Last week, I highlighted most of what we had done during our annual meeting. One other thing I didn’t mention was our company shares valuation. Each year, we crunch the numbers together and assign a value to our business. For the first time in 5 years, the company value is lower than the previous year. That sucks!!!
A classic method to value our business would be to take the net profit, adjust it with amortization and apply a multiplier. For example, our last year’s financial statement show a net profit adjusted with an amortization of roughly $40K. This means that, after taxes and all other expenses, our business generates $40K per year. If we use a multiplier to value our business, it would have to be 3 or 4 times the profits. Therefore, the company would worth between $120K and $160K. People who think that you can apply a big multiplier to value a company are not in the real world. You may think that your company is worth several hundreds of thousands of dollars or even a low 7 figure due to its big potential. Let me tell you; potential income worth only for the owner! A few episodes of Shark Tank or Dragon’s Denwill teach that!
We thought the classic valuation model wasn’t right for a web business. Especially because there is no way to appreciate the true potential of this business since we run it with only 20 hours/week (10 hrs from each partner).
If I had to sell my blog empire tomorrow, I would certainly base my asking price with the valuation model I use to buy blogs. According to this model, I could sell my sites for as high as four times the gross revenues. Since we broke the 100K figure for the third year in a row, I would not be afraid to ask for $500K. But I would certainly not sell quickly!
When we put a share value to our company, we decided to create our own business share valuation model. We thought it would be a good idea in order to:
#1 Keep the same model to see the shares value evolution through time
#2 Design a model considering both the real market and the potential of this business
#3 Establish a value for our shares upon our death as our wives would benefit from the life insurance we purchased.
Here’s our quick formula to determine the business value:
So we built a valuation model which considers the classic valuation model for websites (a multiplier of gross revenues) and added the cash and debts composites. We did that as we were sitting on over $60k in cash one year and we thought this was worth something. The situation is currently the opposite right now as we have corporate debts.
According to this model, our shares are worth $126,000 compared to $131,000 last year. It’s a drop of nearly 4% in a year. This is mainly due to a drop in our gross revenues. The drop is not astronomical, but when you look at our model, each time we lose $1 in revenues, it affects our business valuation by $3. Since we have concentrated on paying down our debts in 2012 and not growing our gross income, we affected our valuation model at the same time.
For the first time since we created our company in 2008, our revenues didn’t grow. Even worst, it has dropped by a few percent! Still, I’m convinced my company is worth more today than it was worth a year ago.
It’s been a while since we havebeen concentrating on diversifying our business and make it more sustainable. Almost 70% of our business model was based on private advertising only a year ago. This part of the business was continuously growing and I was even expecting revenues as high as $15K/month by the end of 2012. An important Google update happened at the beginning of last year and forced us to change our business model to survive.
Last month, we had our best month in term of gross income for almost a year! The best part is less than 25% of our income is now coming from private advertising! We even cleared some of our websites completely! We can now expect to receive money each month from various other sources:
Book sales (Dividend Growth)
Small eBook Sales
Ad campaign brokering services
It is true that we made less money in 2012. But the point is that we are making more passive income than ever. We are making money from so many other sources that our business model is not dependent on anything anymore. We even suffered from traffic loss and are still making more money since we are able to attach our readers through our newsletter.
With the addition of videos, podcasts and a membership site by the end of 2013, I’m convinced that we will continue to break the $10K/month and eventually reach $15K/month in 2014. At that point, our business will be worth a lot more! Hahaha!
Readers, do you think my shares value worth more this year? Would you invest in such a company if you had the opportunity?
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