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03 - Buying a Business Making a Business Investment or Acquisition
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  #1  
Old 01-08-2007, 09:41 PM
blackice blackice is offline
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Default Valuing an online business

What are some of the multiples or formulas one uses in valuing an online business? What are the factors one looks at? Has anyone here ever have any experience on either side of such a transaction? Do you know of any means of reference to which you can point to help find such answers? Thanks.
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  #2  
Old 03-05-2007, 03:56 PM
woodworker woodworker is offline
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Much of this depends on the type of business you are talking about. Is it a software business, online services business? Does it have revenue? Is it cash flow positive?

A common strategy is to use a net income multiple. Software businesses for example generally have a net income multiple of between 3-6 times net income when calculating worth. For example, if your software company earns 1MIL annually then you could guess that this company might be worth between 3-6MIL dollars.

Here is a link which discusses some strategies.

http://www.softwarebusinessonline.co.../valuation.pdf
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  #3  
Old 05-15-2007, 09:36 PM
SeattleCPA
 
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It's a little expensive, but there's a database of small businesses that have sold called BizComps that comes out every year. It gives actual sales data: sales revenue, profits, etc., asking price, actual price, financing terms, etc.

I just bought the new version for $375 so it's not cheap, but man you get great data... Could save you a bundle if it keeps you from making a single mistake...

Also, there's a roughly $100 Business Reference book published by Business Brokerage Press, comes out every year, that contains a bunch of rules of thumb for valuing a business. Because brokers tend to use this book and its rules, the rules become sort of self-fulfilling even if they don't always seem logical.

BTW, I find that small business multiples are very, very low by big business or real estate standards. You can often buy a good business for two times cash profits. E.g., a business that makes $100K can be bought for $200K. I see this all the time.
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  #4  
Old 02-20-2008, 07:02 AM
elp
 
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A good way is to do research on active deal posting websites that list revenue and cash flow for various businesses. generally speaking though, I am not sure how good of data these databases of small businesses have. Each business is different and a variety of factors play into a valuation - customer concentration, how much of revenue is recurring, how much marketing is required to maintain current levels? Depending on the size of the business, you may qualify for small business financing. This is a good general blog that was just started and there was a notice that it would soon be posting articles on buying small businesses so those may help.

<Signature to be set up via the User CP>
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  #5  
Old 02-23-2008, 07:12 PM
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OldJack OldJack is offline
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elp,
you can promote your website by putting it in your signature. but please stop plugging it in every post you make.
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  #6  
Old 03-02-2008, 03:06 PM
vic@myoffice
 
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Depending on which side of the transaction you are. If you are planning to be on the selling/exiting side, you can reach 10-times multiplier effect if your income stream has over 70% of recurring revenue and business has good Intellectual Property and/or know-how.

Profit margins are also extremely important. For example, if business has transaction-based recurring revenues and cost of maintaining and managing such transactions is very low, the buyer would be willing to pay a premium as well.

On the other side, if someone runs a 1-million-revenue single-man consulting business, the value of such business could be $0 for someone who does not have experience in this area.
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  #7  
Old 03-16-2008, 03:48 AM
seo4china
 
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I think it really depends of the type of online business. For web hosting firms for instance it is usually 12 months of revenues. But again there are other factors that come into play including billing system (monthly or annually), client turnover rate, clients location (local vs national vs international), the domain name and its value, brand power, goodwill of the company etc.
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  #8  
Old 05-29-2008, 10:41 PM
chicagopressrelease
 
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The easiest formula I've come across over the years for the purchase of any established business: approximately two times the business' gross annual revenue.
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  #9  
Old 08-27-2008, 10:01 PM
kenlew kenlew is offline
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I would look for a good book on valuing internet businesses as the guidelines for conventional businesses don't always apply to pricing internet businesses.
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  #10  
Old 09-25-2008, 02:55 AM
Emilyecho Emilyecho is offline
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Depends of the type of online business and online store providers. My small online store goes well now because my online store provider fastcommerce.com gives me a good search engine website and many customers can easily find me in big search engines such as google, yahoo, msn, aol.
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