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The $100,000 Question

Written by: Jay Hamilton-Roth

Article Overview: "So, what do you think my web-based business worth?", someone recently asked me. I questioned them about previous year’s income, expenses, traffic, page rank, and the amount of effort they put into the business.

The $100,000 Question

"So, what do you think my web-based business worth?", someone recently asked me. I questioned them about previous year’s income, expenses, traffic, page rank, and the amount of effort they put into the business.

After listening to their answer, I realized that fifty people when asked this same question, will probably provide fifty different answers, and that all of these answers are likely wrong.

What does matter is what someone is willing to pay for it.

When selling a house, for example, real estate appraisers start by looking at comparable sales in the neighborhood and adjusting the value based on the positives and negatives the home has. The number they arrive at is a historical value. Lenders require them. Real estate agents love them. Sellers try to optimize them. But the house is only worth what someone is willing to pay for it

Business brokers will likewise place a value on a business based on historical earnings (which don’t guarantee future earnings), potential for growth, market niche, etc. But again, the value of the business is in the eye of the purchaser. Of course, if there are tangible assets in the business, those can be liquidated for a known value.

For a web-based business, it all comes down to perception . Is the business making money or is it likely to do so? If there’s lots of unique traffic, then there is additional possibility to make money by selling ad space.

The problem in negotiating "worth" is when there’s a discrepancy between the perception of the buyer and the seller. The buyer is looking for flaws to justify a price reduction. The seller highlights the uniqueness to justify a top price. Both want to walk away from the deal feeling like they "won".

Instead of getting caught in the perception game, consider the cost for not buying or not selling. If you’re exhausted running the business, then what’s it worth to you to reduce your stress? How about the late nights worrying about the new competition that’s threatening to overshadow your success? When was the last time you took a vacation?

You might regret the sale or purchase, but if you did your "homework" to verify the "numbers", and you got wise counsel to help with the transition, then everything that happened is investment in your education.

Besides death, taxes, and change, there are no guarantees in life or business.

(Since people love hearing about online businesses that "hit the lottery", read the story about pizza.com selling for $2.6M (http://blog.wired.com/business/2008/04/pizzacom-domain.html) or a story about Fund.com and Harmony.com for $10M (http://www.webpronews.com/topnews/2008/05/12/is-harmonycom-worth-5-million))

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Article Tags: ad space, business brokers, comparable sales, discrepancy, earnings, game, lenders, making money, market niche, neighborhood, page rank, perception, purchaser, real estate agents, real estate appraisers, stress, tangible assets, unique traffic, uniqueness, web based business



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