You’ve built your online business up from a single idea but now, for whatever reason, it’s time to move on. But selling an online business comes with its own unique set of challenges.
Valuing your online business is the first hurdle. What do you need to consider in order to come up with a price that’s fair? The key things to consider are:
- The repeat revenue earned;
- The addressable market size for the business;
- How sticky the customer base is and their network effect;
- The track record of growth and the cost of the continuing that growth; and
- Is it profitable?
How do I value an online business?
As the setup of an online business tends to be completely different to a traditional business, the valuation metrics tend to be different too. So, the first thing you need to do is define what type of online business you are. The three main categories are:
- Your revenue comes from advertising
These are free websites or services financially supported by advertising. This type of business sells the user’s data to advertisers or third parties, and they in turn place advertisements on the site. The owner is then paid on a cost per click or cost per impression basis. So, the value in this business is the size of your active user base as this is where the income comes from.
- Your revenue comes from selling stock
Another word for this is ecommerce – where users can buy or sell items which can be physical or freelance services like design or writing. The revenue for this business is made on commission or the profit margins of each product sold.
Valuations for this type of business are usually based on something called EBIT or earnings before tax multiple.
- Your revenue comes from subscriptions
This is when you charge a monthly fee for the use of a service e.g. software such as Xero. Your revenue is based on an annual, recurring amount which is what your valuation would be based on. This way, the buyer can work out how much they might expect to earn each year from repeat customers.
Whatever type of business you own, the most important factors are the recent growth rate and trajectory. If these are strong then the skies the limit with an online business.
How do I sell an online business?
Preparation is the key when selling any type of business. You must have all the traditional items ticked off and prepared, but with an online business, there are a few more things to consider:
- What’s your digital marketing strategy and is it considered, well thought out, and something the buyer can leverage?
- Are you on top of your data? Do you have sound reporting on monthly page visits, active users, advertising conversions or sales channels?
- What is your unique selling point or USP? How do you differentiate yourself from others in the market place and what’s your competitive advantage?
- How can I protect my IP during the sale?
No matter how organised and on top of your business you are, there’s always the chance that something will come up which can delay the process or even stop the sale. If you try and pre-empt what those potential issues could be, you can hopefully have a solution for them ready so as not to hinder the process. Things to consider are:
- What’s your corporate structure like? If it’s complex, it could be time to consider trying to simplify it for the purpose of sale.
- Is ownership or IP rights clear with no murky water?
- Has your business stayed true to its core objective or are there multiple services or products which detract from it?
- Can you explain exactly what it is that makes your business successful?
- Do you have all of your financial information prepared and professionally presented?