Going to Sell Your Websites? - What are they Really Worth?

Going to Sell Your Websites? - What are they Really Worth?

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Going to Sell Your Websites? - What are they Really Worth?

Reprinted with permission of VotanWeb.com

There may be no topic more controversial or misunderstood as the website valuation, also known as a website appraisal. Although they're especially useful for website owners contemplating the sale of their websites, valuations are seldom commissioned by sellers at all--since most are convinced that nobody knows their website’s value better than they do. And while valuations can also have an enormous impact on strategic planning, they're typically overlooked there, too. Most website owners choose to pay for a formal valuation only when they absolutely must--usually when a financing or other kind of transaction requires one.

Pricey though they may be, website valuations can and should be used at key stages in any website's development. The thing to keep in mind is that when you own a private website, no one can look up its value in a newspaper. So when circumstances require that kind of information about a private website, its owner must hire someone to perform a study of its value that is logical and defensible. The determination of a website’s value will be based on an analysis of all kinds of information, such as historical profits, other financial records, the customer base, security controls, competitive details, and much more.

The results can be well worth the costs. Just consider the financial risks entrepreneurs run, for example, if they give a website to their children as part of a long-term estate-planning strategy--only to have the IRS step in years later and challenge the claimed taxable value of the gifts. The IRS will always start out from the premise that your website is worth the highest possible number. Unless you've got a good, defensible valuation to back up your claim of a lower value, you can face real difficulties.

Don't expect the IRS to accept a defense based only on the so-called valuation rules of thumb, the industry guidelines that sometimes appear in textbooks or websites. Rules of thumb are nothing more than the roughest of starting points.

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At best, they can only help you approximate typical market prices for typical website in your industry.

Like Uncle Sam, bankers and investors are generally skeptical about rules of thumb. You can expect both groups to require a valuation--usually to be performed by appraisers of their choice--whenever a website seeks either a significant increase in credit or a new infusion of equity capital. A banker is likely to waive the valuation requirement only when a website’s loan is fully collateralized by personal assets.
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