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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
Stang Stang 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
vglass vglass 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 SeattleCPA is offline
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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.

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  #5  
Old 02-23-2008, 07:12 PM
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mvd mvd 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
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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 09-30-2008, 04:31 PM
cashcratereallypays cashcratereallypays is offline
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i gues u can just folow the ideas above bc i have no clue
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  #8  
Old 11-25-2008, 10:53 PM
bijan814 bijan814 is offline
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Some ways to figure out the price of the business is how much it makes per month times six to 18 months. And that depends on how likely it will make that money. Which you base it on where the traffic comes from such as search engine and links and non-organic ways.
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  #9  
Old 11-27-2008, 01:17 AM
khaty khaty is offline
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It depends on what kind of business and how do they do the transaction. Those business who have products online mostly do the transaction once and accept payment through paypal.. some business who offers services like a website hosting collect the payment monthly.
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  #10  
Old 04-27-2009, 03:27 PM
butler68 butler68 is offline
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Thank you for this info!
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