplier continuity, ownership of brand assets and a documented operating routine help a buyer judge how much can transfer.

Treat stock and working capital explicitly

A profitable brand can still require substantial cash for its next stock order. List inventory by SKU, quantity, landed cost, age and condition. Separate saleable stock from slow-moving, damaged or obsolete units. Retail ticket price is not a substitute for an agreed inventory valuation.

Ask whether stock is included in the headline price or paid for separately. Also identify deposits, outstanding orders, supplier balances, refunds and other operating cash requirements. The transaction documents need to explain what is delivered at completion and how any adjustment is calculated.

Compare offers on more than the headline price

Write out the amount paid at completion, any later payments, the conditions attached to them and the work expected from the founder after the sale. An earn-out is a payment linked to future performance. A higher headline amount with uncertain later payments can produce a different outcome from a lower amount paid upfront.

Public listings show asking prices, which may differ from completed transactions. Even completed-sale benchmarks can reflect different countries, business sizes, earnings definitions and inclusions. Use genuinely comparable evidence as a discussion aid, then assess the specific brand and the offer terms.

Prepare a valuation brief you can explain

Put the key records in one place before approaching buyers. A useful brief makes the current position clear, distinguishes proven performance from growth ideas and identifies what you do not yet know. That is more useful than choosing a multiple and working backwards to justify it.

• Monthly profit and loss, with reconciled sales and payment records.
• A written explanation and evidence for each proposed earnings adjustment.
• Stock ageing, supplier terms and the next purchasing cycle.
• Channel and product concentration, customer behaviour and founder responsibilities.
• Your preferred involvement after a transaction and the outcome you want.