Whether you’re selling your business to finance a new passion project or you’re simply looking to retire, you need an exit strategy that will put the most money in your pocket.
No matter whether your online business has millions of customers or a few thousand committed and devoted buyers, our expert brokers can help you sell your business and achieve the highest multiple possible.
But, in order to sell your business and capitalize on all of your hard work, you need to have an in-depth understanding of how much your business is worth. In this blog post, we’ll explain exactly how you can calculate the worth of your business. In doing so, we’ll outline how a business is valued, the key factors to consider when selling your business and how a business broker can help you. We’ll conclude by explaining how using our business value calculator can make the process much easier.
So, if you’ve found yourself wondering how much your business is worth, read on to find out how you can make a calculation and learn how you can increase the value of your business as you prepare it for sale.
How to value a business
The process of valuing a business is more of an art than a science because no singular valuation method is correct in every instance. This is because each business is unique and is underpinned by different factors that make it successful.
Due to this, business owners often combine valuation methods when valuing their business. By taking this action, they can collect a more complete picture of what their business might be worth.
When valuing a business, taking a multi-method approach is always worthwhile. This is because businesses can often be incredibly complex and vary from operation to operation. This means it’s very difficult to find an off-the-shelf valuation method that fits a business and values it perfectly.
While you’re creating a valuation, you need to remember that there are a number of reasons why people buy a business like yours. For example, a purchaser might want access to your customer base, merge the businesses or eliminate some competition from the market.
However, that said, the majority of buyers wish to gain access to the future profits of your business. Due to this, most of the methods available for valuing a business use annual profit as the basis for the calculation and then apply a multiple.
The multiple that applies for your business will depend on how it performs against a number of criteria. The stronger the performance of your business, the higher the expectation will be that your business will continue to be successful in the future.
Of course, when coming up with a multiple, judgement is required. Due to this, the buyer usually values the business differently to the seller. This largely happens because a seller focuses on the opportunities the business presents, while the buyer will focus on risks and barriers to success. Once you and the buyer have both created your valuations, a period of negotiation will often be required in order to close the gap between the two valuations.
To create a rough estimate of how much your business is worth, you can tally the net assets of your business. However, if you’re seriously thinking about selling your online business, then you’ll need to conduct thorough valuations using established and proven methods.
Popular valuation methods include:
- Seller’s discretionary earnings and multiples: This valuation method will be useful if you currently run the daily operations of your business and you’re looking to sell to someone who will take on these responsibilities.
- Precedent sales: If your business is similar to others in the market, has a predictable profit trajectory and has been established for three years or more, this method will be useful.
- Discounted cash flow: If you’ve invested so heavily in future growth that current profits aren’t an accurate measure of the health of your business, this is the method for you.
- Traffic valuation: If your website hasn’t been monetized, this method will show you the value of the traffic that’s reaching your website.
Although each of these valuation methods is popular, each also has its own positives and negatives. For this reason, as mentioned above, it’s best to apply more than one of these methods when valuing your business. This way, not only can you check that the initial valuation you’ve arrived at is accurate, but you can also look at your business from multiple angles and find new features that may drive the price higher.
Unsure which valuation method is right for your business? Get in touch with our expert brokers today. One of our dedicated and knowledgeable brokers will happily tell you all about options for sale. In addition, they can also provide you with a completely free valuation.
In order to value your business, our brokers will need to examine a number of factors, such as:
- The sales volumes required to reach your revenue
- Your revenue distribution patterns
- Your ongoing cost base
- EBITDA (earnings before interest, taxes, depreciation, and amortization)
- The sorts of multiples achieved in recent comparable deals
Using these factors as a basis, they can also explain how you can prepare your business for sale and simple steps you can take to boost its value.
Key factors to consider when selling a business
Before you list your business for sale, you need to consider a number of key factors that will help define the multiple. By considering the following factors, you’ll be able to maximize the value you receive for your business.
In order for your website to sell for the highest value, it will need to be established for at least one year of positive trading and have an annual profit upwards of $20,000.
Generally speaking, investors value businesses that have at least 2-3 years of financial data available. This is because these businesses can display a track record of success and can demonstrate that the business has been successful over a lengthy period of time. Plus, because the buyer has several years of data to analyze, they can use this data to predict future profits more accurately.
If your business is young, it’s still possible to sell it for a large multiple if it has been successful since its inception. However, the pool of prospective buyers will likely be smaller because a higher tolerance of risk is required.
Many prospective buyers are interested in purchasing online businesses because they have the ability to provide passive income. However, this isn’t always the case and, if your business is overly-reliant on you for its success, it may not be worth as much as you’re hoping.
So, before you attempt to sell your business, it’s worth considering ways that you can reduce your involvement. Start by creating a schedule and writing down the responsibilities that you have on a daily, weekly, monthly and annual basis. Once you’ve created this list, start considering ways that you can pass on these responsibilities to others. You can achieve this by outsourcing some of your responsibilities to external stakeholders, training your current employees and hiring new members of staff.
In addition to this, you should create standard operating procedures that document exactly how the business is run and how certain tasks can be conducted. This way, whoever takes over the business will also find it easy to take over your responsibilities.
If you’re unable to outsource or delegate, then you may need to consider whether you’d be willing to stay on with the business for a handover period. This can be negotiated as part of the sale.
The availability of data
In order to assess whether they want to meet the valuation of your business, a prospective buyer will want to know all about your numbers. Buyers traditionally spend a lot of time on due diligence, so you need to ensure that the numbers you give them are up-to-date, accurate and comprehensive.
Before you list your business for sale, you’ll need to gather information about your:
- SEO rankings
- Paid-search rankings
- Link profile
- Traffic share
- Brand visibility
- Active customer base
- Number of repeat customers
- Customer demographics
- Customer subscriptions and newsletter signups
Thankfully, by doing all of this research in advance and analyzing the data before you present it to a broker or prospective buyer, you may be able to achieve a higher multiple. Plus, your broker may be able to explain potential weak points in your business that you can improve before you list it for sale.
Please also be aware that this list isn’t exhaustive and, if you think another factor will be relevant to the performance of your business, you should include it in your analysis.
Collecting financial information
Similarly, as well as knowing information about your website and its performance, a prospective buyer will also be keen to understand the financial performance of your company. As a result, they’ll want to see things like:
- The gross net income of your business over the past several years
- Periods of slow or lost revenue
- The stability of your revenue streams
- The sales volumes required to reach your revenue
- The cost of acquiring new customers
- The lifetime value of customers
- The churn rate
- Trend data
- Whether revenue is seasonal or stable
- Expenses information
- Business debts
Serious buyers will want to see as much financial information as possible about your business. For this reason, it’s best to be prepared with profit and loss statements and tax records. Due to the amount of information being exchanged, we recommend that you ask any interested parties to sign an NDA.
How can a broker help me?
If you’ve never sold a business before, you may find the whole process stressful and you might not know where to start. If you’re in this situation, then enlisting the help of a dedicated business broker can be highly beneficial both in terms of relieving the stress you’re feeling and ensuring you receive the highest possible multiple.
By using a dedicated business broker to help guide your transaction, you’ll receive a number of benefits that will make the process far easier. Here at Latona’s, we understand that selling a business in a fast-moving market can be daunting. That’s why our dedicated and experienced brokers always work alongside our sellers, offering insight and experience at every step of the process.
As a result, when you sign up to sell your business with Latona’s, we deploy a powerful combination of unique market insight, business sales expertise and in-depth brokerage processes to ensure that you receive the highest possible multiple.
The whole process starts with a thorough review of your business that’s absolutely free. One of our experts will discuss your business and financial information with you in order to learn as much as possible. Using this data, they’ll help you determine the options for sale and agree a sale price with you.
If you then choose to sell your online business with the help of a Latona’s broker, you’ll benefit from our extensive range of contacts. Over the years, we’ve developed one of the largest buyer networks in the industry and we’ll circulate your listing to more than 20,000 globally vetted buyers.
From the moment your business is listed for sale to the second the deal is closed, your Latona’s broker will be by your side. Most of our clients have never sold a business before, and this is why our brokers ensure that the transaction is fully guided.
Throughout the sales process, your broker will ensure you’re never placed in a pressurized situation. They’ll also ensure that safe escrow and confidentiality processes are followed and NDAs are signed by all parties. This means that all details about the sale and financial data are kept secure. It also means that you’ll have continual access and influence over the sales process and negotiations.
When the sale is complete, your Latona’s broker will also ensure that the assets and inventory of your business are transferred seamlessly to the buyer.
Using our business value calculator
Thinking about selling your business but unsure how much it might be worth? Use our business value calculator.
Using this online tool, you can gain an insight into how much your business might be worth. This is because our business value calculator will tell you the current value of future cash flow. The tool will only take you a couple of minutes to use and you’ll receive an accurate and informed calculation that can guide your decision making.
To receive a value for the cash flow of your business, you’ll just need to provide us with some basic information about the price you’re expecting to sell your business for, the risk adjustment, the discount rate and the risk adjusted discount rate.
Then, you’ll need to give us some basic financial information about cash flows over the past few years. All you’ll need to tell us is your annual revenue for each year and your annual expenses. Although the tool is set to three years, you can add or remove these years as required.
To receive a calculation, you then just need to inform us whether you’re planning to sell your business or keep it. Using the calculator really is as simple as that.
However, before using the tool, you should keep in mind that this is a useful tool to analyze the cash flow only. This is because the tool does not take into account factors like goodwill, inventory, content, software or any other value the website or domain might have. That said, understanding the value of the cash flow is imperative when valuing a business.
If you’d like all of these factors to be taken into consideration and would like to receive an accurate valuation for your business, then speak to our expert brokers today and request a free valuation. We’d love to help you plan your exit strategy and will work tirelessly to ensure you receive the highest possible multiple.