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The old school says 10 times net annual profit plus the cost of real assets. I still like this approach.
We can all claim our sites will be "hot" in five years time so that a buyer should pay 100 times current profit or projected profit.
Personally I would never pay more than 10 times current net profit, plus liquid assets. That is a conservative approach...but, a wise one IMHO :)
Any buyer who pays more is taking a large risk, not a percentage play!
Traditionally, (prior to the late 90's), yes!
The theory is simple, making 10% on your money per year is a hard thing to consistently achieve via any traditional method over the long-term. So therefore buying a company or website that gives a 10% PA return is a reasonable purchase (via growth or returns).
However, in recent years "irrational exuberance" has ruled the economy, less today than 6 years ago, but, it still exists.
e.g. Google has run been between $174 & $475 a share in the last 12 months. From that alone we have to conclude that basic rules are now out of the window. Investors are no longer Investors, they are gamblers IMHO!
Google's current PE is 67, its 2006 forward estimate is 8.74, I'll buy into a lot of growth companies with a current PE under 10, but, not one that has to achieve 8 times PA growth to achieve it......but, I'm a conservative!
Thanks......but, done it the way I do it for 15+ years, and I'm not about to change now!
You see some of us just don't change. We value companies in the exact same way as they were valued 20 or 100 years ago. We write using the same methods of communication that were used 20+ years ago.
We adapt to technology, but, we don't necessarily see it as a good thing for society!
I'm of the older generation.....I think the younger generation has gone mad! Your parents will tell you the same. It might be that we are slow to change, or it might be that the younger generation has literally lost it's way?
To be on topic.....the "older" generation definitely values companies, assets, & web sites differently. Who is right or wrong, well, time will prove the answer ;)
These dont account for some things such as future potential, competition, uniqueness, etc. There are many domain appraisal companies out there that may or may not be able to give a good estimate. <snip>
The real price is whatever the buyer is willing to pay :)
[edited by: stuntdubl at 8:22 pm (utc) on April 13, 2006]
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The amount you pay or receive for a business should always be a much larger and more complicated calculation than factoring the net by any multiple.
You have to know the industry market share, the potential growth of that market, the companies ability to withstand change in that sector and adapt to it to continue to reap in the profits it is currently seeing or will see, it also depends on the individuals investing style to an extent as well.
If your company has 80% market share in it's current market that MAY seem like a good thing...but it's not if you are peaked out and the market isn't showing further growth itself. You may be tapped and the company will only continue it's per annum growth numbers for maybe 3-5 more years...so the sale price would so reflect.
It also depends on your current staff, current financials, benefits, liquid assets etc...
But as has been said it can be a VERY rough estimate to say between 5-10 years of net prof. And 10 years would be VERY VERY best case scenario. I'd say it would mean that you are number 2 or 3 in your industry...the customer base would be almost outgrowing the companies that serve it and you had just launched a new product that was being very very well recepted in that last year.
PLUS, another thing sometimes that gets over looked. You absolutely have to contiuosly and religously save within your company. Take out only what you need to live and then leave the rest in their proper places. A company just wont sell period if it's piggy bank has been deflated prior to sale. Sure the company is making XXX dollars per year, but during a new takeover there's bound to be a grace period where they may want to dip into the company piggy to bring themselves back to working order.
company just wont sell period if it's piggy bank has been deflated prior to sale
I don't know... one piece of advice I've heard is that if a buyer is borrowing to buy the business then they'll want to buy as little cash as possible - because otherwise they'll be borrowing cash (and having to pay interest on it) to buy cash.
I wouldn't sell it for less than a few million. It's NOT worth that much now but quite frankly, it's an investment. The internet isn't going to go away, they're not making new one-word domains, and it'll only appreciate in value over the years. Particularly if I keep adding content to it and treat it well so that it grows in rank and traffic.
Why sell something now that will be worth more later?