Stage 3 of 9
What the company is worth
The figure an owner has in mind usually comes from somewhere other than the accounts: a competitor's rumoured sale, a figure from a forum, or the amount that would make the years feel worthwhile.
Where the real figure comes from
For a small online company it starts with normalised earnings: the result after removing what a new owner will not inherit, and adding back what the current owner takes out in ways that suit their own situation. A multiple is applied to that figure, drawn from what similar businesses have actually changed hands for.
The multiple is not a constant. It moves with size, with stability, with how much of the business depends on one person, one supplier or one channel.
What raises it
- Three years of results that point the same direction
- Own brand rather than reselling, where the category allows
- Customers who come back without being paid for twice
- A team, or at least a second person who knows everything
- Several channels, none of them decisive on its own
What lowers it
Concentration of any kind. Figures that cannot be reconciled. Accounts held in a personal name. A range that depends on one supplier who could sell direct tomorrow. And, more often than owners expect, an owner who is the business.
A valuation is not a price
A valuation is an argued estimate. The price is what one specific buyer is prepared to pay under specific terms, and the two can differ substantially in both directions.
A structured valuation for an online company can be obtained at (https://www.businessforsale.eu/services/business-valuation).
The multiple is a judgement about risk. Everything an owner does to reduce risk moves it.