This presentation is from Affiliate Summit East 2017 (July 30 - August 1, 2017 in New York). Session description: This session will dissect what motivates buyers to acquire an online business. I’ll provide practical advice anyone can use to increase the value of their business.

1. 1
Maximizing the VALUE of your
INTERNET PROPERTIES.
Mark Daoust

2. 2
What Drives Acquisitions?
Financial
Return on Investment
Lifestyle
Niche
Appeal

3. 3
Earnings Multiplier Approach
The most common method of estimating a business’s value
Discretionary Earnings x Multiple = Est. Value

4. 4
What are Discretionary Earnings?
The pretax, pre-interest profits, minus: non-cash expenses, one
owner’s benefits, true one time investments, and non-related
income or expenses with further added expenses buyers will
reasonably incur.
Technical Definition
Seller Discretionary
Earnings (SDE) are
the earnings that a seller has
to spend at their discretion.

5. 5
Tip 1: Remove Unnecessary Expenses

6. 6
Audit Your Expenses
For every $1 you save in expenses, you add, on average,
$2.50 - $3.00 in value for your business.
● Remove unoptimized advertising campaigns.
● Cut expensive vendors or work to reduce their cost
● Cut down on personal benefits
● Business intelligence tools
● Avoid significant investments in your business
The goal: About 1 year before selling, be more lean with
your business to maximize discretionary
earnings.
How a Dating Site Added
$160k in Value
2014 - $125,000 in PPC Spend
2015 - $85,000 in PPC Spend
This savings of $40,000 added $160,000 in
total value to the business.

7. 7
Avoid This
Graph
When cutting expenses, do not cut
expenses at the cost of revenue,
even if the net effect is an increase
in earnings. Even though earnings
are up, buyers will be suspect of
declining revenues.

8. 8
A Requirement
Accrual basis accounting recognizes the full value
of your business, not just cash. For an
ecommerce business with inventory, this makes a
HUGE difference in valuation.
Tip 2. Use Accrual Accounting.

9. 9
Cash Basis
Revenue 1,220,867
CoGS (450,591)
Expenses (592,646)
Addbacks + 2,847
SDE $170,476
Tip 2. Use Accrual Basis Accounting.
Both financial summaries are for the same company. The only
difference is the financial basis they use to report their earnings.
Accrual Basis
Revenue 1,220,867
CoGS (313,679)
Expenses (592,646)
Addbacks + 2,847
SDE $317,389

10. 10
Valuation Impact
86%
Increase in value
Side-by-Side Comparison
How much can accrual basis accounting impact your valuation?
Here are side-by-side calculations using our earnings multiplier
approach.
Valuation Comparison
Multiple 2.8
SDE $170,476 $317,389
Valuation $477,432 $888,689

11. 11
Part 2.
HOW TO
Maximize
Your
Multiple.

12. 12
What Does a Multiple Measure?
The multiple is influenced heavily by bank lending,
economic health, and industry health.
General Market Health
Your multiple also reflects how valuable of an
asset you built with your company.
Your Asset Value
Risk
Growth
Ability to Transfer
Documentation

13. 13
What Does a Multiple Measure?
The multiple is influenced heavily by bank lending,
economic health, and industry health.
General Market Health
Your multiple also reflects how valuable of an
asset you built with your company.
Your Asset Value
Risk
Growth
Ability to Transfer
Documentation

14. 14
Minimizing
Risk

15. 15
Common Areas of Risk
Single Points of Failure
Any aspect of your business where, if it fails, will have
a major impact on your business.
Lack of Barriers to Entry
Competition and the commoditization of a niche can
restrict future growth and hamper existing successes.
Key Person Risk
Technically a single point of failure, key person risk
occurs when a single person in your business
becomes irreplaceable.
Dependencies
If your business is dependent on the rules or success
of an external business, this is a dependency.
Market-based Risks
Threats to the broader niche such as the niche being
outdated, replaced by a newer niche, or restricted
through laws.

16. 16
Traffic Concentration
Avoid being dependent on
one source of traffic such as
Google or Social Media. These
environments can change
rapidly.
Concentration Risks
Common Risks That Turn Buyers Away
Key Person Concentration
This can be in your company,
among your vendors, or
among your clients. Don’t let
your business depend on one
person.

17. 17
Maximizing
Growth

18. 18
Growth Prospects are Not Potential
Here is the difference
Potential is a word business owners use when they do not have
specific plans for growth. It is often the same as a dream.
Growth Potential
Growth prospects are clear paths to growing your company. A new
owner just needs to tap into the known prospects to unleash growth.
Growth Prospects

19. 19
Why Haven’t You Grown?
Three possible explanations for not tapping into growth
You’ve achieved a balance.
Not every entrepreneur is motivated by money alone. In fact, most
online entrepreneurs crave a balance between financial freedom and
freedom from workloads.
You are pursuing growth
Some growth takes time to realize. It’s possible you’ve laid the
groundwork but have not yet reached the point where that has paid off.
It’s actually just potential
It’s easy to confuse growth prospects with potential. A common
reason we do not pursue growth prospects is that they are more
potential than realistic.

20. 20
The strongest influence on growth prospects is a history of
growth. This means timing your exit is crucial to maximizing your
multiple.
The Best Indicator of Growth
Buyers see recent history as a strong indicator of growth (or lack of growth)

21. 21
Ability to
Transfer

22. 22
Personal Branding
Keep your personal brand out of your business
Our client’s business shared his personal name. All branding efforts
were around his name which made the product and the entire
company
Business named after our client
If he were to sell his business, even in an asset sale, he’d be required
to sell his personal name.
How do you transfer your name?

23. 23
Personal Relationships
Keep relationships under contract
While there is nothing wrong with getting to know vendors and
employees, if all of your key contacts are from your personal
network, not only will they probably not transfer well, but there are
questions as to what their true cost should be.
What’s the True Cost?
Our client had personal relationships in every aspect of his business.
His parents helped maintain the books, his suppliers were old family
friends. Every aspect of his business had personal ties.
Personal Relationships Everywhere

24. 24
Personal Expertise
Are you what drives your business?
Being talented or an expert in a field is not a bad thing, but failing to
document and explain what you know creates a significant
disadvantage to the next owner. Systematize as much as you can.
Is Your Buyer as Talented?
Our client was an expert at logistics. Rather than use FBA, he
maintained a warehouse and kept his costs extremely low with great
efficiency.
Expert at Logistics

25. 25
Clean
Documentation

26. 26
What You Should Document
Clean financials add significant value to your
business. Keep your financials organized,
accurate, and separate from other activities.
Your Financials
Documenting standard operating procedures
does more than make your business more
transferable - it gives buyers insight into how your
company is run.
SOPs
Map out your business’s structure and
organization. This will help a buyer immediately
see where they should investigate your business.
Business Structure
All vendor relationships and agreements should
be documented when possible.
Contracts & Relationships

27. 27
On the Impact of Clean Documentation
“Some small business owners just don't have their shoelaces tied. We're entrepreneurs--we run down
the street at 60 miles an hour leading the charge--but the mess behind us takes a culture of discipline.
I've walked away from deals right from the start because it's not organized. The organization let's due
diligence go smoothly because any concern you have--the answer is right there.”
Walker D.

28. 28
Thank youFeel free to reach out for a complimentary valuation and analysis of
your business.
mark@quietlightbrokerage.com