Valuing an online business incorporates many of the same principles as valuing any business, namely: calculating its profitability – offset by any liabilities – plus any assets and with a premium on top for intangibles such as a good trading history, exclusive distribution deals or recurring revenues.
Some online businesses operate in the same way as their high street equivalents, minus the shop window. These types of ecommerce business – from inventoried standalone companies to those that sell via storefronts – may have assets and overheads like warehousing to throw into the mix. Others may earn 100% of their income from services that are sold and fulfilled digitally, such as advertising, apps and SaaS (Software as a Service).
Whatever the business model, multiples of profit calculations are still used to work out its value and these will vary according to the type of business. As a rule of thumb, businesses with proven income streams and lower risks will command higher premiums: established ecommerce operations will usually outperform app sellers from a profit multiplier perspective as it’s seen as a tried-and-tested model that’s relatively easy to transfer from seller to buyer.
The average multiplier is between two and three percent (2018) with bigger businesses usually commanding higher multiples.
Backing up your claims
Whatever value you, or your agent, arrive at, you’ll need to support it with facts and figures:
• Traffic statistics – the number of unique visitors coming to the website each week – will underpin business value, so you’ll need to verify these. Document any paid-for traffic separately.
• Financial records – buyers will want sight of your accounts, but they’ll also want to map your merchant or affiliate statements against your bank records to ensure they have a clear picture of your business as it stands today.
• Timesheet – buyers will also want an idea of how much time they’ll need to commit to running the business, so consider breaking down your workload into weekly and monthly tasks and estimate the time required for each.
Finally, make sure you have everything you need to prove you own the website, its content and any associated branding so that your buyer knows it’s yours to sell.
Get the full picture on valuing and marketing your online business at Bizdaq.