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What Is My Web Site Worth? |
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What Is My Web Site Worth?
Below is the transcript of a Small Business Trends Radio Show episode featuring Debra Matthews, Senior Broker, Quiet Light Brokerage, which was broadcast on July 14, 2009 titled, “What Is Your Web Site Worth?”
Anita Campbell: Welcome to the show. I’m Anita Campbell, your host of Small Business Trends Radio.
Brent Leary: I’m Brent Leary, today’s co host. Our show today is about website value. This is going to be good, because I’m pretty sure that there are many of you out there who have probably asked yourself how much is my website worth.
Anita, quite honestly, I’ve asked myself that question too.
Anita Campbell: I’ve asked myself that question as well. I think anybody who has ever built up a website just wonders at some point in the back of your mind, “Geez, what if I could sell this website. What would I get for it?” Sometimes it’s just a matter of validating all the work you’ve been putting into a site. Is it worth it? Am I doing something that is going to pay off in the end?
That is why I am so interested in today’s guest, because she is here to discuss how sites are valued in today’s market, what the marketplace is doing and how it’s reacting to businesses for sale web businesses for sale.
Also, what things a web businesses owner can do to increase the web site’s value and, of course, get the highest price possible for their websites. Here’s something I’m really interested in too. She’s going to tell us about the common mistakes that business owners make when it’s time to sell their web business.
Brent Leary: Oh wow!
Anita Campbell: Yes. And we can all learn from others’ mistakes, right?
Brent Leary: Absolutely! Let me get my pen and paper ready, by the way.
Anita Campbell: OK, Brent. With that, I’d like to tell you about our featured guest today. Her name is Debra Matthews and she is a Senior Internet Business Broker at Quiet Light Brokerage. There’s a lot to discuss and we’re eager to get started so let’s jump right in.
I want to give you a big, warm welcome, Debra. Welcome to the show!
Debra Mathews: Thank you so much. It’s great to be here and I appreciate you inviting me on the show. I hope that I can come up with some good information for people.
Anita Campbell: Very, very good. As Brent mentioned in the intro before we started the show. . . you must be from the South right?´
Debra Mathews: Yes I am now, but I didn’t used to be. I do come from England originally.
Anita Campbell: OK, so tell us a bit more about yourself, Debra, and how you came to end up in the business of selling websites or representing businesses that sell websites and how you got to Quiet Light Brokerage.
Debra Mathews: Sure, absolutely. My background was in business and finance but over the years, I’ve owned and developed and sold a couple of bricks and mortar businesses as well as web based businesses going back since 1993. But I do find that the combination of having been both in the buyer and the seller’s shoes really helps me. I’m able to bring together all of my past experience and understanding of finance to assist people very effectively with what can be – and almost always is - quite a daunting task. Whether you’re buying or selling.
I joined Quiet Light Brokerage about a year and a half ago and I’ve been plugging away at it ever since. Very enjoyable. Very interesting.
Anita Campbell: You joined right on the cusp of the recession? We’ll talk about that in a little bit. That could be an interesting story in and of itself, I bet.
Debra Mathews: Yes! That could probably be a show in and of itself.
Anita Campbell: Right! Well, let’s hold that. Maybe we’ll do a second show at some point. But before we do that, tell us about Quiet Light Brokerage. What is it and I’m actually very interested to know how the name Quiet Light Brokerage came about?
Debra Mathews: Quiet Light Brokerage is owned by Mark Daoust. He’s pretty well known in Internet circles. He used to own Site Reference but he started Quiet Light Brokerage in 2007 in response to a gap he saw in the market when he came to sell his Internet business. He saw that there were very limited, if any, brokerages offering services. Especially for small and mid sized businesses and really no one specializing in specifically web based businesses.
That’s what we do at Quiet Light Brokerage and it’s ALL all that we do. We represent income generating web based businesses. Quiet Light is meant to represent that piece of the quiet light. We’re supposed to be a beacon in the distance that people can steer towards and, hopefully, we can steer them in the right direction and help them understand what are the right things to look for in a business and what are the things to avoid. Whether they’re buying or selling.
Anita Campbell: I know one thing that people are always looking for are rules of thumb or quick gauges that will tell you how much a website is worth. Are there any standards or rules like that? How would you go about even thinking about the value of your website?
Debra Mathews: Typically a valuation is comprised of two parts. The basic benchmark of net income, which is pretty much a standard, and then you apply some sort of multiplier to that. The net, it pretty much is what it is. Whatever your net income after expenses is. The real art of a valuation is in figuring out what multiplier can realistically be applied and achieved under the current market conditions. That does change. I’ve seen valuations as high as four times and I’ve seen them as low as three quarters.
There are a lot of different factors that need to be considered to figure out. Exactly how high or low you can go when you’re putting that multiplier on there to come up with the actual asking price. Those are the basic guidelines that you have to look at.
Anita Campbell: You mentioned factors — there is really an art in figuring out what a website property is worth. So what factors then should you consider in a valuation? Let’s put yourself in the shoes of the seller, for example. What should the seller be thinking about in terms of the factors that add value to a price tag?
Debra Mathews: Right. Probably one of the first points that they should look at is transferability and the ease with which somebody else could pick up and run their business. Typically, they would have been running it at least for a few years. Websites that are highly automated or require very little specialized knowledge such as SEO skills, website design, constant content provision and blogging, sites that have little requirement for those things are more attractive, because they’re easier for more people to run, so they can usually command a higher multiple a little bit more easily.
Growth potential obviously should be clearly defined, and expect that a buyer will want to see potential, but they sure don’t ever want to pay for it. It has to be proven in your profit and loss statement, at which time then it’s just called revenue, and then you can use that to build on your multiple as well.
We look at things, volatility, trends and cycles are big concerns for buyers. Declining trends obviously, will result in a lower multiple. On the other hand, positive revenue and traffic patterns will show improving trends and they can support the higher multiples. Consistently growing businesses are easier to predict and so they get better valuations.
And then the last thing would be trademarks, patents, anything that helps protect you against competition. Having well established vendor relationships and several vendors speak to supply stability. Anything with a recurring monthly revenue and a high renewal rate, will get you a much higher multiple. Those are the basic factors.
Anita Campbell: I’d like to delve into a couple of things that you just said there, Debra. One of them is, you mentioned how a website that runs automatically and doesn’t need a lot of care and feeding basically is one that will command a higher price tag. Could you give us a couple of examples of those types of websites?
Debra Mathews: Yes. Automated websites can be membership websites. They’re very popular because they do have that recurring income and much of the customer service work if you like can be highly automated with auto responders and that kind of thing. Then you only have to deal with particular instances. Another good one would be any site that’s run with a fulfillment operation, where you might have a call center that picks up the coals and then the sale gets transferred to the fulfillment center and somebody else picks, packs, and ships the product. Your job as an owner just becomes marketing and a lot of that even can be automated.
But that makes it easier. It opens the door to many more people to be able to run that business than say something that requires a very deep and granular knowledge of SEO practices or website design. There’s a lot of small business owners out there who don’t know how to quote and don’t want to know how to quote. That’s not my thing.
If you have a business that requires that you do a lot of content provision and things like that to narrow your field when you come to or require some special skill to run it. That doesn’t mean you have to find a buyer, it just means it might take you a little bit longer.
Anita Campbell: You also mentioned patents and trademarks. And obviously, I can see the value in having a patent on something. But if you have a trademark, let’s say just a trademark on your logo and maybe a couple of design elements relating to the site, does that add a lot of value, or is it just something a little bit additional?
Debra Mathews: It would probably. Patents can add quite a bit of value and product trademark can add value. If it’s own your logo, yes, it has a small amount of value, but it is not quite as much as having a patented product that is going to protect you or trademark that somehow is going to protect you from competition.
Anita Campbell: I see. Well, let’s talk about the current economic climate a little bit. You know, you’d have to be on the moon not to realize we’ve been in the midst of a recession, right? How has that affected the sale and purchase of small business websites?
Debra Mathews: It’s certainly floating down. Just like all other businesses, the web has been hit by economic decline. Especially in the last year. This time last year, we were routinely able to ask – and in most cases achieve – a three to four times multiple for what we would consider a good business model with all its ducks in a row. But right now, that same business would be far more likely to sell for two and a half to three times that. And more than likely, the seller might be asked to carry some financing within that deal, which we weren’t seeing so much of last year. So it has trickled down for sure.
Anita Campbell: If sellers are asked to carry financing, what’s the typical response? Do a lot of them say yes, and how would that be structured if they do?
Debra Mathews: Most of them would like to just say no, but unfortunately, it’s just a fact of life today. That’s what buyers have in their mind. It is totally a biased market. And it is quite a biased market, not necessarily totally, but it’s becoming more and more common for buyers to ask the seller financing. But I think the most important thing is to be realistic, and if you’re asking is a buyer for seller financing, you have to look at the level of risk you’re asking a seller to accept.
It’s unrealistic for sellers to want them to hand over 100 percent control of the business, but for only 50 percent of its current value. So I would say the most important thing is to put yourself in the shoes of the seller and be brutally honest with yourself.
If you’re asking for a level of financing that leads the seller, no longer in control of the business, yet, still holding the majority of the risk, of actually receiving that standing balance, likelihood is you would don’t take on that level of risk yourself. And so therefore, neither will the seller. But you know, you both have got to consider that you are in competition to secure that business.
If there are other interested parties, and with the best businesses there almost always are, you need to understand, a seller might actually accept a lower total compensation for the business, in exchange for payment in full at closing.
They will almost always give more weight to a higher offer than one that is asking them to assume the risk that you may pay up the note or not. All cash offers are given much more weight by sellers than anything that has a reseller financing with it.
Brent Leary: Let’s talk about some of the common mistakes that you see sellers make when it comes time for them to start selling.
Debra Mathews: I’d say undoubtedly the most common mistake is lack of preparation. Strangely, it’s the same for buyers as well. I would say the all time biggest doozy of them all is sellers who don’t keep good records because that really does hurt their valuation. It hurts their ability to get the sale closed.
It’s not just about the price that you ask for; it’s actually going through to the closing and transferring the business. And if you can’t prove your revenues and your traffic history, it’s very difficult for buyers to be able to see the value in your business.
Brent Leary: What should they do? What process should they walk through in order to get the best deal they can get?
Debra Mathews: First if you’re keeping your papers, your merchant account statements, in the floor in a spare room or in a shoebox that your cat occasionally sleeps in, you need to start by scanning and saving them into PDFs that cover logical time frames by calendar quarter, or by year, for older information. But definitely put at least the most recent 12 months and the most recent past calendar year into a spreadsheet format as well. Actually, I can provide a link for a generic profit and loss spreadsheet template that I can send to you guys that you could post on your site.
Brent Leary: That would be
great.
Debra Mathews: If you have a lot of paper, I suggest people take it down to Kinko’s or Office Depot. They can put it on one of those super fast machines and they’ll have a PDF file for you in minutes. So that’s what you should do with the older stuff. The most recent 12 months and the full calendar year you definitely need on a spreadsheet.
Brent Leary: What about the idea of getting that traffic data for your site? Is that something that they could use a free service like Alexa or Compete or should they get even more detailed in addition to doing their Google Analytics or whatever package they may have. Do they need to go to some of the paid data partners to get that?
Debra Mathews: It’s not particularly necessary. Google Analytics, if you’ve got that on your site, then you’ve probably got most of what most buyers are looking for. But a lot of sellers that I speak to actually don’t have Google Analytics on their site.
Brent Leary: Oh.
Debra Mathews: They don’t realize that their web host providers quite often have either Urchin or Webalyzer reports. I speak to lots of sellers who are like, “I don’t have that stuff” and when I quiz them on it and tell them where to find it they actually find out they do. But ideally, it’s well worth the time to put Google Analytics on it and it’s very easy. It’s just a little bit of script that they provide for you and you just cut and paste it. It takes seconds to set that up. It is key information because that’s really the difference.
It’s what shows your web site to be a high street store as opposed to a back alley store. Web traffic is the Internet equivalent that defines if you’ve got a prime high street location or if you’re down that dead end alley.
Brent Leary: What particular parts of the traffic measurement is important?
Debra Mathews: The most important is unique hits or unique views I should say. A lot of people talk about hits but, especially if they don’t understand analytics they look at this huge number which usually looks similar to the national debt. It just keeps clocking up all the time. But it’s really just counting various different elements on your web page as they pop up. The most important is usually unique visitors. Then it’ll be how long they stay on your site and how many pages they view while they’re there.
The bounce rate can be pretty important too. That’s how quickly they bounce and which pages they bounce off of. But again, I don’t think Google needs any help from me. It’s very difficult to beat the Google Analytics layout. Everybody’s familiar with it, everybody knows where to look for what information. That’s probably the most popular, the easiest to read and the easiest to understand. It’s the easiest to get and it’s free.
Brent Leary: Yeah, you can’t beat free!
Debra Mathews: You can’t beat free!
Brent Leary: How much of that data should you have before you get serious about selling? Is it six months, a year, two years? How long of a trend should you. . .
Debra Mathews: You want as much as you can possibly provide. I mean if you’ve got traffic history from five years ago, it’s probably really not relevant to your site today, but that’s not usually the concern. The concern is people come to me and they go “I haven’t had that.” And if you put Google Analytics on your site today it’s only going to report from today forward, it’s can’t do anything in retrospect. So you have to get it on there. I would say you need, ideally you need a minimum of a year. You might be able to skate by with six months if you’ve got revenue stats that can compensate for the lack of traffic history.
Ideally people want to see at least a year because then they can see trends and cycles. You’ll see some web based businesses are seasonal and some are not. Some are subscription sites actually and membership sites are affected when the weather’s nice. People don’t go to their computers which is not necessarily something that you think about. But you see it and you’ll see it in those analytics.
Brent Leary: So we talked about what the sellers should do, but what should the buyers do ahead of time and what should they be on the lookout for?
Debra Mathews: The buyers really need to seek the information that they need to properly evaluate a business. And they really need to put their thinking caps on before they start going out there looking at businesses. I would suggest they have a basic checklist and then they add specific questions to that list to evaluate a particular business and make a fully informed decision. They need to be ready to look at that information, evaluate it according to their checklist and then execute or exit.
I’ve seen so many buyers get “pipped at the post” by another buyer who was better prepared and they are sorely disappointed when that happens because there’s nothing like finding what you believe to be the perfect business – and then getting “pipped at the post” because you just weren’t quite there to make that decision.
Having your checklist will make you feel more secure about doing that. You just go down and basically check off the things. If it’s got all the elements or most of them, you look and see which ones it’s missing. “Can I live with that? Is it something I can improve on and compensate for or correct once I buy the business?” And if you can, then make your best offer.
Brent Leary: What are a couple of those top things that should be on that evaluation checklist?
Debra Mathews: Verifiable revenue. That doesn’t necessarily mean tax returns. To be quite honest with you, tax returns don’t tell you an awful lot other than that’s what they reported to the IRS. I really like merchant account statements because they’re third party documents that prove that the income is as it has been stated to be. So that’s always right top on the list. Second would be web traffic and then third would be a clear picture of what they’ve done for marketing.
Preferably with a timeline associated with it so that you can see how they did this marketing campaign here and “look, their revenues went shooting right up.” It’s just another way that one piece of information supports another.
Brent Leary: OK, Great! Now lets go back and put our buying hat back on again and our website is actively listed. What can we do to make it as attractive as possible for folks to be interested in buying it?
Debra Mathews: I think once it’s listed you need to be a little bit patient but you need to respond to questions timely. Provide supporting verifications and proof documents very quickly and efficiently. If you’re at that point you should have that stuff ready to go, you should be ready to pull the trigger on that very quickly. Then consider all offers that are made within a maximum of twenty four hours and respond yes, no, or counter. Look very carefully at projected timelines in letters of intent.
That’s also to make sure you can live with those. Too long for due diligence or price of requiring a binding asset purchase agreement can put a seller at risk of losing not only this buyer but also the interest of other buyers because the listing can get stale, especially if you’ve got an extended exclusivity period.
If you’ve got all your information ready to go it shouldn’t take anybody very long to know whether they’re going to continue or whether they’re going to exit and withdraw.
Brent Leary: Any other pieces of advice for finding the right valuations? Should you get more than one opinion on that? What do you think?
Debra Mathews: It’s like anything else; you don’t want a podiatrist doing open heart surgery on you. So it’s really important to look to a company or someone who’s experienced with or specializes in representing web based businesses. I’m a big believer in specialization because you can’t be all things to everybody. If you pick your niche and you specialize then you should know it very, very well. I think most sellers do have an idea of what their business is worth. Sometimes their idea might be a little bit higher than what the market will currently bear but at least they’re usually not that far off.
I think that’s the most important thing. People do know when they’ve got a realistic valuation and I think it’s important to feel comfortable with the person that you’re dealing with. If you’re going through a broker, make sure that you feel that they’re ethical and look and ask for references or us.
A lot of times they’re on LinkedIn and you can pick up references there from past buyers or sellers. You can even get the people on the phone and ask them about their experience directly. You know, reputation is everything.
Brent Leary: Absolutely. Go to QuietLightBrokerage.com to learn more about what you guys do.
Debra Mathews: Absolutely. Absolutely.
Brent Leary: Great.
Anita Campbell: Well, Debra, this has been extremely informative. I’ve been taking notes in the background here. So thank you so much for sharing all of this information, we really appreciate you coming on the show.
Debra Mathews: Well, thank you so much for inviting me to participate. It was a pleasure.
Anita Campbell: Thank you, Debra Mathews of Quiet Light Brokerage. You have just heard another in depth entrepreneurial interview from Small Business Trends Radio. I want to thank you very, very much for listening.
Please join us next week, same time, same place. Tuesdays at 1:30 PM EST. Until next week, I’m your host, Anita Campbell.
Brent Leary: And I’m Brent Leary, and that’s a wrap.
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