How to Evaluate a Business with no sales

There are a few ways to evaluate a business. There are several factors that impact the value of a business depending on the type  of business. So there is no perfect way to evaluate a business, especially considering that some businesses are more important to some than others. It all depends on what you are looking for.

So what about the cost of a business that is not making any sales? The price of a business without income will depend on only one thing, does the business have any equipment or intangible assets? In that case you should just buy the equipment and/or intangible assets.

What is the price of a business with no income? To me it’s zero! It’s worthless. My mentor helped me understand this a little better. And recently I’ve ran into this issue on two seperate occssions but very both happened within the past month.

The first time I reached out to a seller that had an ecommerce store in the fishing niche. I was following up with him regarding an unlisted ecommerce store I had heard he had for sale. The fishing online store was  doing about $45,000 in sales a year, and he claimed he was profiting about $15,000.00/year. He had some products that he sourced locally and some dropshipping. Now the site was about 15 years old and the seller explained that it used to do about $300,000 or more in sales each year, but he had lost interest in it. He was selling it for $30,000. I didn’t buy it at the time as the sales were trending down and he wouldn’t negotiate a better price.

I checked back a year later and inquired about the business just to see where it was. The seller explained that he had shut down the cart on the website to stop all sales, but the website was still active (I checked and it was). I forgot to mention earlier that this seller was local and only about 45 minutes from where I do my business. He explained that he didn’t have time to run the site and had stopped selling and holding it for his teenage son to take over soon. He stated that his son was no longer interested in it and he would be willing to sell the site today for $10,000.00 and he would include about $1500 of product he had left over.

We went back and forth a few times with texts and emails. He was either too busy or didn’t really want to sell it as he was not communicating well. I discussed the details of the ecommerce store with my mentor. I thought the business was worth something, maybe even $10,000.00 if the deal structure was good. But my mentor told me something that I now understand completely….. He asked how much the business was making monthly? I explained that it wasn’t making a dime as the owner had shut off the ability to purchase on the store. My mentor then explained that the business was worth …. ZERO! Why? Because it’s not making any money. After thinking about this I fully agree with him. How can a “business” be worth anything if it’s not making money? I know some people are going to disagree and that’s fine. But just think about it. To an investor or deal maker, why do you want a business that’s not making any money? The whole point o f investing in businesses is to make money, why take on a website that is making zero sales…..

Now we understand that some businesses come with some tangible and intangible assets that could be very valuable to an acquisition. But to a website business investor… it’s not worth anything. The whole point of buying these income generating websites is to get an immediate return on investment and hopefully grow it.

So does this non performing ecommerce website have a value? Of course it does. But the deal structure has to reflect the current status of the business. So I reached out to the seller and explained that since the business was not making a dime, I would be willing to take it over for him and pay him the $10,000 with an earn out only after training. He had nothing to lose here, if the business does  well, he can get $10,000.00, if he sits on it, he may never get anything out of it. At first he was interested, but after a few failed attempts to meet up, he reached out and explained that he would no longer be selling the ecommerce store.

About 2 weeks after putting that deal to rest, I reached out to another seller and was presented with something similar. The seller explained that he had an Amazon FBA product that was making hundreds of sales and was just waiting for a buyer. Apparently the owner had just stopped selling on Amazon, one of the easiest and  most passive platforms ever….. The seller explained that the owner of the Amazon FBA product had just “left it” for the seller, but the seller was too busy to get the product going. The seller explained that this brand was just ready to take off with the right person, but the product hadn’t been sold in over a year.

He was asking $30,000.00 for this “Amazon FBA Business”. I explained to him that if there were no sales, then the FBA business is worth exactly that … ZERO. He explained that the “FBA Business” was worth alot more since it had a BRAND, some product, Previous Sales, A great listing, and several other intangible assets. I then explained that most FBA biz are selling for a 2x – 3x multiple of the net income. If I took the net income from this FBA Biz, then it’s worth 0 x $0 = Zero. This is not an FBA Business, this is a product that is for sale. I explained to him that I was looking to buy an FBA Business, not an FBA Product to launch.

So, is this product worth something? Absolutely, but it’s not an FBA business because it’s not making any sales. Think about it, I can’t buy a few soccer balls and a goal and some cones and tell you I have a soccer coaching business. But I could sell  you the soccer balls and the cones as a product. But if I go out and get 5 clients and get them to sign a contract and include the balls, cones, and goals, now we are talking.

As I mentioned earlier, the product is definitely worth something (I didnt get a chance to look at the details, previous sales, etc), but not at a 2x or 3x multiple. I ended up offering to take over the product and list it, and then once the sales start coming in, we could discuss a multiple of 2x profit. He explained that he could not do that as he was unsure of a few things….

#1 How much money I would pour into marketing (…… so like a start up)

#2 How much effort I would put into it (….. so like a start up)

# How much money I would put into purchasing more product (…. so like a start up)

So basically I had to relaunch this product, market, and figure out the shipping, etc…. so what was I buying….. ? a product. So again we both disagreed with the actual valuation of this so called “FBA Business” or FBA Product.

In Conclusion, when a business is for sale and not making any sales or income, then you should really consider what value it has to you. Does it have equipment, products, procedures, data, email list, or any other type of value? Otherwise the terms of the acquisition deal would have to basically eliminate your risk.

In both cases I still offered  a win/win situation. For the ecommerce website I offered to take it over, with their help I could start the sales, make some money and then pay the owner the $10,000.00 he wanted for the business.

For the second FBA product business, I again offered to take it over and pay a 2x multiple!!!! That’s incredible and they still didn’t take it. They are going to try and find a sucker to give up all the money up front for a product that has no recent evidence that it will work. The new owner will have to pay a large amount up front, then do a relaunch on Amazon, then pay for more product, and start the Amazon PPC campaigns to try and compete with the other products that are already on Amazon and listed higher. And all this has to be  done BEFORE they make a penny…… talk about an ugly deal….. good luck!!

Instead I will focus on another Amazon FBA business making about $4,000/month for the past 2 years! The owner has a Brand, recent sales, reviews, great listing, no need to relaunch, procedures, it’s just plug and go! And the cost is only $96,000.00, which is a 2x multiple, exactly what I offered for the other business and I won’t have to launch!!! So the day I buy the business, I start making money!!! That’s the way to buy an AMZ biz!

Don’t outthink the room here, go with what’s working. If a business is not making money, it’s not worth anything.

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