How Much is Your Online Business Worth in 2023? Ultimate Guide

Affiliate disclosure: In full transparency – some of the links on our website are affiliate links, if you use them to make a purchase we will earn a commission at no additional cost for you (none whatsoever!).

There are several approaches to determine the current worth of your firm, but the majority will fall into one of two categories.

Especially for small enterprises, seller discretionary earnings (SDE) is the most prevalent of these company valuation approaches.

SDE is determined using net profits before taxes. This implies that the cost of products sold and running expenditures will be deducted from the income.

The owner’s compensation will be returned to provide a more accurate picture of the company’s profits. The firm will also add back discretionary profits, which are expenditures that are not required to run the business.

These may include non-business-related real estate, life insurance, and credit card expenses that the new owner would not incur.

This strategy is effective since it reveals the business’s performance based only on cash flow.

It removes the present owner from the equation and makes it simpler to determine the firm’s profitability if it is sold. SDE is also referred to as seller discretionary cash flow for this reason.

SDE is the most used approach for valuing enterprises with yearly revenues of around $5 million.

When firms make more than this amount, they often have a more complicated organizational hierarchy and more stakeholders. This is where the EBITDA (earnings before interest, tax, depreciation, and amortization) model comes into play.

EBITDA utilizes a similar concept to SDE; however, it considers that enterprises with more complexity are not owner-operated. Large firms often employ managers and employees.

Therefore, EBITDA subtracts any owner compensation that exceeds that of management. This enables investors to compare the acquisition target to other comparable companies on the market.

Larger enterprises often do not have a single owner but are bought by private financing groups in which no individual earns all of the profit.

You can trust Flippa, the best marketplace for buying and selling online businesses in all this mess.

Even if you are not looking forward to buying or selling your online business, I recommend just going to their official website and checking out what your online business is worth today using Flippa’s tool.

Also, you can check the worth of your competitors.

How Much is Your Online Business Worth? How to Know this?

You are prepared to sell your company and utilize the earnings to fund your retirement or your next endeavor. There are several methods for determining your company’s market worth.

Business Worth

Go beyond financial formulas:

Don’t determine the worth of the firm just by crunching numbers. Consider the worth of your company about its location. Consider its possible strategic worth to a prospective buyer if business synergies exist.

Do a discounted cash-flow analysis:

The discounted cash-flow analysis is a sophisticated technique that projects the business’s yearly cash flow into the future and then uses a “net present value” calculation to discount the value of future cash flows to the present. Finding and using an online NPV calculator is simple.

Use earnings multiples:

A multiple of the company’s profits, or the price-to-earnings (P/E) ratio, may be a more useful metric. Estimate the company’s profits over the next years. Given a standard P/E ratio of 15 and expected annual profits of $200,000, the enterprise would be valued at $3 million.

Base it on revenue:

How much revenue does the company produce annually? Calculate this and, with the assistance of a stockbroker or business broker, establish the value of a typical firm in your sector with a certain amount of sales. For instance, it may normally be around two times revenues.

Tally the value of assets:

Compute the total worth of the company’s assets, including its equipment and inventory. Subtract any debts or obligations.

The value of the balance sheet is a starting point for assessing the firm’s value. However, the enterprise’s value likely exceeds the sum of its net assets. How many sales and profits do you anticipate?

All the above steps are something I highly recommend for any online business. It is good to know the value of your business thoroughly.

But, you must also ensure that your calculations or estimates are right. For that, just use this tool by Flippa.

It’s so easy to use, just go to their official website from here, enter your domain name, and Flippa will calculate its value for you in seconds.

When is the Right Time To Exit?

Here are some of the questions you must ask yourself while looking forward to selling your business:

How Much is Your Online Business Worth

Are there competing offers?:

In a procurement process, competition is essential. The firm’s price is established if just one investor makes a bid.

However, if numerous investors are trying to acquire the business, you are in a far stronger position to bargain and get the highest possible price.

Has an advisor been involved?:

Many business owners seeking to sell their company have never sold a company before. Consequently, several hazards and unknown unknowns must be considered.

Professional assistance in the form of a consultant may help optimize the process. A consultant may assist in determining a suitable value for the firm, support talks with investors, avoid legal snags, and guide tax concerns.

Is the business in good shape to be sold?:

Most investors desire a lucrative company with few problems and warning signs. For instance, a pending lawsuit against the corporation might prevent the majority of purchasers.

In contrast, if the firm is more lucrative than ever, expanding at a healthy pace, and has a steady perspective on the market, it will attract many more investors and get greater value.

Is market timing right?:

Timing is vital to consider. Typically, the most fantastic time to sell a firm is during its growing period.

This indicates that the economy is expanding, that investors have easy access to inexpensive cash for company acquisitions, and that valuation multiples are high.

You should expect a higher price for your firm if you sell during this period as opposed to the recession or depression phases of the economic cycle.

Other market conditions may also impact the timing of a sale, such as when a big rival consolidates the market and is ready to pay substantial premiums.

Another conceivable situation is that the industry is expanding rapidly, and strategic buyers want to join the market by purchasing a current participant.

Is there an opportunity to “double dip”?:

When contemplating a total departure from a corporation, there is also the chance to “double dip,” similar to selling a portion of the business.

The double dip occurs when a founder sells a portion of the company to an investor and receives an instant financial return.

Typically, this transaction involves selling majority ownership in secondary shares to a roll-up or search fund. 

A few years later, if the business’s worth has increased significantly, the investor and founder may sell the firm to a third party jointly.

Selling their remaining shares during the second downturn might result in a considerably more significant return than if they had sold all of their shares in the first transaction.

Can you sell a piece of the business?:

A partial exit is an option to sell the entire business. This involves selling a part of the business to an investor while the founder maintains the remaining shares.

In this situation, private equity firms often acquire a controlling stake (51% ownership or more).

At the same time, other investors, such as high-net-worth individuals, are more likely to acquire a minority stake (49% equity or less).

A partial departure enables a founder to get liquidity from their ownership stake while remaining involved in the company they created.

Could someone else take over daily operations?:

Sometimes, a founder wants to leave the company because they no longer wish to manage daily operations. Hiring a CEO is one way to leave the operational aspect of the firm while remaining involved.

With a new person in charge of the firm, the owner is free to leave the company, concentrate on strategic duties, or step down to take over a specific job, such as the marketing and sales departments.

Can the business be passed on?:

Many small business owners are, of course, quite connected to their firm and would rather see it sold to a close cousin or friend than a stranger.

Consider having a severe dialogue with any possible “heirs” of the firm to see whether they are not only up to running the business but also interested in doing so.

Is there a challenge the business is not equipped to handle right now?:

Expanding on the first topic, every industry faces a decisive transformation at some point.

This transformation creates many new businesses and presents formidable challenges to established players. If they do not effectively manage the shift, they may fail.

The e-commerce boom shows this. Numerous small bookstores failed, while online merchants like Amazon dominated the market. Suppose your firm is in a similar scenario and cannot adapt to these changes.

In that case, you should consider bringing on a strategic partner to assist with business transformation or selling to a buyer who can.

Can the business be sustained in the long run?:

Does the firm possess a niche that is resistant to change and rivalry? An example would be a landscaping company.

A little oversimplifying, a landscaping company owner must keep operations operating and should not be continually concerned with being out-innovated.

Alternatively, if the firm works in a more dynamic market, it should have methods for adapting to the environment. An example is a firm that provides software as a service (SaaS).

The choice to sell a firm should also include whether or not you are capable of and ready to handle continual product or service innovation and development.

Whenever you decide to sell your existing business and buy a new one, the best marketplace to do so is Flippa. All you have to do is, put some details of your business on their website.

I love how easy and smooth the process is here. Make sure you check out the value of your business here.

Quick Links:

Sonia Allan

Sonia Allan has an excellent and surprisingly equal command over both editing and writing. She’s venerated for her flexibility, research skills, understanding of SEO, organizational skills, and communication. She keeps pace with the latest writing trends and she’s known for her patience exhibiting formidable editing skills. Debut writings may not be perfect. She is known for her intense proofreading and editing capacity that makes her the cornerstone of AffiliateBay.

Leave a Comment