The most popular motive for sellers of online businesses to seek website business brokers with expertise in online businesses, is to help in putting a value on their business opportunity. When calculating the actual value of an online business, the financial profit and loss statements will be the main focus for the evaluation. The determining factors that accentuate a higher or smaller multiple of the cash flow is calculated based on the fundamentals that are unique to online opportunities. This primarily forms the justification for a prospective buyer to pay an average asking price or larger multiple of cash flow. The following list outlines what are considered pertinent 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 high organic rankings for the pertanent keywords relative to the business market vertical are going to be more expensive – especially those with good positioning in the three major because of its prominence.
Authentic Unique Visitor Traffic and Page Views – directly related to natural rankings monthly. Chiefly, which visitors are coming from PPC ads vs. visitors brought through unpaid sources. Other aspects to look into are the countries of origin where the visitors are coming from and the top fifteen to twenty referring websites.
The Age of The Online Business -the more seasoned, the greater its solidity and the more likely it will be considered an authority website with better PR. It also allows further extra historical information to spot opportunities and weaknesses.
Proprietary information and goods – content is very important – unique content along with proprietary products, services or information all can render a strategic edge.
Consumer Database – a large client 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 offerings can determine stabilitystrength and future growth and revenue opportunities. How trendy is the market, what the price ranges are, other competitors selling the similar products and their relative dominance or competitive advantages or weaknesses will factor in to the value.
Growing Trends – If sales, profits and visitors are trending upward or at least flat then the business is going to be more valuable than one moving south. Sales, profits and visitor improvement are the greatestsignificant 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 create a reasonable asking price.
Product Wholesalers – the quantity and quality of the wholesalers and the agreements in place with them, as well as any barriers to entry implemented by them, will establish competitive value. Further more, all proprietary 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 shipped, does it necessitate inventory to be on hand or does it utilize a drop-shipping or fulfillment house to ship? This will decide the amount of resources needed to buy stock, evaluate if warehouse space is required 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 indicates the profit margins, amount of time needed to run the business and the timeline of delivery.
Solid 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 prospect of establishing a more rapid return on investment than online businesses without them. Sellers with online businesses that have these elements usually get at, or close to, the asking price for their businesses and occasionally even more when there are several buyers.
So, if you are a prospective buyer looking for an onlinebusiness for sale, take caution to peruse these elements closely if the P&L meet your criteria. Sellers should gather as much information on these elements as possible to present to the buyer so they can make a solid offer that is fair to both parties.
