Today’s segment is going to focus on the valuation of websites. This is a key factor for the vast majority of Business Owners when reviewing exit opportunities, yet so few brokers truly understand how to value a web-based business. Most of the brokers we’ve come across like to provide a multiple to cash flow for their valuation formula. In our opinion, this could potentially overlook many other factors and aspects that add value to a digital business. As Online Business Owners ourselves, we understand the point of view a Seller might have when they ask that potential buyers look beyond the standard earning multiple. But what factors can have an impact on the purchase price of a business? With web companies, there’s a lot to think about when looking at the past, current and future operations to attempt to derive a purchase price.
First, it’s important to note that this is NOT Bricks & Mortar. So many business brokers today are pass-downs from the days before selling Internet companies was a reality. These brokers still attempt to use old school methods to value these businesses, which again we feel could potentially cause a business owner to leave something on the table at closing. But you can’t blame them; for decades these old school brokers sold restaurants, convenience stores, liquor stores, franchises and more. But when it comes to the sale of a digital business, you need the experience of tech professionals – those with specific experience selling technology companies.
Second, a web company’s value cannot be derived from an online calculator. A proper valuation should include a review of scale opportunities, and the subsequent cost of scale. This will help identify near term growth opportunities in order to create a future cash flow model, post-sale and post-scale. If a business can be expanded into other marketplaces, if the advertising budget has either been underserved or not served properly, if organic search is a large portion of its visitor mix, if the business is in a niche sector or otherwise has barriers to entry, or if a business has created its own brand, these are a few of the factors that should be analyzed when calculating an Internet Company’s value.
For this reason and many more, we simply don’t understand how companies can use an online “calculator” to identify the value of a website or other property. A simple calculator with a few inputs is simply not the proper way to look at a tech company’s value. Rather, you need the advice of an expert technology broker – one that understands not only the business itself, but also has a network of buyers waiting for solid technology deals. Supply and Demand alone can be a reason not to utilize a calculator to value your business.
At Website Closers, we have an abundance of experience selling web companies and a large buyer pool waiting for us to provide the next deal. Buyers are never a problem for strong web companies – the more difficult aspect is in creating the best deal structure, purchase price and marketing in order to maximize the purchase price of the business on the market. It’s worth a business owner’s time to give us a call or to send us an email so that she can learn what options are available, what’s going on in the sector, and whether now is the right time to make a move.
The Business Brokers at WebsiteClosers.com are worth their weight in gold when it comes to deal making, negotiations and small business financing. If you are contemplating the sale of an Internet Company, or just want some advice about the industry, we highly recommend that you give us a call to allow our brokers to help you with the process. Whether it’s a listing we own or not, we can help. To get in touch with us, send us an email at [email protected] or call us toll free at (800) 251-1559. We will give you a step-by-step approach to our methods so that you have absolute confidence in our ability to represent you in the sale of your business.