Thomas Smale is the Founder of FE International – an M & A advisory services consultancy for mid-market SaaS, eCommerce and content businesses. FE International has completed over $100M in sales across 500+ acquisitions since 2010.
Thomas needed an additional source of income whilst in college; it led him to start buying and selling websites. He started to write about the subject and his firsthand experience and eventually switched from teaching about the subject to actually helping businesses with acquisitions.
This is what led him to start FE International in 2010. The company moved from London to a Boston MA head office in 2015, in order to cater for their mainly U.S and Canada client base. Their current focus is increasing the number of personnel for their thriving business.
Most of the clients are in the United States and Canada. There is a large entrepreneurial market in the United States which makes it their most profitable market.
When building a business with an exit in mind, there are some things you need to have in mind.
The main focus of the business should be making revenue then going after profits.
The products you choose will determine the profitability of the business and you should pick those that sell. Avoid going for emerging trends as they are usually short-lived. Do not base your business on one product but instead, go for a range of products. However, you should also avoid having too many products. Sell products uniquely to attract more customers.
Work on building your brand and business. You cannot sell a business that is failing and is not known. A business that earns profits is desirable to buyers. On the other hand, those that have more liabilities than assets will make buyers reluctant to invest in the business.
There are several assets that increase the value of an e-business. They include having a mailing list and having a strong social following.
Traffic is also important though does not determine the value of the business. However, the source of traffic is a huge determinant. For instance, traffic from Facebook ads does not have as much value as that from mailing lists.
It is important to note that the stock valuation is not included in the business valuation as it is completely different.
Everyone can buy a website from the marketplace which raises the question why it is better using a broker.
From a buyer’s perspective, it is a safer way of getting a legitimate business. If you buy from the marketplace, you are at a high risk of encountering deceitful sellers. These are sellers who will mask their productivity and give false revenue and profit numbers. You will end up buying a business then realize that you have been conned. The main reason for this is that the details provided at the marketplace are not verified.
When you buy from a broker, they control the whole process. Good brokers will verify all information and ensure they put your interests first. You are more likely to get a legitimate business with brokers and you have someone to go to in case there are any issues.
Having processes means the business makes more revenue and you will make more profits as a seller. As a buyer, you will find a business that has processes to be more desirable.
Without processes, the seller will have to spend more time training the buyer on how to manage and run the business instead of focusing on other ventures.
Contrary to popular belief, when buyers purchase a business, they prefer working with the existing staff. It is even easier when remote staff are involved since the transition from one owner to another does not affect them and the work continues as usual.
An important multiplier is net profit for the last 12 months of business. The business is then valued based on net profits over the last 12 months by 2X to 4X or higher.
The business is then valued based on net profits over the last 12 months by 2X to 4X or higher.
As the business grows, buyers will expect higher values while looking at other variables. The multiples apply across retail stores as well.
There is no specific business that can be defined as the most lucrative business to establish in 2018. However, there are things business owners can do to ensure their businesses earn more. They can try selling products in a different and unique way that will help them sell more. However, subscription businesses are becoming more popular.
05.00 Background and history of FI international
10.55 How to build an e-commerce business with the aim of an exit
20.20 Why choose a broker over buying in the marketplace?
25.51 Does having processes add revenue to the business when selling?
29.54 Multipliers for valuation
34.34 Most lucrative verticals in 2018
37.10 Lightning round