While most people reading this will never have the luxury of starting out as a billionaire, only to end up as a millionaire, the million dollar mark may not be nearly as far away as you’ve been led to believe it is.
For more than a century, businesses have been changing hands. Even as little as 15 years ago, it was hard to imagine that anyone would pay anywhere near a million dollars for something intangible, like a website.
As a business and website broker, though, helping clients purchase websites from low the 5-figures to upwards of millions of dollars is exactly what we do.
After so many different deals, it’s easy to see what factors go into determining whether a website or worth a million dollars or not.
While it may not necessarily be easy to hit the 7-figure mark, it’s not necessarily impossible, either. There are a few factors that go into making a million dollar website what it’s worth.
1 – Owner’s Cash Flow
While it may seem obvious to most people, the amount of revenue that a business is generating directly correlates to how attractive the business is going to be to investors.
To hit a million dollar valuation, a business is going to need to have the cash flow and benefits to the owner that outweigh at least $300,000 to $400,000 per year.
With anything, though, there can be exceptions to the rule. One exception is when the widely-accepted valuation strategies aren’t used.
The vast majority of businesses, though, are going to need to hit that $300,000 to $400,000 per year mark before they can be valued at $1 million, or more.
2 – Successful Track Record
There are very few exceptions to this rule. In general, businesses that have become “overnight sensations” are few and far between — even though it seems like those are the only stories you tend to hear about.
While you do hear those stories most often, it’s simply because the media and news outlets aren’t reporting about the success of businesses that have taken years to become what is considered to be a “success”.
The thing about it is, though, the stories you don’t hear about, the businesses that have taken years to become a “success”, is that those businesses are generally more stable than the ones that come out of nowhere and make a massive impact on their market.
If you can show that your business’ success spans over the course of three to four years, you’re in a much better position when it comes time to sell than one that could be a fly-by-night success story.
3 – Trending Upwards
Whenever you’re digging into the traffic of a business or website, you’re going to want to verify at least three to four years, if possible.
Over the course of those three to four years, you’re going to notice commend trends — either up, or down. It’s what happens with businesses, they rise and they fall until they stabilize.
The key is to pay attention to the average results. Are they trending upwards over the course of the business’ life? Is the upwards trend being repeated time, and time again?
This is especially true for the months leading up to the sale. Is the business owner selling when the business is on the rise? Or are they selling with the business hitting a downward trend?
If it’s moving upwards leading up to the sale and the revenues have been climbing, the business could be poised for picking up a million dollar valuation.
4 – Being Transferrable
Every business can be bought or sold. That doesn’t necessarily mean it can easily be transferred to the next owner, though.
If you have built a business that’s required to have you in place in order to sustain itself, or you have built a business that is revolving around your own personal brand, it’s going to be substantially harder for someone else to take it over and see the same success.
Moving the business forward without restructuring it or rebranding it without you in place, while still sustaining the same revenue numbers can be nearly impossible to do.
When you’re trying to hit that 7-figure valuation, you’re going to need to be selling a business that is easy to transfer, and easy for your investor to take over when you’re no longer around.
In general, the less work that your investor has to do when they buy the business from you, the more they are going to be willing to pay to acquire your business.
This is especially true for personal blogs. Think about blogs like Dooce, Single Dad Laughing, The Oatmeal, and The Pioneer Woman. These blogs are huge, popular, and incredibly profitable, but they’re built around a single person.
If that person wasn’t in the picture anymore, a significant portion of their readership would disappear completely.
That means the business can’t easily be transferred to a new investor, while still sustaining the same revenue numbers.
Making sure that your business can be transferred means ensuring that there are parts of the business that are easily replaceable and that the services your business relies on can be replaced by another service without having revenues impacted as a result.
The fewer number of services that your business is tied to, the more desirable it is going to be for investors, and the easier it is going to be for them to pick up where you’ve left off.
5 – Growth Opportunities
While a million dollar valuation may seem like a high number, businesses that are being sold for 7-figures aren’t typically anywhere near their growth cap.
Investors know that, by purchasing these businesses, they can grow the revenues far beyond where they are at whenever they decide to submit an offer. The opportunities to grow can be easily identified and capitalized on.
When an investor is paying 7-figures, or more, for a business, they know that there is still more potential for growth than what the previous owner has been able to achieve.
If the site may have already hit a plateau and there isn’t much that can be done for it, in terms of new growth opportunities, investors may decide to pass on submitting an offer.
That means, for you as a website owner, if you’re trying to hit that 7-figure mark, make sure your business isn’t already tapped out and identify ways your investor can grow it after they acquire the business from you.
6 – High Barrier of Entry
When it comes to how you’ve built your business, if another competitor can come along and replicate exactly what you’ve done, investors aren’t necessarily going to be jumping over themselves to offer you $1 million, or more.
They want to know that the barrier to entry, especially for your competition, is significantly higher than deciding to start up a new business and follow the path that you’ve already laid out for them.
Sites that can be easily replicated are going to be valued far lower than those that have a higher barrier to entry.
Building a truly unique business is going to help you get closer to that 7-figure valuation mark.
7 – Low Workload Requirements
Very few investors that are willing to spend 7-figures on a business are going to want to buy something that creates an 8-hour (or more) workday for themselves.
They’re going to want a business that is already moving on its own, that has passed the “building” stage, and is going to become an asset for them — not a liability.
Big ticket investors are looking for a business that’s going to generate income without them being required to devote significant amounts of their own time to do it.
If your business requires a ton of effort to keep it going, chances are slim that you’re going to find an investor willing to offer you 7-figures for it.
8 – Multiple Traffic Sources
If there’s one thing that smart investors have learned over the last 10 years, it’s to not buy a website that is reliant on one specific traffic source or platform that delivers traffic to their website.
If your business relies on a single source of traffic, like Google for instance, not only are the chances of you getting a 7-figure offer to buy the business slim, but the chances of not even being able to find an investor at all are dramatically increased.
Depending on a single channel for traffic, or putting all your eggs in a single basket, is a recipe for disaster when it comes time to sell.
If your business is reliant solely on Google, you are dependent on them not updating their algorithms to work against the strategies you have used to achieve high search rankings. If they release an update that specifically targets strategies you’ve used, your essentially out of business.
Every single time Google has released a major algorithm update, there is a major upheaval in online businesses across the board, that typically results in negative outcomes for the most business involved.
This is even truer for businesses that have used shadier tactics to obtain their higher search rankings. Other businesses simply aren’t prepared to ride out the updates to figure out where they’ve landed.
While it goes without saying that no business should rely entirely on Google to build their business around, having a single source of traffic is one of the biggest reasons so many businesses fail to hit that 7-figure valuation mark.
If you have built your business by using multiple different channels, ranging from organic search, to social media, email marketing, paid to advertise, and referral traffic, you are going to be better positioned for hitting a 7-figure valuation.
Your investors want to know that they can sustain your business should something major happen with one of the traffic sources that you are relying on.
Making your business attractive to investors means building it to sustain changes and fluctuations in how the internet operates, including those platforms you rely on for generating traffic.
9 – Solid Financials
This lesson is impossible to stress enough.
Regardless how you’ve built the business or the industry you’ve built the business around, you need to make accounting your primary focus — especially if you intend to sell it for 7-figures one day.
Even if you’re not necessarily looking for a million dollar buyout down the line, keeping detailed accounting will make your job easier whenever you do decide to sell.
That means you need to do yourself a favour and get your accounting records in order now.
Any records that are non-existent or hard to navigate are going to be a huge turnoff for your investors. A buyer that can’t verify what you’re telling them, in terms of your revenue and financial history, isn’t going to separate with any of their hard-earned money.
Going into a sale with less-than-detailed accounting records is going to force you to scramble at crunch time which can delay the deal. If you take too long to get everything you need organized and presentable for your investor, you run the risk of your investor losing interest in the deal.
At worse, they can suspect that you’re trying to hide something which isn’t only going to destroy your chances of closing a deal together but is also going to destroy your chance of building a relationship with that investor going into the future.
Now, every single business has its own set of nuances that help contribute to its success — and the price tag being asked or offered for it.
If you strive to meet most of, if not all of these goals, you can put your business on the path of becoming valued at that coveted 7-figure mark somewhere down the line.
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