Calculating the Worth of your Hosting Business

[-DataCenter-]

I'm sure this has been discussed in the past.. and I realize that it is an imprecise science.

I'm in the process of incorporating my business to allow for greater outside investment possibilities.

How do YOU calculate the value of YOUR business? What general formula do YOU use to place a value on your hosting clients (clients = recurring income).

What aspects, both tangible and intangible do you take into consideration?

[Chris]

There is no general formula to calculate the price of a given business, but there are different approaches to assess its value.

The ower, who sells his business, tends to make an estimation based on his past efforts and hard accomplished achievements.

The buyer thinks in terms of ROI. If I put $X on this business, how many time and effort it takes to have the money back?

Both approaches are legitimate, but you can also consider a more objective approach by pricing all the company assets:

- customers base
- owned equipement
- reputation
- devellopped applications
- trained staff
- partenerships
- address book
- legal structure
- ...

It is also important to compare the price you have in mind to other transactions in the same market. But it is important to compare to transactions involving companies as close to yours as possible.

[Tony]

Agreed with edelweisshosting in every aspect.

Remember, unless your business is worth $500,000 or more, chances are you may not even get what your business is fully worth! Small businesses often times won't get what they're worth and that is somewhat normal.

One of the biggest aspects of selling a business is proving to the buyers why you're selling the business. Many are sold because they aren't profitable, some are sold just because the owner is tied up in other things, some are sold because the owner is looking to cash out, etc.

Make sure you make it clear exactly why you want to sell before you do.

[-DataCenter-]

Just to clarify, in case any current or prospective clients are reading this... I'm not selling my company. I'm trying to place a value on percentages of the incorporated business.

[Chris]

Some people sell part of their business to raise cash in order to invest more money on their company and make it grow faster. The problem is when you sell good deal of your shares, your are no longer alone nor totaly free to decide and take decisions.

We are involved on a very fast market so to stay on the scene we must be able to decide faster than our customers. If you accept investors, with each of them, you add new level of decision. This increases the risk of divergences and loss of time and energy every time you have to make a managment decision.

[Jarrid]

I think the best way would be to speak to your bank and ask them about valuing your business as if you were approaching them for a loan

They will obviously take a hard line with their valuation but at least it will give you a figure to start from

[DerekRight]

Good information Chris. What also plays a big roll in the worth of a business are assests - liabilities.

[Steve-WebGuy]

Has anyone here ever sold a business? A web hosting business specifically?