What’s The Value Of Your Web Business?
Posted October 31, 2008 in Business, Writing 7 Comments »
If you own a web-based business, no matter how small, then that business is worth something.
Traditionally, the net worth of a brick and mortar business is the value of the assets owned minus the value of the liabilities owed.
For a traditional business — which is likely to own equipment, inventory, and possibly even a building — the standard methods of valuation make a lot of sense.
For a web business, however, those methods of valuation may make little, or no sense.
Most web entrepreneurs start small, often at home. Their only assets may be their computer, their software, and their website. (If you’ve tried to sell a website lately, then you know how erratic website valuation can be.)
The majority of the assets of a web business are likely to be intangibles — things like good will, intellectual property, and so forth. Such assets are difficult to place a value on.
Yet, a web-based entrepreneur may earn as much, or more, than his or her counterpart in a traditional business.
What, then is a fair method for determining the value of a web-based business?
The accountants may have a more official answer to this question, and if they do I’d love to hear it.
Accountants aside, here are some “unofficial” methods that you can use to estimate the value of your business. You may not be able take these methods to the bank, but at least you’ll at least be able to satisfy your curiosity as to what you’re worth and also they can help you with your internal planning and goal setting.
(Note: Check with your own accountant for a more accurate and precise valuation of your business.)
- Expected Receivables. If you have been in business long enough to have a receivables history (usually, at least six months), then you may be able to use the history of past income to estimate present value.
- Industry Averages. Another way to estimate where your business might stand is to compare your figures to industry average figures. Does your business generate more, or less income? Do you have more, or less expenses?
- Customer Base. If you have repeat customers, then you may be able to make some projections about your business’s current and future value based on your customer base.
- Trends. Is your business receiving more demands for your products or services? Is there less demand for your products or services? By tracking demand over time you should be able to determine if your business is on the upswing, or in the midst of a downturn.
Have you calculated the value of your web-based business lately? If so, how did you go about it?
About the author: Laura Spencer is a freelance writer from North Central Texas with over 19 years of professional business writing experience. If you liked this post, then you may also enjoy Laura’s blog about her freelance writing experiences, WritingThoughts
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7 Comments
Brandon Cox
November 1st, 2008 at 2:51 pmI just recently sold a site and had to think about this for a long time. How much could I potentially earn over the next year or so? What is the domain worth? What is the design worth in terms of the time I’ve spent on it? It’s a complicated issue. Thanks for addressing it and offering more food for thought.
Laura Spencer
November 1st, 2008 at 6:26 pmThanks Brandon. I hope that your sale went well.
As of now, as far as I know, there’s really no standard for selling a domain other than what the market will bear.
Beu
November 3rd, 2008 at 3:28 pmAnother issue to think about when selling a web based business is how much of the business depends on you, the owner. You will likely sell your business for less if it is highly dependent on you.
Using blogs as an example
Two blogs have the same traffic and ad revenue, but one has ten writers and the other has one writer who owns the site. It will be easier to sell the site with ten writers because it isn’t dependent on one person. I would be worried about buying a blog with one writer/owner because the business is completely dependent on that person. His customers might not like the change in ownership, the new person’s writing style, ect…
Laura Spencer
November 3rd, 2008 at 4:27 pmHi Beau!
Great example! I’m sure that the problem applies to most freelance business – but blogs are an obvious case.
EasyProfitPack
November 4th, 2008 at 5:00 amThis was an interesting approach, I have been trying to determine the value of my site and it has not been easy. As you said, it is all intangible.
Well I think in the end, there are ways like you mentioned, and it is important to seek as much help as possible to get an estimate.
Paul Leach
May 18th, 2009 at 9:18 pmHi Laura,
I am currently trying to value a web business that I have owned for about three years. Having sold several bricks and mortar businesses in the past I just wanted to echo your view that web business valuation is a very different.
I think that the boom in internet use has driven web business valuation much higher than traditional businesses. I intend to test the market with a figure based on a multipler of income, as with most sales the market will let you know if the price is too high!
Kesha Coggins
May 19th, 2009 at 3:14 amThank for your expertise and invaluable advice. I have gained a lot from your methods. I had no idea that I was so off the mark when it comes to understanding the value of a domain for starters. I am much wiser for the knowledge.