Valuing an online business

[aliensong]

What are some of the multiples or formulas one uses in valuing an online business? What are the factors one looks at? Has anyone here ever have any experience on either side of such a transaction? Do you know of any means of reference to which you can point to help find such answers? Thanks.

[ChrisBenjamin]

Usually look at projected cash flows, projected net income, projected sales. Value of a customer, scalability, management team in place, track record, any history so far. If you can demonstrate some track record and a solid mgmt team that'll go far in valuing the company vs. if you have nothing yet and a 1 man show. There's multiple ways to value a company, hard to say which way is right or wrong. Best is to calculate using multiple methods and blend them. And realize that most investors won't give much weight to your valuation, and will probably only consider it 1/10th of what you think it's worth. Anything pre revenue will be tough to value at more than $100K unless you have contracts in place, etc.

What are some of the multiples or formulas one uses in valuing an online business? What are the factors one looks at? Has anyone here ever have any experience on either side of such a transaction? Do you know of any means of reference to which you can point to help find such answers? Thanks.

[Crystal.manage]

Business valuation is the assessment of economic value (Fair market value) for that business. You may need business valuation for a number of purposes, for example when you are looking to invest in some business, or planning to buy/sell some enterprise. Business valuation is not only handy when investing into some business, it also helps in taking better decisions when you are getting into partnership with someone or seeking loans for your business. Valuation is normally carried by professional appraisers, first because it is a complex task and needs professionals to do it; second an outside party will provide a more objective and neutral report. However, a better understanding of what contributes into the valuation of businesses will help you to progress into the right direction.

Just like any other financial report, the appraiser or valuator needs to disclose what approach has been applied for business valuation as all approaches have different pros and cons. Three approaches mostly used for business valuation are

i) Asset based approach
ii) Income based approach
iii) Market approach

Sometimes a combination of all of these approaches is used.