Expert Insights: The DTC Exit Outlook

Expert Insights on DTC Brand Exits from Finaloop’s Finance Insider’s Club

As the DTC landscape continues to evolve and a year of mixed-bag trends is coming to an end, many founders are thinking about potential exits. But what separates the brands that command premium valuations from those that struggle to find buyers?

We asked our network of DTC financial experts to share their insights on building lasting enterprise value and preparing for successful exits in today's market - in this latest edition of Finaloop's DTC Finance Insider's Club.

Here's what our experts revealed about building valuable, exit-ready DTC brands:

The Fundamentals of Financial Attractiveness

"I have a few clients where we actively discuss a potential future exit, so we are driving a clear strategy behind this goal. It's critical that there is great financial hygiene in those situations as the potential purchaser is going to look at clean financials very favorably. Clean books shine favorably on the entire operation.

"Also, improving margins is the best way to increase enterprise value. Opex can be fixed pretty easy - it's the margins that are looked at closer."

Courtney Myers, CPA | Founder at Freedom Finance

The Market Reality Check

"It's the haves and the have nots out there. If you are a growing, profitable brand at scale, there will be buyers, and at a decent multiple. If you are sub scale or burning cash, there may be no buyers. So, the advice we give is to build a sustainable business you would be happy owning. Because A) that is the business you will enjoy running and B) that is also the business that people will want to buy."

Jeff Lowenstein | DTC Fractional CFO, Co-Founder of Free to Grow CFO

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The Timeless Truth About Good Businesses

"I have always said this and will always say this - there's always a market for good businesses with healthy profit and cash flow, and sticky customers. No matter the climate. The ecommerce brand asset bubble caused by COVID caused brand founders to forget about these fundamentals.

"But luckily, brands are learning. You're either building a great profitable, cash flowing business - which likely has enterprise value - or you're just growing an expensive hobby. Build a great business. Stay focused on profit and cash flow. And there will be buyers if you want to sell at some point."

Jon Blair | DTC Fractional CFO, Founder of Free to Grow CFO

Finaloop's Take: The Technical Foundation

"An unfortunate trend that we've seen time and time again is founders hitting the exit stage, and having awful financials that don't reflect where the business is actually at. When these founders try to correct paths right before exit, it can be quite messy. So tip number one is to keep your financials in order, on an ongoing basis.

"Second, SDE can oftentimes blow things out of proportion, especially in smaller businesses (if the founder isn't staying, adjusting their salary for SDE won't cut it, as someone else will need to be hired instead of them).

"Third, last but not least is inventory. Make sure to manage your inventory and COGS well, including write-downs, if applicable. Inventory value can often lead to a big misalignment between buyers and sellers."

Jacob Becker | Head of Ecosystem Education, Finaloop

Need help building enterprise value for your DTC brand? From real-time bookkeeping for ecommerce business to dedicated ecommerce accounting services, book a short consultancy call with one of Finaloop's ecommerce accounting experts.