How to Choose an Online Business Broker
Online businesses have seen enormous growth since the onset of the COVID-19 pandemic. As Statista puts it: “In 2021, over 2.14 billion people worldwide are expected to buy goods and services online, up from 1.66 billion global digital buyers in 2016.”
A lot of online entrepreneurs are realizing that their ventures are in demand. When it’s time to sell your business, you’ll naturally want to get the highest value possible out of the venture you’ve put so much work into creating.
How do you choose the right broker to help you achieve this? It’s a process fraught with concerns, especially in an online space that’s highly volatile and subject to many business valuation methods. Many sellers are getting caught short because there are so many scams.
However, if you choose a broker who’s savvy in the nuances of online business — and work with them to maximize and uncover hidden sources of value — you’ll increase the chances that your business will sell for a satisfactory amount.
However, if you choose a broker who’s savvy in the nuances of online business — and work with them to maximize and uncover hidden sources of value — you’ll increase the chances that your business will sell for a satisfactory amount.
What Online Business Brokers Do
Online business brokers work primarily or exclusively within the realm of internet-based businesses. They understand the constantly changing nature of the digital space, and how the market for web businesses is evolving over time.
Online business brokers also have a firm grasp on the many facets of valuing a web-based venture, and a sense of what buyers are looking for. Brokers with experience in the online space are best positioned to ensure your business sells at fair market value.
The most informative assessment you can get of the value of your business is a Certified Business Valuation from a seasoned, reputable broker.
Specialize by Business Model
There are a wide variety of online business models. Each has its own factors that uniquely contribute to a venture’s value:
| Blogs
High amounts of traffic for ad revenue, as well as a high number of affiliate sales or direct merchandise sales, can all increase the value of the business.
| eCommerce
High transaction volumes and repeat customers are hallmarks of valuable eCommerce ventures.
| SaaS
Growing numbers of monthly subscriptions, coupled with falling churn (turnover) rates, indicate that the business is doing well. Upsells and cross-sells to subscribers can increase business revenue and customer lifetime value (CLV), positively impacting the business as a whole.
| Membership And Subscription Sites
Income comes mostly from monthly or yearly subscribers to a product or service, such as an online course. Monthly recurring revenue (MRR) is an important indicator of value for the business.
| Professional Service Websites
These types of business might involve consulting, graphic design, web design, writing, or lead generation services.
Experienced brokers are familiar with the range of selling situations while often specializing and having deep-rooted experience in one or more online business models.
A good broker will understand the nuances of different profit structures and will advise you on how to increase the value of your business before the sale.
Choose and Apply Valuation Methods
Seasoned online business brokers are familiar with two popular valuation methods to the venture: EBITDA and SDE.
EBITDA stands for “earnings before interest, taxes, depreciation, and amortization.” As the name suggests, it adds back some expenses to the net income of the business.
SDE, or “seller’s discretionary earnings,” adds back business expenses that have some benefit to the business owner, and which they have reasonably faced in the course of running operations. The formula is:
(Pre-tax, pre-interest earnings) + (vehicles, travel, other transactions listed as business expenses) = SDE
A broker can help you apply both formulas to your business to determine a range of values that make sense.
5 Questions to Ask an Internet Business Broker
1. Do You Have Experience In Multiple Online Business Models?
Proficient online business brokers will have experience in more than one type of internet-based business.
They will understand the difference between, for example, a health and beauty blog and an eCommerce site that sells nutritional supplements. Good online brokers will know that different standards, valuation methods, and metrics should be applied when determining the market value of the business.
2. How Do You Conduct Valuations?
This digs even deeper into how a broker assesses the value of a venture. Are they prepared to apply calculations like EBITDA and SDE where appropriate? Can they provide a Certified Business Valuation?
It’s important to get a full understanding of a broker’s approach to valuation, especially given the vast world of internet-based businesses and assessment methods, before moving forward.
3. What Kinds Of Buyers Have You Worked With?
Competent online brokers recognize what makes for a serious, qualified buyer who negotiates in good faith. You’ll want to work with a broker who’s experienced in appealing to such a buyer, and who conducts professional negotiations that obtain the best possible sales prices.
4. What Are Your Standards And Procedures Around Confidentiality?
In the digital age, it’s easier than ever to let information leak. That is no excuse for a broker’s lack of confidentiality, however, whether the business is entirely based online or not.
Make sure your broker adheres to professional standards around confidentiality, so your negotiating position and financial information won’t be compromised.
5. How Many Businesses Have You Successfully Listed For Sale?
Experienced online business brokers will have many sales under their belt. This is a fair question for assessing how well-versed the broker is in the online space.
Work With An Expert Online Business Broker
The internet is always evolving, whether that entails consumer expectations for the web “user experience” or Google algorithm changes that drastically affect website search rankings. These things will always be sure to influence the value of businesses built online.
For that reason, it’s important to have a broker that understands traditional business valuation and brokerage methods as well as the landscape of online ventures and qualified buyers, while perhaps specializing in one or two types of online business. In addition, a qualified broker will know how to deploy several methods, such as producing marketing content and helping in seller’s due diligence, that are likely to raise the price for your business.
If you’re selling your business, we invite you to work with us at Raincatcher. Our brokers are well-versed in assessing various online business types and can help you uncover areas of value in your business you may not have considered. We can also work with you to raise the value of your venture before you put it on the market — ensuring it sells for the most attractive price possible.
Contact Raincatcher to get started with a free evaluation of your business today.
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