The most common cause for sellers of online businesses to retain website business brokers with experience in online businesses, is to help in putting a value on their business opportunity. When deciding on the actual value of an online business, the financial profit and loss statements will be the main focus for the evaluation. The influential factors that accentuate a greater or lesser multiple of the cash flow is calculated based on the fundamentals that are exclusive to online opportunities. This primarily forms the validation for a prospective buyer to pay an typical asking price or larger multiple of cash flow. The following list outlines what are considered relevant and valuable attributes of an online business opportunity:
Domain URL – a strong one or two word domain name that is descriptive to the market vertical of the product or service will be the most valuable, especially those with dotcom suffixes. The name will be easy to trademark if it is small, clear and common.
Search Engine Positioning – websites with significant organic rankings for the pertanent keywords relative to the business market vertical are going to be more pricey – especially those with good positioning in the three major because of its distinction.
Actual Unique Visitor Traffic and Page Views – directly related to natural rankings monthly. Particularly, what visitors are coming from PPC ads vs. visitors brought through unpaid sources. Other aspects to think about are the countries of origin where the visitors are coming from and the top fifteen to twentyfive referring websites.
The Age of The Internet Business -the more aged, the greater its permanence and the more likely it will be considered an authority website with better PR. It also allows added extra historical information to identify opportunities and weaknesses.
Proprietary content and goods - content is very important – unique content along with proprietary products, services or information all can render a strategic edge.
Client Database – a large customer base with a healthy percentage of recurring billing or auto-ship structure will add to the value.
Market Size, Upside Potential and Competitors – assessing how available the product or service is through traditional channels and how many product SKUs can determine stabilitystrength and future growth and income opportunities. How trendy is the market, what the price ranges are, other competitors selling the similar products and their relative authority or competitive advantages or weaknesses will factor in to the value.
Growing Trends – If sales, profits and visitors are trending in growth or at least flat then the business is going to be more valuable than one moving in decline. Sales, profits and visitor improvement are the most significant effectors on the multiple applied to the annual net cash flow to arrive at the appraised market value. The typical listing price presently is 2.5-3 times net annual cash flow. When a online business has very good growth 25-100+ %, a much better multiple – 3.25-5 can be applied to come up with a reasonable asking price.
Product Wholesalers – the number and worth of the manufacturers and the agreements in place with them, as well as any barriers to entry presented by them, will establish competitive value. Further more, all special products or services that are unique to the online business can affect the value.
Inventory Element – if the business sells physical products that need to be fulfilled, does it require inventory to be on hand or does it utilize a drop-shipping or fulfillment house to fill? This will decide the amount of funds required to buy stock, evaluate if warehouse space is essential or if the online business can function from the home, as well as the amount of over-head it requires to run it. It also determines the profit margins, amount of time required to run the business and the timeliness of delivery.
Structural elements aside from the actual gross revenues and net cash flow will entice a suitor to make his best offer, potentially well above the average market multiple because the online business has greater probability of establishing a stronger return on investment than online businesses without them. Sellers with online businesses that have these elements typically get at, or close to, the asking price for their businesses and occasionally even more when there are multiple buyers.
So, if you are a prospective buyer looking for an onlinebusiness for sale, be careful to peruse these elements closely if the P&L meet your criteria. Sellers should prepare as much information on these elements as possible to present to the buyer so they can make a firm offer that is fair to both parties.
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