How to value an online business is a question I have asked over the last several years of running my own web-based company.
Without much in the way of physical goods, how does one calculate the assets of the operation? Fortunately, an expert who values, buys and sells online firms is here to help us out. His name is Jock Purtle and while he's a young guy, in two minutes flat he'll gobsmack you with the obvious fact that he knows how to value an online business backwards and forwards.
Jock Purtle On How To Value An Online Business
When we booked this interview, I wondered how serious Jock would be since I hadn't met or spoken with him before. I was also curious how 'out there' his business valuation methodology would be. As part of my operations management and business administration training, I had the fun of three years of accounting courses...all the way through finance and cost accounting. So I had expectations on the terminology to be used.
The first key factor Jock lets us know about as the key difference between valuing brick and mortar and web-based businesses is Goodwill. In place of physical assets, Goodwill appears as the major line item on the balance sheet. We continued the discussion through the critical factors in valuing a business. Jock surprised me with his obvious command of accounting methodology, and the fact that his process is completely grounded in the Generally Accepted Accounting Principles.
Maximizing the Value of Your Web-Based Business
If you are starting an online business and want to ensure it becomes as valuable as possible in a three-to-five year timeframe, Jock directs you to build in three factors: rising market, defensibility, and scalability. He reminds us the potential buyer of your business is really buying future profits--not you, your process, or your customer list.
For a guide on how to set up your online business for maximum value, Jock recommends The Star Principle by Richard Koch.
Concluding, Jock shares the two sides you must split your business into, and empower others to handle, to stop it from being dependent on its creator.
How To Value An Online Business: When You Should Call the Expert
A typical accountant is not the person you want valuing your online business--even if they are your CFO! In the interview, you'll hear why you would need three experts or one Jock Purtle to arrive at the right figure of how to value an online business.
When should you get in touch with Jock Purtle? He recommends six to twelve months out from when you'll be truly ready to sell your business. Why? Because in that time, he could increase the value of your business 20-100%! Visit Jock's site for free business valuation guides and more at DigitalExits.com.
Listen to the interview with Jock Purtle on How To Value An Online Business right here:
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