What is my online business worth?

Kevin Hermansen (Biz Sellers' lead broker) has a Master's Degree in accounting and taxation (MAcc), having graduated Summa Cum Laude from BYU in Provo, UT in 2006. Kevin then worked in public accounting for ~5 years, spending time with both Ernst & Young (one of the "Big 4" accounting firms in the USA) and with Cooper Norman (a regional CPA firm in Idaho). While with Cooper Norman, Kevin was on a small team that specialized in business valuations.

Kevin is also licensed as a real estate agent in the state of Idaho (license # SP52592), which is required for business brokers in Idaho and many other states.

We're very experienced. Over the past decade, we've brokered the sale of over 100 businesses for a total transaction value of just over $20 million.

Most deals are structured as an asset sale (simply because it's easier logistically), but there are several reasons why you may want to structure the deal as an entity acquisition instead.

In an asset sale, the buyer isn't acquiring the actual business entity (i.e. Bob's Fine Furniture LLC). Rather, the buyer is purchasing all (or most) of the assets/accounts owned by the business: the domain name, the website content, the inventory on hand, the customer lists, the social media accounts, the supplier accounts, etc. After the sale, the seller then just shuts down their business entity (since it's now asset-less), and the buyer places all of the acquired assets/accounts inside a newly formed business entity in their home state.

In an entity acquisition, the buyer instead acquires the shares (or ownership interest) in the seller's business entity, taking over ownership of the business. Since the business owned all of the assets/accounts, the buyer now has ownership/control of all of the website assets/accounts.

Common reasons for structuring the deal as an entity acquisition include:

Suppliers are unwilling to set up new dealer accounts for new business entities The sale includes marketplace accounts (i.e. Etsy, eBay, etc.), and the buyer doesn't want to run the risk of those accounts getting suspended in the unlikely event those accounts are flagged when transferred to the new owner The business has contracts or other legal agreements that cannot be transferred/assigned to a new owner (or would be prohibitively cumbersome to transfer)

Marketplace accounts (such as Etsy and eBay) can be included in the sale of a web-based business, but it does complicate the transaction a bit. How we handle the transfer of these marketplace accounts will depend upon how the business you're acquiring is structured (i.e. corporation/LLC vs. sole proprietorship), how the sale is structured (asset sale vs. entity sale), and the desires of you and the seller.

The absolute safest way to transfer Etsy/eBay/other marketplace accounts is to not transfer the accounts themselves. Instead, the deal is structured such that the buyer purchases the business entity that holds the accounts (i.e. an entity sale, rather than an asset sale). If the marketplace accounts are owned/controlled by "Selling Co" and Mr. Buyer purchases the Selling Co business entity (including all of the assets/accounts in its name), the marketplace accounts aren't being transferred at all. Selling Co owned/controlled the marketplace accounts prior to the transaction, and Selling Co still owns/controls the marketplace accounts after the sale. The only thing that changes is the owner/shareholder of the Selling Co business entity.

In the past, we've even structured a couple of deals where the original owner stayed on as a passive, minority owner of the business entity (i.e. a 1%, 2% or 5% owner). This way, the business was able to continue to use the original owner's name on the marketplace accounts, making it possible to not update ANY information whatsoever in the marketplace profiles.

If you and/or the seller aren't willing or able to structure the sale as an entity purchase, the marketplace accounts can still be transferred to the buyer and included in the sale. While it technically is against the terms and conditions of some marketplaces (such as Etsy and eBay) to transfer a seller account from one party to another, it happens A LOT and is a very commonplace practice. When done carefully (following the guidelines listed below), there is very minimal risk of the marketplace account being flagged or suspended. After all, the marketplaces are primarily concerned about a) accounts getting hacked (not sold) and b) shady companies acquiring accounts with strong rankings/feedback/sale histories so they can change/replace the listings with totally different products or lower-quality knockoff products to trick marketplace customers (not legitimate sales of web businesses).

The main keys to a seamless, unquestioned marketplace account transfer are:

Keep as much profile information the same as possible - Generally, even if the deal is structured as an asset sale, you (the buyer) will be taking over the existing email accounts. This will allow you to keep the marketplace account's primary email address the same, which is important. If at all possible, it's also best to keep the bank details the same. The Asset Purchase Agreement (APA) will likely state that thecashin the bank account isn't included as part of the sale, but the bank account itself certainly can be included in the sale. Keep as much of the other profile details as possible the same as well. Don't update bank details right before a payout (if updating bank details) - If the seller is not willing/able to transfer the bank account that the marketplace deposits have been getting deposited into prior to the sale, be careful not to update the bank account information within 3 days prior to the next deposit. Update the profile information slowly and incrementally over time - You shouldn't make wholesale changes to the profile information all at once. Instead, you'll want to make one change at a time and spread out the changes over several weeks. Keep "branding" the same - If you're changing the business name on the marketplace account, it's best to keep the "branding" the same as it was before the sale. For example, if the business name prior to the sale was "Bob's Fine Furniture LLC", it's best to have the new business name be as similar to that branding as possible (i.e. "Bob's Fine Furniture, Inc."). Have the seller update the profile information (not the buyer) - The seller should make the changes to the profile information, not you (the buyer). If a new IP address is used to make changes to the profile, the marketplace's system might think the account has been hacked and flag it. Use a VPN during and for a few weeks following the transition - Along the same lines as the bullet point above, having both the seller and buyer use a VPN (which allows them to log into the marketplace account from the same IP address) during the transition and for the next several weeks is a good idea.
Following the guidelines listed above, we've never once had a marketplace account get flagged or suspended.

All-cash offers are obviously preferable, but it's not uncommon for a deal structure to include both a cash down payment plus a series of monthly/quarterly payments for several months or a couple years.

Most sellers require that at least 50% (and preferably more like 70-80%) of the total purchase price be paid up-front at closing. Potential buyers can obviously offer less, but it's up to you (the seller) whether you'll accept or reject the offer.

As for the "earn-out payments" (i.e. payments for the seller-financed portion of the purchase price), most sellers insist that the payments be for a fixed amount each month/quarter (rather than being tied to post-sale revenue, profit or other performance metrics). There are several reasons for this:

Web-based business sell at a fairly low annual multiple (usually 2-4x their annual net profit, compared to 5-7x annual net profit for brick-and-mortar businesses) because of the inherent risks with online businesses. The risk factors are already built into the low asking price, so expecting to be able to further hedge the risks by having earn-out payments based on post-sale performance is essentially "double-dipping." As the seller, you'll have virtually zero control over how the buyer operates the business post-sale. You don't know how business-savvy, hard-working, experienced and dedicated the buyer is. If the buyer does a poor job operating the business post-closing, it shouldn't affect how much you (the seller) will receive in earn-out payments.

Most web-based businesses sell for somewhere between 20x and 60x their average monthly net profit over the most recent 12-month period (i.e. TTM, or Trailing Twelve Months), plus the cost value of inventory (if any) and the fair market value of other assets/equipment included in the sale. So, for example, a site without any inventory or equipment that made $100,000 in profit over the prior 12 months (i.e. an average of $8,333 per month) may be worth anywhere from ~$167,000 ($8,333/mo x 20 months) on the low end to ~$500,000 ($8,333/mo x 60 months) on the high end. That's a HUGE range... and not all that helpful to someone considering acquiring a web-based business.

Where any given web business falls within this 20x - 60x range depends on several factors, including:

the business' age how its revenues/profits are trending the website's traffic profile (i.e. free vs. paid traffic) sourcing considerations (barriers to entry, exclusive selling rights, price tiers, etc.) how much owner time is required to run the business customer/email lists, social followers, trademarks, etc.

For inventory, the cost value (i.e. what the business paid their suppliers for it) is added to the earnings-multiple-based asking price of the business. For example, if the business has $40,000 (at cost value) of inventory on hand as of the closing date, then $40,000 would be added to the asking price.

For equipment, furniture and other physical assets, the market value (i.e. what it's worth today in its used condition) is added to the asking price.

Yes, but only certain businesses qualify. The business must be based in the United States, must be at least 2-3 years old, must have pretty "clean" tax returns that tie closely to the P&Ls, and typically must be valued at $400,000 or more.

Yes, we provide escrow services for no additional cost! This is a huge savings for both the buyer and the seller (as escrow charges are most commonly split 50/50), as services like Escrow.com charge hundreds to thousands of dollars for escrow services!

Virtually every sale includes a certain amount of post-sale training and transition support included as part of the purchase price (no additional cost). The exact amount of training/support depends on:

The purchase price - Typically, the higher the purchase price, the more training/support is included.

Complexity of the business - Typically, the more complex the business is to operate, the more training/support is included.

Demands of the buyer - Some buyers negotiate for more training/support than the listing states.

For most sales in the $50,000 to $300,000 range, the due diligence and closing process is typically right around 2 weeks. It certainly can be shorter than that if the buyer is willing and anxious to move quickly, but most buyers usually take about 2 weeks to complete their due diligence and prepare for closing.

We've closed many deals in under one week. It's certainly possible, as it's really not very difficult or time-consuming to verify the financials and the assets/accounts of an online business. The seller is usually willing and able to provide the requested reports and information very quickly. It's usually the buyer that slows down the process.

Some larger deals (ie. mid-to-high 6 figures and 7-figure sales) have a longer due diligence period, sometimes as long as 6-8 weeks. We do everything in our power to streamline the due diligence process as much as possible.