As a small development company we have worked on several projects concurrently using the revenue to bootstrap other projects. We now have reached a stage where we have several mature product/service streams. However we are now looking at focusing our attention to just one project and as part of this we are looking to sell of one of our projects. The project is web based software, with a relatively large user base. It's both profitable and has reasonable growth forecasts and 2 years sales figures behind it.
Customers of the software purchase a life long license, so no reccuring income from most existing users but a recent switch to offering only 1 years upgrades has not dented sales so a small recurring income per customer is likely in the future.
Like many small businesses our focus and goals change, our exit strategy never involved selling off the project but now that we are exploring this avenue we are left with a difficult issue of how to work out a valuation. This is further complicated by the fact that we have recently put large amount of development time into the project resulting in new customer niches meaning recent sales figures and potential growth figures are out of kilter with previous years sales figures.
When it comes to setting a valuation for sale rather then investment is there a standard method for valuation? and what factors should we and potential purchasers take into account within the valuation?
Factors for a general sale of an established product and business model is pretty much what someone else is prepared to pay for it VS what you would be willing to let it go for.
So lets assume I'm a prospective buyer, what comes to mind?
Good points. You have an existing market and user base which could be monitiesed.
Bad points. You don't have a reoccuring revenue so your existing customers are pretty much "cost without benefit" or legacy.
Who is the "Natural acquirer"? Most businesses have a competitor or larger player who having that function or market base would help and be worth something to them. Generally it will be worth more to them than the average punter on the street. You have to judge this by what their motivation is for buying you ... technology they don't have is "how much will it take them to build it?", market is how much will it add to their bottom line to have access to your market over the next 2 years.
How to come to an agreed figure?