Selling your internet business is not the same as selling a traditional bricks and mortar business. In fact, there are internet business brokers that exclusively focus on helping clients that need to sell a website business. Fortunately, some of the team members at Smith Holland have over a decade of experience helping clients in this niche and our deal team can help you sell your website business for the best value.
The process to sell a website business is very similar to the process of selling a normal business. However, technology businesses usually command higher earnings multiples when it comes to website business valuation. And while some website business brokers focus on only one type of internet business, the experienced M&A advisors at Smith Holland have extensive experience with the many different industries within the technology space including SaaS platforms, ecommerce retailers, web development firms, AI platforms, mobile apps, digital security companies and more. Our M&A advisors know that intangible assets and cash flow are usually the main drivers behind valuations for technology companies, and we know how to craft the right value story to ensure maximum value is captured when it comes time to sell your website business.
While there are countless factors that impact how a valuation is determined for any technology business, the list below are the main drivers behind how technology company valuations.
BARRIERS TO ENTRY – One of the first things that buyers consider when valuing technology companies will be the barriers to entry. How difficult is it for newcomers to enter the space and compete? How much would it cost to replicate your model instead of acquiring your company? For example, an Amazon FBA retailer has very little barriers to entry as it doesn’t take much for the average person to setup a new Amazon retail store or Shopify store overnight. Now compare that to a custom-built artificial intelligence machine learning platform that provides bespoke analytics solutions to Fortune 500 companies and the barriers to entry are substantially different, which translates into shareholder value.
RELOCATION POTENTIAL – While some people might assume that all technology businesses are easily relocatable, just because a business is a website business doesn’t always mean that it can be easily relocated. For example, if a business drives 100% of its revenue through their website, but sells a physical product that must be manufactured onsite, it might be easy to move the website infrastructure to a new server, but the same can’t be said for moving a manufacturing warehouse across the country. Technology businesses that operate with minimal physical office space and employees will command the highest earning multiple as buyers are always willing to pay a premium for cash flow that comes with virtually unlimited mobility with respect to daily operations.
SCALABLE MODELS – When most people acquire businesses, assigning value to the potential growth opportunities is always a moving target, but the Smith Holland M&A advisors have the expertise needed to illustrate the value within the scalability of your business model. How quickly can they grow your business if they implement XYZ actions? How scalable is your business model? While most technology companies benefit from business models with minimal overhead, the scalability of your business model can definitely impact the final sale price. For example, if a technology business sells robotic vacuum cleaners and the manufacturing partner can only produce 100 vacuum cleaners per month, it would be hard to scale that business to sell 200 vacuum cleaners per month without expanding the current manufacturing output or finding a second manufacturing partner. Now compare that to a SaaS platform that can scale up on a virtually unlimited basis by simply providing additional resources to meet user demand and you’ll see how scalability can material impact the value of any technology business.
GROWTH POTENTIAL – While scalability is an important factor when looking at any business, potential growth opportunities are equally important as you can’t scale without having an actual strategy for growth. One of the first things that buyers consider when evaluating growth opportunities for a technology business is the available markets. Can your business only sell to customers in the United States? Or is there an opportunity to cover international markets like the United Kingdom or Canada? Not all technology business models are setup to target international markets, but those that are can secure better value when selling a website business.
BRAND IDENTITY – One of the most common mistakes that business owners make is to name their business after themselves. Using a variation of your first name or last name for the name of your company immediately hurts the valuation, regardless of what niche your technology business operates in. The first argument that buyers will make when it comes to valuation is that the company’s success only happened because of the current owner’s involvement. For example, let’s say there’s an online retailer called Tiffany’s Cupcakes. It would be fair to say that there are some customers that only shop at Tiffany’s Cupcakes because they believe Tiffany personally makes better quality cupcakes over the competitors. Tiffany is now the brand here and if you remove Tiffany from the equation, buyers can make the argument that revenues might decline if customers know that Tiffany doesn’t actually make the cupcakes anymore because now someone else owns the business. Now compare that with a competing business called New York Cupcakes and that same “brand name” risk simply doesn’t exit.
The Smith Holland M&A advisors have advised on hundreds of technology transactions over the past decade and we have the industry specific expertise needed to illustrate your company’s value through results-driven exit strategies. If you’re thinking about selling a website business, contact the Smith Holland deal team to schedule your free exit consultation. Our M&A advisors will walk you through the entire process to sell your internet business from start to finish and we have a global database of buyers that routinely acquire high-quality technology companies.
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