Attributes Of Internet Businesses That Determine The Business Appraisal.
November 18th, 2008The most common motive for sellers of online businesses to retain website business brokers with understanding in online businesses, is to assist 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 stronger or weaker 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 average asking price or greater multiple of cash flow. The following list outlines what are considered applicable and valuable attributes of an online business opportunity:
Domain URL – a strong one or two word domain name that is pertanent 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 brand if it is small, clear and common.
Search Engine Positioning – websites with significant natural rankings for the pertanent keywords relative to the business market vertical are going to be more costly – especially those with good positioning in the three bigmost popular because of its prominence.
Actual Unique Visitor Traffic and Page Views – directly related to natural rankings monthly. Mainly, what visitors are coming from PPC ads vs. visitors brought through unpaid sources. Other aspects to ponder are the countries of origin where the visitors are coming from and the top ten 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 page rank. It also allows added extra historical information to spot opportunities and weaknesses.
Proprietary content and goods - content is extremely 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 conventional channels and how many product SKUs can determine solidity and future growth and revenue opportunities. How trendy is the market, what the price ranges are, other competitors selling the same 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 in growth or at least unchanged 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 mean 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 utilized to create a reasonable asking price.
Product Wholesalers – the number and worth of the suppliers and the agreements in place with them, as well as any barriers to entry presented by them, will establish competitive value. In addition, 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 fulfilled, does it demand inventory to be on hand or does it utilize a drop-shipping or fulfillment house to process orders? This will decide the amount of resources required 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 determines the profit margins, amount of time required to run the business and the expediency of delivery.
Structural aspects 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 likelyhood of establishing a greater return on investment than online businesses without them. Sellers with online businesses that have these aspects 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 look over these aspects closely if the P&L meet your criteria. Sellers should gather as much information on these aspects as possible to present to the buyer so they can make a solid offer that is fair to both parties.
