The days when an internet startup could release a stock and watch it go through the roof before even posting a profit are over. Nowadays the market for e-businesses has stabilized. Internet businesses now play by the same rules as every business from a McDonald’s franchise to Sam’s Custom Cabinetry and Woodwork.
To some, this is good news. The fact that Internet companies are now valued on simple revenue/expenditure ratios—rather than on “buzz”—has officially signaled to more conservative investors that it is now safe to go back in the water.
Of course, this means that owning an Internet business is no longer the profit inhaling machine that it once was. On the bright side, if you are in the market to buy an existing Internet business you can now use well worked formulas and multipliers to determine the value of the business—before you head to the bargaining table.
Existing for-sale Internet businesses are easy to find. Before you sign your John Hancock, fork over any money, or even sit down at the bargaining table, however, make sure that you have a thorough grasp of the true adjusted profits that the business stands to earn.
First, examine the revenues and expenditures of the company you wish to buy. Your next step should be to determine both the business’s gross profit valuation, and its net income.
Depending on the type of e-business at hand (e-tail, e-service, or many of the myriad other e-type businesses) you should be able to find both a net income and/or a gross profit multiplier. These multipliers (which can be anywhere from 1 to 5 or higher depending on the profits) should give you a very rough estimate of the business’s worth.
Once you have used your rule of thumb multiplier to weed out any bad investments, you will be left with a short list of Internet businesses. This list should be taken to a professional business valuation expert.
The benefits of having a professional appraisal and valuation done before you step to the bargaining table are too many to list. Just as the man who represents himself in court has a fool for a client, the person who attempts to do their own analysis of a companies worth has a fool for an investor.
Professional valuation experts look at every aspect of an Internet business’s expenses and incomes. They also look at any additional inventory (not always a factor in an e-business sale), and other mitigating factors that may change the market worth of a business.
Buying an Internet business should be approached just like any other investment opportunity. Make sure that you will make your money back before you put down any cash.
© Peter Siegel, MBA - All Rights Reserved
www.USABizMart.com
--------------------------------------------------
About The Author: Peter Siegel, MBA is the Founder & Principal of USABizMart.com - USA Businesses For Sale, one of the most popular business for sale related websites on the internet. He is also the author of three books on the topic of business sales and how to buy a business. The most current book is "Businesses For Sale - How To Buy Or Sell A Small Business". Mr. Siegel also writes a daily Business Opportunities Blog – at www.USABizMart.com/blog that covers all topics on selling, buying, valuing, and financing small to mid-sized businesses.
--------------------------------------------------
Attn: Website Owners & Ezine Editors: Feel free to reprint this article in its entirety on your website or Ezine so long as you leave all links in place, do not modify the content and include the resource box as listed above. Thank you.
|
