How Much is Small Software Business Worth?

One colleague of mine asked me a question – “I have a selling software product. How much is this software business worth?” I think I can give an advice.

A small software business can be owned and operated by one person: a developer, salesman, manager, and holder – all in one. This business could be run at home or in a small office. It does not require massive investments to grow up – only a computer, Internet connection, web site, and lots of hard work. Well, you have run it, you are working hard, designing your product, promoting your site, attracting customers – and one day you feel you are rich and tired. You wish to load off your mind and sell your business with potential to grow.

How much does it cost?

Let’s say, for simplicity – you have designed the software title; possess a well-known web site; have a stable income and no registered legal entity, patens, or licenses. You are not selling your permanent assets – computers, developments tools, telecommunications, and the like. You have no other staff but yourself.

Here is a simple estimation formula:

Business costs = (Month net income * Forecasting period) – Holder changing expenses

Month net income = Income – Tax rate – Overhead expenses – Development costs

For example:

You are selling the software for $4000 per month.
You are paying the 20% taxes.

Expenses are $250 per month for hosting, advertising, etc.

You are planning – your software will be selling for the next 3 months without additional design and development. So the development costs = $0, Forecasting period = 3 months.

If you do not have a registered trademark, patens, LLC – your Holder changing expenses and registration fees = $0. So, the buyer spends nothing for registration.

Let us strike a balance:

Month net income = ($4000 income – 20% tax rate – $250 month expenses – $0) = $2950 per month

Business cost = ($2950 * 3 planning months) – $0 = $8850.00

Now, you have the justification for your price.

However, you need a strong argument – why do you want to sell your small gold-mine?

Good luck!

Selling My Business – How Much is My Business Worth?

Almost all businesses are for sale to some degree. Lets say yours is not For Sale. Assume Your business is worth $100,000. You love what you are doing, someone contacts you with an offer to buy your business for $500,000. Is your business now For Sale? The preceding is not a likely scenario for most business owners. To successfully sell your business planning and preparation is needed. But if you are now or at some point considering the sale of it you may want to consider the following 3 points:

1. Identify your honest interest level when selling your business. Early in the decision process of selling your business consider what approach you may take towards selling it. As a Business Broker in Florida I interact with the various interest levels by small business owners.

  • – My business is not for sale but if someone walks in and offers me way more than what I think it is worth- I would sell it
  • – My business is not for sale but if you run across someone that would want to buy it please let me know. – I want to pursue selling my business but I won’t sell it for less than…( A somewhat inflated price). I am willing to accept that it may take 1-2 years to sell my business, and if priced too high I can accept the fact that my business may not even be sold.
  • – I want to pursue selling my business and after significant due diligence I feel the price I am seeking is consistent to what other like businesses have recently sold for.
  • – I want to sell my business and I want out now. I will set my price aggressively and set a lower price than price currently sought for businesses similar to mine. I will expect this aggressive pricing to both help me sell my business and decrease the amount of time it will take to sell my business.

If you do have a true interest in selling your business as suggested in above last 2 points you do need to exercise due diligence to gain understanding of what the value of your business may be.

2. You can expect that the perceived value of your business to you and the value of the business to a potential buyer will probably be 2 different values.

  • – Ultimately the price of your business is what a willing and able buyer is prepared to pay to buy your business.
  • – Seek “reasonableness” to your price that you will seek to sell your business for. If similar businesses to yours are sold at 1 1/2 times adjusted cash flow, why is yours worth 3 times adjusted cash flow? – Ask yourself what you honestly would pay to buy your business
  • – Do a free Search on my website or other similar websites to find out what similar businesses to yours is asking to sell their business for. Remember – all businesses are different, but use such a search as part of your due diligence. A business for sale asking price and the price a business sold for can be greatly different, but asking prices can provide some basis-while current Businesses Sold information is more pertinent
  • – Speak to your trusted advisers. A business broker may be able to help with non-public info on sold businesses in your area. Your accountant or attorney also may or may not be aware of such sales as well. A Professional Business Valuation specialist may benefit you.

3. Whether it is part of your exit strategy to sell your business or not, you should have an exit strategy.

  • – Most small business owners do not have an exit strategy.
  • – If you own a business you should have an exit strategy. Do some planning, perform some due diligence. Know what you have or may have.
  • – Even if you are not planning to sell your business there is value in knowing approximate value of this potentially large asset. You know what your house is worth, you car, your other assets. Understanding the value of your business can be a significant piece of information when planning ahead.

Selling ones business can be a rewarding experience when done properly. Understanding a proper value for your business can set the stage to a successful sale of your business or a business that is unable to find a willing and able buyer.

How Much Is Your Ecommerce Business Worth?

From time to time, I get emails from customers saying that they have decided to move on from having an online business and they are wondering if I can tell them how much their online business is worth.

Business valuation is a tough one and we certainly are no experts in that arena. But we do have some insights on the topic. Here are some of the factors that a prospective buyer will likely consider in determining what they will pay.

1. Customer Base

There is no question that a large and active customer base is a great asset. If you have 30,000 account holds on your website, that would likely have value to a prospective buyer. Building a customer base and continually communicating with them is an important practice on many levels.

2. Inventory

You need to consider whether you want to sell just your website or all the product inventory that goes along with it. Some buyers will be quite interested in your inventory and others will just want access to your customers.

3. Website

As you know, investing the money in a professional website as well as the time to build out all the content is significant. Buyers who are knowledgeable about what it involves to build a full-featured site will understand the value.

4. Domain Name

A great domain name could be worth as much as anything else you have to offer. Of course, you need to have a really awesome name. The market for domain names has declined from the fervor in the early 2000s, but a solid name still has value.

5. Brand Recognition

If you have been successful in building some recognition for your brand and business that will be worth a lot. If you have done nothing to contribute online and establish your brand in your industry, you likely won’t get much of a bump.

6. Revenue and Financials

As with any business transaction, the value often comes down to your financial statements. That is no different with an online business. Be prepared to show sales data and financials to prospective buyers.

7. Traffic and Search Placement

A buyer not only wants to understand your current financial position, but they are going to do their best to determine whether a business acquisition is going to grow and prosper in the future. A strong signal (assuming they are wanting to take over your website) is your site traffic trends. If your traffic is consistently trending upwards, that is an important factor.

Related to your traffic is your current search engine placement for important phrases. If you can show that you have established your website in the search engines, that can be worth quite a bit to a buyer. We all know that strong organic placement is not an overnight process!

Conclusion

One of the key elements for any successful business is a clearly defined exit strategy. Although it is very hard to determine exactly what someone else might pay for your business, we encourage you to start thinking about the factors we have listed so you have a compelling package to offer when the day comes for you to test the waters with putting your business on the market.