How to Value a Business

I got an interesting email this morning, which got me thinking about how much my Business would be valued & if I'd part with it.

Basically, they own the .com version of my business website domain and are complaining that people are getting confused between their site and mine and are offering to buy the name from me.

They say that they only want the domain name....but basically once the domain name is gone, well I've either got to change my Business Name & get a new domain name, or close up shop. These guys are a big operation, much bigger than we are. They also have the .net & .uk extensions of the domain name as well.

So, I'm reaching out here to ask what you would do in this situation. I may be happy to sell them the domain name for the right amount, but how do I come up with this figure?

 

We were in a similar position where an overseas person had the .com address. Back and fourth a few times ended up costing us $4k.

 

When I set up my business I managed to snag both the .com & .com.au domains (though I use neither currently).

In your shoes, you would have to look at the cost of a new domain, complete rebranding of your existing business and as much as 20% loss of turnover in the first 6 months (due to confused customer base)

 

How did it cost you $4k, if they wanted to buy your name.....or was it you buying theirs?

 

Yep! I'm leaning towards asking for the value of the business....and if they take it for that price, I'll deal with the rest of it.

 

Do they have an Australian market?

I would be holding on (or out for the right deal if you wanted to exit).

Once you sell off the domain name, all of your web traffic will go OS too.

Are these spares for fidget spinners? linky

 

I don't think they have an Aussie market....but then, they have some different stock to what we have here.

Yes, you could use those bearings for the fidget spinners, they are the same size. We usually sell them for skates & skateboards.

 

The value of a business is more of an art than a science.

But it is a multiple of forecast profits adjusted by a multiple.

In this instance I would consider just rejecting their offer as it effectively means the closure of your business.

Let them come up with a value. They might be wanting to set up in Australia and you are blocking them coming in.

 

I don't understand why they would pay for a .com.au unless they have a substantial Australian customer base. What would stop you selling them the .com.au and then just shifting to a .org, .co or some other domain and having the same problem down the track?

It sounds like they are only interested in paying what it costs to move you to a different domain (perhaps a couple of hundred max). You can try your luck, but doubt they would be prepared to buy the business.

 

Yes, that's what it sounds like to me too, but who in their right mind would agree to that? I wouldn't be telling them they are buying the Business, rather giving them a $ amount to sell them the domain name, that, to me, is near to the value of the Business. If they agree to that, then I'll deal with changing everything. I do have another registered name & domain name, so could easily change it all over.....or just sell off the stock on Ebay.

 

Small businesses typically sell for a multiple of around 3-5x future maintainable EBIT. This gives a debt free / cash free value. It includes plant and equipment, net working capital (inventory, receivables less creditors and provisions), brand, customer database, domain name and goodwill etc.

EBIT = earnings before interest and tax.
It is after paying everyone an arms length salary and all other operating costs (but not interest)

Typically buyers will analyse historical revenues, margins, overheads and earnings and normalise for any one off or non recurring items in formulating future earnings.

Any questions just ask.

 

What will it cost you to rebrand, re-seo, and rebuild a name for yourself? Even if you sold for 10k I suspect you would be losing out

 

5 times!!!! I know national clients with a household brand, great management and van annuity income stream that do not sell for that much.

The only exception is the micro business level where forecast ebit is say 6k or if the buyer is simply trying to get a business visa and then unload afterwards - and they are also very low ebit's.

The buyer is then really buying access to our healthcare and education system.

 

Rent rolls....3 x gross earnings

 

Exactly. You don't see small businesses where the owner is pulling in say 100k selling for 500k...

Even 2.5x EBIT is a stretch for most.

 

To be honest, I'd be happy with double my annual profit.

 

LOL! I'd be wanting a lot more than $10k.

 

Rent rolls - 3 x management fees ex GST.

Then the sales and other stuff sits on top.

 

We simply bought their .com domain, we already had .com.au

 

So, were they actually using their domain name for their Business?