Wondering How To Value A Website? Here Are The Top Secrets?

Although there are various tools for determining a website’s worth online, they may not always provide reliable results. It is for this reason that you have to understand how to value your site. For instance, some of these websites use only revenue earned from Google AdSense. This may not be the best approach since numerous sites have various other sources of income streams apart from Google AdSense. The second reason is that the income from Google AdSense is actually very low, so it can’t be regarded as the standard of measuring ad revenue.

The other factor is the Alexa ranking. Even though it is widely used, it is mainly based on the amount of traffic to a given website. First and foremost, to be considered a user, one must have an Alexa toolbar installed. This reduces the count of countless visitors to a given site. Then there is also the high number of visitors to any given website does not necessarily relate to a high income. Income is largely based on the business model that any site operation. Here are the accurate ways to value your sites.

Website Earnings

The first consideration a buyer will probably look at is the earnings of a website. Logically the more a site has in earnings, the more potential buyers you will have. If your site has consistent earnings of say $100 per month the typical formula is to multiply the earnings times 5-12 times those earnings. So you could ask for probably about $500 – $800 and get it. Again assuming sales are consistent. Higher-end sites earning thousands per month can see a multiple of 12-48 times monthly earnings. For example, a website that is consistently earning $5,000 per month or $60,000 per year could be sold for $60,000 – $500,000.

Traffic On Your Site

A website that draws a high amount of traffic has a higher potential of business than one that doesn’t. The higher the traffic, the higher the market value. Having lots of traffic to your website is something that will definitely attract customers. Better than having high traffic to your site is having lots of “targeted traffic” to your site. Targeted traffic converts browsers to buyers. Lots of targeted traffic converted to buyers means that your website is getting AdSense clicks, affiliate sales, or making CPA commissions.

Back Links to Your Website

Backlinks are links that can be followed from another website to your website. It is used by the search engines to determine the importance of your site compared to other sites similar to yours. Backlinks are used as a kind of voting system. Links to your site cast a vote of authority for your website. The more links you have, the more power the SERPs will grant to you. You can build links by writing and submitting articles to article directories with your author resource box attached. Submitting your sites URL to open directories is another way to build up your links.

It is possible, however, to affect variables such as traffic stats, conversion rates, and income. Such factors may be deliberately manipulated or misrepresented by unscrupulous people to inflate the perceived value of their listings. If not actually manipulated, figures can still be massaged via statistical methods. Provided no attempt is made to manipulate such statistics, the above process provides an objective way of arriving at the value of a website.

When buying a business, you want to make sure that it a good investment. While traditional brick an mortar businesses can be lucrative, online businesses are a much safer investment, especially if you don’t have much experience running a company. There are a few reasons why an online business is a good investment.

#1 Reduced Overhead

If you purchase a traditional business, there are plenty of overhead costs that you need to worry about. You will need to pay for the cost of the space, the utility bills, and work stations for your employees. If your overhead is high, this will cut into your profits. If you aren’t bringing much money in early on, your business can fold before it even gets off the ground.

With an online business, the overhead costs are much lower. The overhead costs associated with an online business include website creation, web hosting, SEO, and other marketing channels. Fortunately, marketing tools, such as social media, are free. Overall, the overhead costs for an online business are much lower than that of a traditional business.

#2 Flexibility

When owning a traditional brick and mortar business, long hours are necessary if you are going to be successful. This means taking time away from your family and your life. For some people, this kind of commitment can be too much.

If you are running an online business, you can make it a success from anywhere. As long as you have an internet connection, you can run your business. This means that you can work from home, check in on the company while watching your child’s soccer game, and you can even run your business while you are on vacation. Having this level of flexibility makes it easy to run your business without needing to change your life too much.

#3 Adaptability

Online businesses are much more adaptable than offline companies. Marketing is essential for the success of any type of business. The difference is that with an online business, you can measure your revenue in real-time. If you see that something isn’t working, you can change your marketing strategy as you see fit. You can also use tools like Google Analytics to monitor changes in real-time.

Finally, you can target your demographic more effectively. With the rise of social media advertising for online businesses, you can easily define the audience you want to target and do so effectively.

Making changes with the marketing strategy for a brick and mortar business is not as simple. If you cannot adapt in a reasonable amount of time, things won’t turn around, and your business will go under.

#4 Less Risk

Buying an online business is much less risky than purchasing a brick and mortar business. If the company fails, you could be stuck in a lease for a year or more. If there is no business, you will be paying for an empty space until the lease is up. Also, online companies are much more liquid than a traditional business. If you choose to sell, your business isn’t tied to any location, which would allow you to sell to someone anywhere in the world. When selling a traditional business, your potential buyer pool is fewer, because your business is tied to its location. Overall, buying an online business is much less risky than buying a traditional brick and mortar business.

If you are considering buying a business that has already been established, you should consider purchasing an online business. Not only is an online business a good investment, but it is also a safe investment.

Buying an Internet Business – Advanced Due Diligence What Taxes Are Involved When Selling My Online Business

Before finalizing the sale of your website, you should definitely plan for the taxes you will need to pay once the sale is done. Here you will a basic overview to know what you need to pay attention to and save your time and money when selling your online asset.

Most website sellers are sole proprietors or part of S Corporations, which means that their taxation levels will be the same as their personal taxes. And selling a website could create an event that throws you to a higher tax bracket, so be aware of that. If you are married, this adds an extra layer of complexity.

And should you pay income tax or capital gains tax? In short, if you have owned the asset for more than one year, then you could be subject to paying capital gains, typically lower than income taxes.

In general, a business is not sold as a single asset – instead, it is comprised of tangible and intangible assets, and each of them is treated accordingly when it comes to taxes. A CPA or a tax accountant will help you with this. A pro will also help you in avoiding mixing up non-capital assets and facing issues with the IRS.

Some examples of non-capital assets are stock in trade, inventory, accounts receivable, real estate, copyright, among others.

The main advantage of identifying what are capital assets is to identify gains and losses for taxation purposes. A capital gain/loss is the difference between the total assets and the sum of the cost of acquisition and cost of improvements.

If you kept accurate records, your Schedule D will show all the benefits, and consequently reduce your tax bill.

The best way to achieve this between a seller and a buyer is with an asset allocation agreement. This document defines the assets held over one year and their values. It ensures the seller pays the correct tax and it helps the buyer establish a proper basis when they decide to resell the website in the future.

You should also mind non-physical items, called intangible assets. Some examples are goodwill, workforce in place, business records, patents, copyrights, designs, formulas, patterns, processes, know-how, licenses, trademarks, among others. Only some of them are subject to capital gains taxation. The IRS clearly defines all of them, so make sure to check with your tax accountant or CPA.

The selling party can also deduce the fees of all advisers involved in the deal accountant, broker, lawyer, and so on.

As of recent, buyers have been using more and more financing, hold-backs, and even earn-outs. As a seller, a full cash deal is probably what you had in mind originally when selling your website.

However, a scheduled payment formula could be an interesting solution to reducing your tax burden throughout a longer period, as they happen. Your future earnings could fall into a lower capital gains bracket. On the other hand, your non-capital asset taxation will be paid in the year you sell your website, regardless of when you receive the payment.

A good CPA or tax accountant can give you more in-depth advice about how to properly your website sale. All the time you invest into planning this event can greatly help you to reduce your tax burden.

Advertising Due Diligence: How to Evaluate an Advertising Business Can Backlinks Affect Your Business Valuation? How to Start Planning Your Exit Strategy

Performing due diligence on a website monetized with advertising is a process that has unique aspects to it.

The first aspect to pay attention to is the origin of the traffic. US visitors are higher value than certain other countries. Organic search, social, referral, email, direct or paid – the more diversity, the safer it is. Usually, up to 80% of traffic is organic traffic.

If the website has direct advertising agreements in place, you also need to understand if the current advertisers are interested in remaining. Also, it might be the case where some of them have yearly agreements in place, but the revenue for the remaining months will have already been pocketed by the current website owner.

You should also understand which keywords attract the most visitors, whether organic traffic is split among a wider variety of keywords and pages, and how consistent the keyword rankings are. Finally, it is important to understand the general trends of the niche you are getting into, and choose a niche with a growing audience and interest.

Another important part of due diligence is the backlink profile of the website you are buying. Ideally, the links pointing to the website should come from trusted websites, with plenty of visits and authority, and it is relevant to the niche in question. In this case, the backlink profile will be healthy and desirable.

As you move further away from this ideal scenario, the backlink profile becomes lower and lower quality. And even if you on-site content is the best in its niche, with relevant media to support it, poor quality links will certainly hurt your site. As Google refines their algorithms, you will be more likely to trigger a penalty – even if the dirty work was done in the past by the previous owner.

If, on the other hand, you find yourself on the other side of the equation and you are planning to sell your site in the future, you should take into consideration a series of measures at least one year prior to actually advertising your website sale. Sellers like to look at numbers and processes and having a complete picture for a full year can increase your chances of both reaching a higher price and a faster sale.

Regarding traffic, the very minimum you need to install and configure are Google Analytics to track your website pageviews, Google Search Console to deal with warnings or penalties, monitor your keyword rankings and your competitors movement, monitor your inbound links for the authority links you build plus prevent any negative SEO attacks.

As for the website finances, you need to treat it like a business if you plan on selling it. At the very least you should have a spreadsheet containing bank account statements, earnings reports, and all business expenses – both one-time and monthly overhead. Fluctuations in monthly earnings should be explained.

You should also document all website processes, so the new owner can easily replace the tasks and roles you play with someone else. You should know how long and how often you need to perform each task, so the new owner can factor those weekly work hours into the purchase decision. You should also have already a positive spin on why you want to sell your business.

Do all these actions and you will surely have a smoother transaction when selling your online asset.

The assistance offered by online business brokers is ideal whenever you seek to purchase any online business since it gives you the opportunity to get professional guidance throughout the journey. The process of acquiring online businesses can be complex and confusing and therefore necessitates the assistance of these skilled and experienced professionals. We explore the process of buying an online business working with an online business broker.

Identify your broker

You must identify the broker who is likely to deliver the best results to you. To do this, you can consider the skills and experience of the broker in purchasing businesses in your industry or sector, their reputation among clients and industry experts, their professional network, their charges as well as their work ethic. Some of this information could be available on their websites, professional sites and on different social media sites.

You should not rush the decision making process but rather wait until you have all the necessary information in order to make an informed choice. You can also request for proposals or bids from different professionals in the field in order to enhance your decision making process. When the process is competitive, the brokers will put their best foot forward giving you grounds to hire or disqualify them.

Discuss with them your needs

Once you have finalised the contracting process for the broker, you should discuss with them your needs, your expectations, the timeline you would like to work with and the resources you have at your disposal. This gives them an in depth understanding on their role as well as ensures that your needs are well understood. You should not move to the next stage until you are certain that you are on the same page with the broker.

Identification of businesses and narrowing down the options

There are two possible methodologies here. The first involves a hands on approach where you are involved in every stage of the process while the second involves empowering your broker to carry out the research, identify the best options available and then present these options to you for decision making. Irrespective of the approach chosen, the end result here is identification of the best online businesses that will meet your business needs sufficiently. Ultimately, you should settle on the businesses that you will approach and make an offer to. It is good to have at least three options such that you have some fall back plan should some deals fall off.

Making the offer

This should be done in a professional and structured way. The online business brokers have the knowledge and skills to do this well.  The offer letter or documents must be drafted by a legal practitioner to eliminate loopholes that could be used against you in future.

Negotiating the offer and signing the contract

In most cases, the online business will have a counter offer which calls for negotiation. The online business broker will take lead in negotiating the best possible deal for you.  However, you ought to inform him or her of your limits such that the deal does not stress you financially. After negotiations, the final offer is drafted and tabled before the online business owners for review. Then, the sale contract is signed, the funds are transferred and the transfer of ownership is affected.

Discharging the online business broker

After the business has been transferred to you and the hand over process is completed, you are then required to pay the online business broker their dues and bring the engagement to an end.

There are two options when you want to enter into the ecommerce world: build a business from scratch or purchase an established brand. Purchasing an established brand may seem like an easy feat but, just like any other business decision, it needs to be approached from a position of knowledge and precision. The following is the advanced guide to buying an online business.

Identification of needs  and goals

Once you have decided that you will purchase an online business, you need to articulate all your needs and list them in order of priority.  This gives you direction on the best business to purchase. Without adequate knowledge on your needs, you may purchase the wrong business which is not only a waste of money but also time and energy.  You must also identify the end goal or goals in purchasing the online business.

Identify potential online  businesses

Once your needs and goals are clear, you can now identify potential online businesses that you can purchase. At this point, it does not matter whether the business has been put up for sale or not. But how do you go about this? What parameters should you look at? The first and most important goal is the level of relevant traffic. Online businesses thrive when they have a constant flow of potential clients. The higher the flow, the higher the likelihood of success.

Next, you need to determine whether the business has been operating within the confines of the law. Does the online business have the licenses and permits to operate within the areas their current areas of operation? Are they compliant with the taxation guidelines? Are they compliant with different international financial standards, in the case of international businesses? What about the labour laws? A business that is non-compliant may result in negative legal consequences and should not be purchased.

How has the business been operating? Do they have a structured mode of operation? While it is easy to introduce structure, its uptake and implementation may give the impression of starting a business from scratch. Therefore, the lack of structure should be evaluated thoroughly before any contracts are entered into.

The profitability of the business is extremely important. In most cases, entrepreneurs wish to purchase online businesses that are already profitable. When the businesses identified have been facing financial turmoils, in depth analysis must be carried out to ensure that the purchase is not a waste of resources. Some businesses may maintain a separate set of doctored accounts and financial statements to impress investors. As such, you must be vigilant and thorough in your analysis to identify businesses with a sound financial track record.

You must also query the ownership of the business for a number of reasons. First, to eliminate or minimise the chances of falling into the traps of con people. Secondly, to ensure that you are dealing with reputable individuals and therefore eliminate the risk of poor brand reputation. Third, you must ascertain you are dealing with the people who have power to transact on behalf of the business and its owners  and therefore acquiring the business in a legal way.

The actual purchase

Once you are satisfied with the information you have gathered on all potential online businesses,  and are certain that they have the potential to meet the needs and goals identified, you can now make your move. A good way to do this is to structure your offer to be irresistible. The terms and conditions of the deal, the financial offer and even the roles of different parties during the transition period should be ideal but not too good to be true. An irresistible deal may change the minds of people who did not have the intention of selling their online businesses in the first place.

Through out the process, it is ideal to enlist the services of financial analysts, market analyst and legal experts such that they guide you in asking the right questions, analysing data correctly and ultimately making the right decisions using the available information. Legal experts will ensure that the contracts entered into are in your best interest.

If you are thinking about buying an online business, it is normal to feel a bit of apprehension. When purchasing a traditional brick and mortar business, you are able to visit the office, the warehouse, meet the employees, and touch base with the customers who walk through the door. Online businesses are digital, which makes it more challenging to see exactly what you are buying.

If you are thinking about buying an online business, and you want to be sure that you are making the right decision, there are a few important things to look at. Here are the 3 most important things to look for when buying an online business.

#1 Online Traffic

With a brick and mortar business, you can see how many people walk past the store and how many walk in. With an online business, you need to focus on the site’s traffic. There is more to looking at the traffic than just checking how many people visit the site.

• Diversity: A successful online business will have online traffic from more than one source. The traffic should be a mix of search, social, direct, and paid. If the company relies too heavily on just one source, it can be very risky. Due to Google’s algorithm updates, 50 percent of search traffic can be wiped out. This can cause the business’ profits to take a huge hit. This is why diversity is essential.
• Backlinks: All search engines value relevant and natural backlinks. This can successfully link one site to another. If the website owner has chosen poor backlinks trying to work the system, they have set themselves up for loss. If you purchase the business, you will be the one taking the hit.
• Performance history: Doing your research on the website’s performance history is essential. You should check things like did the site get hit negatively by a Google update? Has the site’s traffic declined recently? Are there traffic sources that the current owner has failed to pursue? These are all critical questions to ask before buying an online business.

#2 Business Financials

It is always important to check the business’ financials before buying. This is true with both online and offline businesses. However, with an online business, there is more to dig into than the books. Before buying the company, you should look into the following.

• Trends: It is essential to look into the trends in revenue over the life of the business. Did the company really peak in the first few months and then start to die down? Does most of the income come during the holidays, but not the rest of the year? Looking into the revenue trends is essential when buying a business.
• Business expenses: It is best to purchase a business with low business expenses. You should look at the cost for domain renewals, website hosting, marketing, and web content. If the business owner’s expenses are very high, you should first look into reducing these expenses. If you don’t think it is possible, buying the business might not be the wisest business decision.
• Growth potential: The goal of a successful business is growth. You should look at the long-term trends and the competition. To get a good look at the growth potential, you can hire a Conversion Rate Organization, who can give you an accurate look at how the company can grow after you acquire it.

#3 Personal Fit

When you own a business, you need to be passionate about it. If you don’t have that passion, you will never be successful. You also need to make sure that the business will be a good fit for you. To do this, there are a few questions that you should ask yourself.

• Can you see yourself working on the site?
• Do you have the time necessary to make the website successful?
• Do you have the money in your budget to take a minor financial loss when you are first starting out and learning about the business?

Before buying an online business, you need to do your research. Doing your due diligence is essential in purchasing an online company that has the potential of being incredibly lucrative.

To achieve success as a website investor, there are sets of skills that you must acquire. These skills ensure that you make the right decisions in all departments of your business and therefore enhancing success. The following are skills needed to be a successful website investor.

Analytical skills

Every investor needs to identify market trends and use existing data to predict such variables as expected levels of traffic, expected cash flows and the future value of your investment. Analysis is also important in gauging how far you have come in terms of growth of traffic and thee increase in value. Investors could make use of different automated tools to carry out the analysis but they will still be expected to understand the end result of the analysis.

Master at least one skill related to website investments

SEO, analytics, content creation, coding and development skills are all important in website investments. As an investor in this sectors, you must learn and master at least one of these skills. However, nothing limits the investor from learning all these skills but they should ensure that they have at least one area of specialisation.

Ability to Keep learning

The technology and systems keep getting better with each passing day. In order to remain successful as a website investor, you have to keep an open mind. You must learn new skills, improve your knowledge base on different technological topics and apply these consistently in order to remain a top investor.

Ability to recognise opportunities

Successful investors in all fields have perfected the art of identifying opportunities in their field and exploring them before everyone else. They also have the ability to recognise when time has come to change their field of operation when it has reached a stagnation point. Opportunities come in all forms including those to specialise and pursue a niche market.

Team management skills

To run any successful venture, the investor will need to collaborate with different people in the field. Website developers, content managers, SEO experts and advertising experts are some of the team members that will require to be management. In addition, the investor may have different clients and therefore the need to give them sufficient attention. Team management skills can be acquired over time through experience but there are also formal classes that can teach the investor the basics of team management.

Financial management

How does the investor manage the resources acquired from his investments? Are there funds that have been set aside for emergency business situations? Financial management involves learning how to manage funds well in the present period such that the business has enough funds to cater for operations even in low business seasons in future. In the absence of proper financial management skills, there will be no funds to invest in new opportunities as they arise.

Strategic planning

Strategic planning skills are important in retaining the profitability of any venture and website investments are not an exception. Strategic planning includes both short term and long term investment plans that will increase the value of the website and therefore your investments.

Marketing skills

An investor is constantly marketing themselves to clients and other stakeholders. Marketing skills ensure that they can successfully identify the marketing strategies that will generate the most favourable outcome with respect to different stakeholders. If marketing is outsourced, then it gives the entrepreneur the ability to understand the information and data presented to them accurately.

The valuation of any business is usually a depiction of how the business owner views their business.  It is a representation of the owner’s interpretation of how different forces in the market affect their business. The value of the business therefore communicates more than just the financial outlook of the business as investors can use it to understand the business owner. This is why you need to take your time developing your business narrative and valuing your business. This article analyses SaaS Valuations: How to Value a SaaS Business.

What is SaaS?

Software as a service (SaaS) is a type of business where the entrepreneur provides and hosts applications for a fee. The business therefore involves the development of software, maintenance of databases and servers that then allow clients to access the applications over the internet. Most SaaS companies operate on a subscription basis which charge annual, quarterly, weekly, monthly or even daily subscription fees on the target clientele. But how do you value such a business?

How to value a Saas Business

The Multiple Method

In this method, the revenues of the business are calculated and then multiplied by a predetermined number, usually called the multiple. This method is ideal for small businesses and is usually guided by the age of the business, stability of the business revenues, client base expansion and trend, the quality of the content used, the revenue drivers and the monthly or yearly growth of the business. The owner’s involvement in the business may also have a great effect on the multiple. On average, the business multiples usually fall between 3 and 4.5.

The sellers discretionally method

This is usually calculated as the total revenue collected over a period of time, less the cost of goods sold and the total cost of operations, then you add back any remuneration paid to the owners as well as personal expenses covered by the business. This method is also ideal for small businesses that employ a few people.

Earnings before interest, taxes, depreciation and amortization

This method can be used to value larger SaaS businesses with many employees, clients and costs of operations. This method is usually taken as the most accurate business valuation method for these businesses. Experienced and skilled valuation experts may be called upon to enhance accuracy when this method is used. This method can also be used to predict with a certain degree of certainty the business trajectory for the next few years.

Incremental value

The aim of every business owner is to grow their business over time. As a business person, you need to value your business often in order to determine the growth trends, identify the areas where you need to put in more effort and the areas where you need to keep up the good work. Therefore, business valuation should not only be conducted when there is an imminent sale but on a regular basis. This also helps you develop data that could be used to market your business when you decide to sell.

Given the increased interest in SaaS businesses and e-commerce, it is essential to build a solid business from the beginning. It is also good to have in depth understanding of the value of your business in order to avoid embarrassing yourself in front of your investors or employees. If this is not possible, then you should at least understand the basics.

A business that is seeking to expand its operations can purchase an existing profitable business to drive the expansion. In addition, brick and mortar businesses can purchase successful online businesses in order to debut into the e-commerce world.  To do this, one must understand how sellers value their businesses and how to go about identifying the most suitable business. We take a look at How to Value and Sell an E-commerce Business How to Find an Online Business for Sale – Guide.

Valuing an e-commerce business for sale

The value of online businesses could range from a few dollars to millions of dollars. This valuation is usually based on the niche market the business operates in, the level of traffic generated by the business per unit of time, the level of conversion of the traffic into paying clients for the business, the presentation of the business and the quality of the back-end of its websites and online resources. The value can also be increased by the demand of such business vis a vis their supply at a particular period of time.

When set out to value an online business with the intent to sell, it is paramount you get your facts right such that you make the best out of the sale. You can begin by identifying the critical factors that make your business valuable or successful- the critical success factors. You should also question the factors that could be deemed the weak areas of your online business. The next step is to identify how much value the success factors add on to your business and how much the weaknesses take away. In cases, where the weaknesses are weighing down the value of the business, you ought to work on improving them before you can sell the business.

What factors in the external market have an effect on the current value of your business? These can be divided into two categories; those that increase value and those that minimize the value. Will these factors still matter in a few months or years? You need to factor their overall effects in the business valuation such that the value does not mislead the buyers.

The valuation of a business is technical and could therefore require the services of an online business valuation consultant.  You can work closely with one in order to arrive at the correct value of your business. However, you ought to work closely with them since they need to understand your business well in order to come up with the correct valuation parameters.

Selling an online business

The joy of any seller is to identify a suitable buyer who sees the value of the business and is willing to pay the price. As a seller, you must advertise your business to potential buyers. You must also be willing to indulge the buyers in the quest to understand your business and its value.  Besides this, you must ensure that you have a team of legal experts who can guide you through the process to ensure that you not only sell to the best buyer but that also the transactions are done in accordance with the law, and therefore averting any legal implications in future.

How to find an online business for sale

There are websites that list different online business that are up for sale. This should be your first stop when you want to purchase a business.  You can also search on all major search engines using the keywords of the business you intend to purchase.  In addition to this, there is an easier option; find a broker who will assist you in identifying the businesses you can purchase and in overseeing the purchase.