WEB/DIGITAL How to value your e-business?

[hakrjak]

When you go to sell an e-business -- How do you value it? What determines the sale price?

Any ideas would be appreciated. I'm hoping to put mine up for sale in the next year or so, possibly.

Cheers,

- Hakrjak

 

Don't like ads? Remove them while supporting the forum. Subscribe.

[rico]

Personally, I'd only ever look at profits and the value of any asset.

Unless you're lucky/clever enough to get a wealthy investor to see the massive potential and pay you many multiples of the above.

 

[hakrjak]

That's what I'm talking about...

Is there a formula... i.e. 10X annual net profits = Total value of the business, or what?

Cheers,

- Hakrjak

 

[Yankees338]

It depends on the industry. Usually, when I see it, it's about 3-4x annual profits I believe.

 

[Andrew]

It can be all over the place. From what I've seen, the buyer alone is the biggest variable.

Sitepoint did an interview with me about this a while back, not sure if they are going to put it online (was for one of their books, I think.) But basically you have two kinds of buyers, value and growth. The value buyer may not even pay a year's profits, but if your site is good, you certainly can see a 3-4 year multiple.

The growth investors pay what looks like a crazy price. Rupert Murdoch paying $600 million for Myspace looked crazy. Everyone was laughing. He earned all of that back within 12 months. If you want to get a high multiple you need two things: sell into strong growth, and be very visible in the first place (say, top 500 sites in the US, by traffic.)

Now none of these are fixed rules, but thats the simplest way to break it down. Either way, I want the growth buyers. Thats were the big money is. If its a value investment, it often makes more sense to keep it in your own portfolio.

But to answer the original question, how to value it. For myself, I look at sustainability. How long should this business be around? If you are relying entirely on free (or even paid) traffic from Google, things could change tomorrow. If you have lots of type-in (direct navigation) visitors, and the business model is solid, you can probably stretch it out to 8x earnings and remain conservative.

 

[PEERless]

The valuation of a business is a fascinating part of entrepreneurship. I would look carefully at the intangibles you are selling: customer/member lists, reputation, good will... These things add up in brink-and-mortar sales and should not be ignored in E-business. There's doesn't seem to be a hard-and-fast formula (yet). Perhaps you should write it after your sale! Good luck!