So often I hear people say “I don’t think of my website as a business because it’s not making any (or enough) money yet” or maybe it’s something that started out as a hobby and has started turning a bit of a profit for them. My take on this is, if you’ve put up a website ask yourself this, is there anything on that site or blog that could potentially generate revenue no matter how little or how often? If your answer is yes, then you have a business. Now whether that’s something you would ever sell or someone would want to buy, is going to depend on how you approach it going forward. If you want to know how to set it up so you CAN sell it IF you ever decide you WANT to, stick around and read on.
People start online businesses for all types of reasons, for many it’s a means to allow them to work more easily around their family obligations or to stay at home with their kids. I’ve had several clients I’ve sold sites for who started their business to allow them to stay home when they had children. Others have taken a hobby or passion of theirs and turned it into a viable online business and are maybe even a little shocked that others are willing to pay good money to buy the foundation they have put in place.
Regardless of what drove you to start your online business (and I encourage you to start thinking of and referring to it that way, no matter how small or humble you see it just yet), I can’t stress strongly enough the importance of setting it up right – right from the get go!
Some might say it’s ridiculous to put time into thinking about selling a business before you’ve even started or when you’ve only just bought it but I’d have to say I disagree, it’s the perfect time to think about selling. I’ve yet to meet the business owner who can honestly say they’d never consider selling, no matter what they were offered for their business, but being prepared for that eventuality isn’t the only reason or even the main reason to set your business up right – right from the get go – it’s simply an added benefit.
I look at it this way, if you set your business up right and put all your ‘ducks in line’ it’ll be easier to manage effectively AND it’ll be in the best possible shape and position for you to sell for max value, if and when you decide to sell.
If you’re lucky enough or smart enough, that your business get’s noticed by someone keen to buy before you actively decide to sell, you’ll still have no problem showing them where the value lies and that puts you driving the negotiation bus.
How Do You Set Your Business Up Right?
Let’s start with the basics, if you’ve read anything more than one of my posts (and seriously you should:)) then you’ll hear me say over and over again – the truth about your business is found in the bottom line on your P&L. I know many a business owner who hates to hear that though and it’s usually because they think their business is worth more than the P&L bottom line might indicate, and it’s really important to understand I’m not saying it’s not. What I am saying is they need to be sure the P&L AND EVRYTHING ELSE about the business will support the highest possible asking price.
A Quick Word About Valuations
I’ll address this in more detail in a separate post but there really is no hard and fast, one size fits all method or formula to put a value on a business. Even when you do put a value to it, it still doesn’t mean that’s what the market will consider the business is worth and that is the ONLY valuation that matters in the long run. You’re business is worth what the ‘market’ WILL PAY for it so it makes sense to know the various factors you need to pay close attention to in order to maximize perceived value as seen by the market.
Most valuations start with the benchmark of Net Profit then apply some kind of multiple to that figure to establish an asking price. Multiples change depending on the general economy and other outside factors too, but having the right systems and documentation in place will ensure your business can support the highest possible multiple at the time you choose to sell.
What Exactly Do Those Ducks Look Like
The factors you need to be keeping in line can be divided into three groups – amazingly the exact number of posts there will be in this series – go figure.
- Profit factors – Net Profit | Vendors | Customer DB | Shipping | Hours to Run | Ease of Transfer | Training
- Presence factors – Domain | Website Design | Content Quality | SERP’s Rank | Traffic Sources | Key Words | Visitor Volume
- Persuasion factors – Marketing systems | Social Engagement | Growth Opportunities
This post is already way too long so I’m going to stop at the list for today, let you digest this, then pick it up again tomorrow to give you the down and dirty on each factor in detail…be coming right back – so should you!
Just for fun – here’s a guy who was definitely very motivated to get his “Ducks in Line’