Does my website have much value when it’s time to exit my business?
A well-run website can have a surprising value – maybe more than the business itself.
When it’s time to move on from your business there are many tough decisions to make and it’s never an easy project to resolve satisfactorily for all concerned. A website may seem like just a small consideration as just another business asset of comparatively low value but it can be an important one worth extra attention. Let’s look at the business exit process itself first in a little more detail.
Companies normally evolve as follows:
- They simply disappear over time when they dip into losses and run out of cash/assets
- Or family members are the natural successors and no formal “sale” takes place
- The business may transition to new owners such as key employees through a Management Buy Out or Buy In (MBO, MBI))
- A more successful business may exit by raising funds to grow and subsequently paying off the founders through a float on the stock market via an IPO or business merger / SPAC
- Or more typically businesses are simply put on the market for offers via a trade sale on various websites, or through business brokers or contacts such as the firms’ Accountants.
- Options 1 and 5 are probably the most typical. It’s logical to expect that both the founders and company advisors such as Lawyers, Accountants and Bankers would fully appreciate the value to be unlocked in all the businesses’ assets but when it comes to company websites, especially e-commerce ones, this is rarely true. Leaving untold riches missed for business founders, employees etc
Selling a business is only really practical if decent profits are being made. It’s important to remember that most new owners think they will do a better job than the incumbent owners so small tweaks to the businesses processes and accounts can make a seemingly unattractive proposition look like a better bet – think of this like doing a quick spruce up, a bit of gardening or decorating at home ready to sell your house.
In the context of making a business attract a better value some simple tweaks are:
- Weeding out any unnecessary costs and expenses (these will be worth much more than the face value saved as on exit most businesses attract a value based on a multiple of profit that is more than one times or 100%).
- Reducing Director’s pay (and expenses) as generally in a take-over, the new owners will simply take on your tasks, freeing up your wages as an extra profit. So by paying yourself less in the run-up to a sale, you can boost the paper value. Beware cutting too far as you still have to live and if you stay on in an earn-out period, you’ve made a rod for your own back at a low salary!
- Reducing marketing spending on things like Pay Per Click and relying on natural traffic (SEO driven) is another way of creating a bounce in the business value by reducing outlay.
This then leads to the website itself as a business.
Anyone in business who has tried to build the profile of their site so it attracts natural traffic will know what an uphill battle this is, often taking years or even decades. The built-up value in a website with history and good positions in the main search engines such as Google can therefore be huge. For many sectors it’s not untypical to pay between £1-£5 for each visitor clicking to a website via Paid Search or other online advertising routes – so for a website generating say, just 100 leads like this per day, at average values, that equates to traffic worth £90,000 per annum.
Most non-marketing advisors such as lawyers and accountants won’t be familiar with this struggle or value and if we apply the same concept of business multiples to the web traffic and value natural traffic at more than par / 100%, so let’s say, 200%, that’s £180,000 value. NB. Many law firms and accountants’ businesses do sell at just one times turnover so maybe that helps explain their reticence. In practice, of course, a website can quickly shed traffic once you stop doing things like SEO and creating unique new content so we can’t assume today’s volumes will continue forever, but hopefully, you get the picture I am trying to paint.
In a business sale, said advisors will typically market a company’s website for around £2,000-£10,000 irrespective of the volume of traffic received. So as we said, that’s a lot of potentially lost value left on the table.
If you have time to plan for your exit, it’s a good idea to try and boost the web traffic as if you can get in front of buyers that DO grasp this value, it’s another way of boosting the multiple you aim to sell for, not least because the traffic should flow through into extra sales which will magnify profits anyway.
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