Finding the accurate value of an online business is a difficult and complicated task. It is similar to valuation of a normal business but has a key difference. The absence of physical assets can make the valuation process more difficult.
If you’re clear on the methods available, their pros and cons, you can easily obtain a realistic valuation of your business. However going with a professional business broker can also help you a lot. List hereunder are some critical things that an M&A broker performs to find the accurate value of a business.
1. Traffic Value
In this method, the business broker identifies top key words that will pull majority search traffic to the respective website. Then, they find out the Cost-Per-Click (CPC), which is the monetary value of each keyword.
2. Discounted Cash Flow (DCF) Analysis
One of the most thorough ways to value a business is through DCF analysis. It involves forecasting the free cash flows of the business and discounting them with a predetermined discount rate, usually the weighted average cost of capital (WACC) for the business in question.
3. Precedent Transactions
Looking for precedent acquisitions of similar companies is another approach to determining a value for a business. With the comparable transactions method, you should be looking for comparable metrics, usually multiples of earnings or revenue. It is typically used as a frame of reference by business brokers against other methods rather than being the method to actually determine the value.
4. Earnings Multiple
The core metrics in this method include P/E multiples as well as EV/EBITDA and EV/Sales. The simplicity of this method attracts many small internet companies. The value is calculated by simply multiplying seller’s discretionary cash flow (SDC) by a multiple that is appropriate for the business.
If you are looking for a mergers and acquisitions broker who knows precisely how to evaluate a website, look no further than M&A broker ValleyBiggs. They specialize in middle market companies that fall within the technology, website, and internet niche, and can provide their clients with professional services that have proven to be successful again and again. Call their team at 800-980-4145 today to set up your website valuation.