How to Calculate the Value of a Business?

[Bruncher]

Hello everyone,

How do you calculate the value of an online business?

I am considering selling my small business and do not know how to calculate its value.

If an online business generates an average $2500-$3000 net profit per month, what is its real price?
Profitability for 2 years or for 3 years?

Responses much appreciated.

 

[JohnLocke]

If you want an exact valuation of your site or an estimate of its potential selling price, I’d recommend signing up on Flippa.com and getting an appraisal there. That’s probably the closest you’ll get to the actual market value

 

[diatessaron]

If you want to go with an income based valuation then the formula would be as follows:

Value = net profit / cap rate

If you''re doing ecommerce then a 25% cap rate would be okay to go for. You gave a range so I'll take the upper part into calculation.

Netprofit = 36000 (totale revenue) - 10000 (total expense, random number) = 26000. Then from here we do:

26000 (net profit) / 25% (cap rate) = 104000 (business value).

This is the easiest calculation you can do by yourself and it's pretty much math based (elementary school math). Other factors are important too, such as type of business, growth rate, brand etc.

 

[Bruncher]

If you want to go with an income based valuation then the formula would be as follows:

Value = net profit / cap rate

If you''re doing ecommerce then a 25% cap rate would be okay to go for. You gave a range so I'll take the upper part into calculation.

Netprofit = 36000 (totale revenue) - 10000 (total expense, random number) = 26000. Then from here we do:

26000 (net profit) / 25% (cap rate) = 104000 (business value).

This is the easiest calculation you can do by yourself and it's pretty much math based (elementary school math). Other factors are important too, such as type of business, growth rate, brand etc.

Amazing! The calculator for valuation of Flippa and this formula gave almost the same valuation of my online software business - $105,000. But I think the price is a bit high if there is interest in a quick sale.