Appraising an established E-business

webmidwife · #1 (**permalink**) 08-05-2005, 04:36 PM

I am looking to sell one of my established web-businesses. I have a few potential buyers, but they are wanting an appraisal of sorts to back up my asking price. Who is a reputible appraisal company who can accurately give an appraisal on an established website/business? I've looked at "business appraisers" and they don't take into account the traffic, rankings in the SE's, content etc.

I need some direction here - thanks!!

Evic · #2 (**permalink**) 08-06-2005, 12:57 PM

sedo.com is fairly well recognized within the industry, but I believe all they appraise is the domain.

I know when I went to sell wowcensus.com I simply tallied about how long I intended to keep the site running (I hated working on the site - so when the domain expired, I was done) and the average of my AdSense revenue (you could use your own revenue) over that amount of time. I then added in the cost of hosting and domain, and what I would charge someone if I had made that site for them ($25 / hr).

So, essentially, a good formula that worked for me was:
(Avg. revenue per day * # of days remaining in business life) + (Cost to start business) + (Cost, in relation to time, to create website)

webmidwife · #3 (**permalink**) 08-07-2005, 01:11 PM

When I use your formula, I come up with a real nice number!!

Assuming that my biz can go on indefinitely, I'm using a standard 3 years to calculate.

Filmo · #4 (**permalink**) 08-08-2005, 04:03 PM

Most business appraisals are done based on Cash Flow, Income Statements, and Balance Sheets. Additional items such as projected growth and special items (page rank, etc) are supplemental.

Most appraisers will want 3 years of financials, probably prepared by an accountant. If it's a sale for more than half million, they'll probably want certified financials from a CPA.

Once they use the financials to derive a base number, then they will add or subtract based on the items unique to your business and industry.

Typically the buyer does one appraisal (which invariably is low) and the seller does one appraisal (which invariably is high). Then you negotiate. If your appraisal is 6 million and the buyer's appraisal is only 1 million, then you've got a lot of work ahead of you to close the deal. If you're both relatively close, then you should be able to close sooner/more easily.

More important that appraisals is having multiple buyers. This is often the only thing that moves deals forward in a fashion favorable to the seller. For small businesses, it is very hard to sell them for anything approaching multiple found on public stocks. 2 to 4 time Net Income or 1 or 2 times sales are fairly typical. Small businesses are very risky assets to aquire and extremely illiquid.

The appraisal is just a number and means nothing in and of itself. Your business on only worth what the buyer will actually pay for it.

jacobwissler · #5 (**permalink**) 08-09-2005, 04:37 PM

A brick and mortar business will sell for 12 to 24 months profit (total owner compensation) plus the value of the hard assets and inventory. Most people purchasing a website will use the same formula.

Some business owners elect to spend a fortune on websites that do not produce revenue, because the website creates an image for the company, just like landscaping for the office. When a business decides to put a $90,000 cement driveway in front of the office and a $40,000 lawn, to make the office look more professional, that is revenue which will not be returned, except perhaps over the very long term if an improved image = more sales. A website may be a similar investment in the company's image.