According to "The Portable MBA", the selling price for a business like this should be about 2X gross profits, so we'd logically expect about four price cuts before someone bites (predicting a sale at $145k).
I haven't read the Portable MBA, but a proper valuation is based primarily on the expected future profit, adjusted for risk. Past/current profit can correlate with future profit, but is not the determining factor. It is too easy to 'fudge' profit in the short term. A better approach is to base a valuation primarily on a company's average return on invested capital. For example If a company spends $100 this year, that's $100 that won't be current profit. But it should return more than $100 in the future. In fact, a company might increase their value in the same year that they have a net loss. The reason for this is simple: A company's value is not how much money it earned in the past, but how much money it will earn in the future. How reliably can a company produce future earnings? And how much are those earnings expected to be? Those are the two fundamental questions to answer.
From what I understand, the value would be based on a multiple of each traffic source and the likelihood of it standing the test of time...
SEO traffic can expect to trade at 1.5x-2x
Paid search traffic at a 6 month multiple
direct navigation traffic at a 3x-4x multiple
Also, It would be based on the previous 6 months average... Not the current year sales...
Personally, I am way to skeptical of this guy finding a buyer, and than scamming him by buying up inventory through friends and entities he creates, knowing he will get 2.5x+ on each product he buys.
Unfortunately, the trailing six months isn't a meaningful figure given the annual seasonality of the niche. Value would be over stated in the spring (when profits are high) and under stated in the fall (when profits are low).
And while, theoretically, it could be possible to create a ton of fake transactions to boost the sale price, it'd sure be a heck of a lot of work for little payoff. You'd need legitimate transactions, otherwise you'd simply be returning the motors and reducing revenue.
I suppose I could start a trolling motor MLM and ruin all my personal relationships to boost my chances at a slightly higher sale price...
And while, theoretically, it could be possible to create a ton of fake transactions to boost the sale price, it'd sure be a heck of a lot of work for little payoff. You'd need legitimate transactions, otherwise you'd simply be returning the motors and reducing revenue.
Comments
According to "The Portable MBA", the selling price for a business like this should be about 2X gross profits, so we'd logically expect about four price cuts before someone bites (predicting a sale at $145k).
I haven't read the Portable MBA, but a proper valuation is based primarily on the expected future profit, adjusted for risk. Past/current profit can correlate with future profit, but is not the determining factor. It is too easy to 'fudge' profit in the short term. A better approach is to base a valuation primarily on a company's average return on invested capital. For example If a company spends $100 this year, that's $100 that won't be current profit. But it should return more than $100 in the future. In fact, a company might increase their value in the same year that they have a net loss. The reason for this is simple: A company's value is not how much money it earned in the past, but how much money it will earn in the future. How reliably can a company produce future earnings? And how much are those earnings expected to be? Those are the two fundamental questions to answer.
From what I understand, the value would be based on a multiple of each traffic source and the likelihood of it standing the test of time... SEO traffic can expect to trade at 1.5x-2x Paid search traffic at a 6 month multiple direct navigation traffic at a 3x-4x multiple
Also, It would be based on the previous 6 months average... Not the current year sales...
Personally, I am way to skeptical of this guy finding a buyer, and than scamming him by buying up inventory through friends and entities he creates, knowing he will get 2.5x+ on each product he buys.
Unfortunately, the trailing six months isn't a meaningful figure given the annual seasonality of the niche. Value would be over stated in the spring (when profits are high) and under stated in the fall (when profits are low).
And while, theoretically, it could be possible to create a ton of fake transactions to boost the sale price, it'd sure be a heck of a lot of work for little payoff. You'd need legitimate transactions, otherwise you'd simply be returning the motors and reducing revenue.
I suppose I could start a trolling motor MLM and ruin all my personal relationships to boost my chances at a slightly higher sale price...
It'd also likely be fraud.
If I were a betting man, I'd say that's his target.
4 rounds of PR ("price cut! Is it for you?) and a sale isn't a bad deal at all.