02 July 2009View Comments
Have you ever flipped or purchased an existing website? If you’re like many buyers in the webmaster community, you probably made your buying decision based on two primary factors:
- Traffic
- Income
Chances are also good that you negotiated a sale price based on income over a period of a certain number of months. For example, the price you paid may have been the equivalent of 10 months’ income from the site.
While that kind of strategy may be common in webmaster communities, it’s not necessarily smart business. By looking only, or predominantly, at a website’s income you neglect other significant value points and you risk passing up great opportunities for mediocre ones.
Think about buying websites more like purchasing an existing traditional business. You’ll find there’s a lot under the surface worth considering. For example, you might want to look at the site’s:
- Branding and visibility (think Twitter: poorly monetized, but major value through visibility)
- Authority status and content (authority content is worth more than generic keyword-stuffed content that would turn off real visitors)
- Staff (and whether or not any of that staff will remain on board for a period after the purchase–important if the audience draw is to the owner and not the site itself)
- Domain name (even if a site’s content isn’t particularly valuable to you, the domain name could have considerable value of its own, especially if it ties in well to your existing business and offers better branding possibilities)
- Competition and Niche (if the website is in a true gem of a niche that is just getting started but has long-term potential, the site carries more value than something in an oversaturated niche like mesothelioma)
Continue Reading →
31 May 2007View Comments
Business value is far more than dollars and cents. The government has one way of evaluating a business at tax time, but potential buyers, customers, and the competition are sizing up your business constantly – and they aren’t just interested in the bottom line.
Fair Market Value
Business valuation is made up of a fair amount of accounting and a lot of guess work. The fair market value of a business is what is used when a business is sold or for any number of other legal purposes. To determine the fair market value of a business, you must consider cash flow, tangible assets, appreciation and more.
The government calls a fair market value the dollar amount of a business where the seller and the buyer both agree. With such a loose definition, there are countless ways to estimate your business’s value. Depending on industry, your business value may be a product of a period’s cash flow multiplied by a certain number or something considerably more complex. There is no exact formula for determining the overall value of a company as values fluctuate within industries and over time.
Government Valuation
At tax time, your company is evaluated based on its debits and credits. Gross receivables and assets are offset by liabilities and expenses. At the end of the accounting process you have a company income that is tax worthy. This number is often far less than any true value of your company. Accounting and tax write offs help many companies find ways to make tax values far less than reported earnings. However, reported income through the government can help gauge your company’s progress and provide a starting point for evaluation. Continue Reading →
