What’s My Website Worth?
If that’s not a question you’ve asked yourself about your online business before now, I hope this article will at least inspire you to consider what the answer might be.
Regardless if you’re looking to sell right now, at some time in the future or even if you’re thinking you’ll never sell, simply going through the process and considering the value your website could command if you were to sell, will often give you great insight as to where the strengths and weaknesses lie. Once you’ve identified both you can set about finding areas where you can improve systems and processes, fix any weak spots and thus maximize the strengths and overall value of your business.
The first thing it’s essential to understand is that not every business sells at the same multiple or even average. You can have two apparently similar websites yet they’ll sell for very different sales prices. What makes one site sell for a lot more money than another and how can you maximize the value of yours?
We’ve discussed on our buyer page and other posts where buyer’s will look to find value, but where can a seller make a difference as he or she plans and prepares for a sale?
Well the basics are a constant so at the risk of belaboring a point, you should always keep clear, accurate and preferably third party verifiable proof of revenue and expenses to support the value. What exactly is third party proof? For sales that would be your Merchant Account, PayPal or Google Checkout statements. For expenses it would be vendor invoices and for Traffic it would be Google Analytics or similar.
Most of this information can be verified by third party statements or reports and with an online business that often means you can also evidence the accounts via live screen share, which unless you’re very well connected with the CIA/FBI or someone in Hollywood, it’s pretty difficult if not impossible to fake the live login process to access and review in real-time.
Ideally you’ll have your sales and accounting systems integrated and have been keeping excellent, detailed records since you bought or started your business. The best known accounting program, especially for small businesses is Quick Books but there are plenty of other options out there that will do a great job too. Smart owners know that integrating their sales stream with their accounting systems saves them both time and money, but most of all it allows them to have a finger on the pulse of their business at all times. You can and should be monitoring the effectiveness (and that comes down to profitability or ROI) of every new product, service and marketing initiative you try. There’s no faster or easier way to do that than to keep clear, concise and complete financial records.
You should have (or gather) all statements by month and go ahead, save yourself some time right now by scanning and putting them into a PDF by year (buyers love to see this – it gives them a sense of security that you and your financials are well organized and therefore not or at least less likely to be lying or trying to hide anything). If you don’t already have the information in a Profit & Loss statement by year, create at a minimum a spreadsheet to show all revenue and expenses by month preferably for a full 3 year history. Same for traffic reports, by month for a 3 year history. If you have a website that’s been around for longer than 3 years then simply have the annual gross and net profit figures and primary traffic stats for prior years.
Take a step back and look (objectively) at your business as if you were a potential buyer. This is really tough for a lot of sellers as we tend to be so emotionally invested, so this is where an experienced website broker can be worth their weight in gold. Be sure you are working with a broker who specializes in representing online businesses though, many brokers are (often just ex-real-estate agents who graduated to selling businesses yet many have never actually owned or run one themselves – in my book Real Estate doesn’t count as a business because for many it’s a secondary income or retirement supplement and simply a way to allow them to write-off expenses against their own taxes) used to selling traditional brick and mortar businesses and simply don’t know enough about the web and doing business online to represent effectively.
Look closely at the line item detail on your P&L, the truth about your business is right there in the bottom line. Identify every possible savings, efficiency of process and avenue of growth that you have not had the time, money or maybe even the inclination to target or explore. Be brutally honest with this because buyers will rip you apart for sure on even the tiniest flaw or inconsistency in your explanations.
As long as you’re honest about the reasons for not doing some of these things, lack of time, money or even lack of motivation (burn out is often a driving factor for the decision to sell, buyers will accept that – but it absolutely can’t be a reason for overpricing) are understandable to most buyers and simply give them a clear road map as to how they can grow it if they buy.
Once you have all the supporting documentation in place, you should start to see where the values and opportunities lay within your operation as it exists today. When you get to the point where you begin to wonder “why am I selling this business,” you’re probably at the right place and time to do just that. If you think you might just be a little bit crazy to let this go, then buyers will likely feel the same way – but only if you have been brutally honest and realistic!
Now is the time you need to decide if you will go it alone and try to sell yourself or engage the services of the aforementioned Online Business Broker. As always there are pro’s and con’s to either path, but you can rest assured that if you have done your homework and properly prepared your business for a sale, however you decide to go about the mechanics of selling it, you should be well positioned to get maximum value for it.
Be a boy scout and be prepared, approach the process as if you knew nothing about your business but were looking to buy. Look for the strengths, values and yes even the weaknesses (these are often where buyers will see opportunity) in your business.
Prepare proper well organized documentation to support your financial and traffic statements and representations. Identify efficiencies of process, opportunities and areas for growth that a new owner can implement to justify and help recoup their initial investment as quickly as possible.
Check out our other posts on selling, and as always, please feel free to join the conversation by leaving a comment or ask your own questions below. Follow me on Twitter @DebraLloydNGBT to get leading edge, tips, tools and tactics for your online business.