Valuing a website for your balance sheet

This question mainly goes out to those of you with a business that owns websites (or at least one site) and values it as some sort of asset on your balance sheet. This would be a site where the main revenue comes from selling ad space.

Without revealing your company secrets, can you shed some light on how you value your site? I'm assuming it's listed as a type of asset, or maybe an intangible asset, and you value it somehow based on profits.

Is there any method that is somewhat standard in the accounting world (other than the typical "10 times monthly revenue that you see here) even though this is a fairly new business operating style?

Thanks

 

When valuing assets, the value must be based on cost - not market value. So, even though your website may be worth tens of thousands of dollars, you have to value it at whatever you've put into it.

 

Don't remember much from my accounting class, but isn't it worth only the amount you've paid total... and like pcoulter said, not market value...

so my assumption would be:
total of all hosting fees
total development fees
total testing fees
any overages/service/repair/restore

 

Yeah, like using historical cost with real estate is great because you can have an asset at like $10,000 which would actually sell for $1,000,000.

In-house websites would end up valued at $0 (hosting and whatnot would be expensed.) But then it's just kind of odd if you pay $5000 for a site and have that as the value, even if one of your $0 sites is better.

Thanks for the responses so far!

(When I mentioned the 10x monthly revenue I was just using an example valuation model, not suggesting to use market value.)

 

I guess its intangible asset.

The cost of server, hosting, maintenance, traffic, users, downloads, niche of site, all these should be added to the cost of site and then the result is value of your site

 

As an asset it can only be valued at what it cost you to develop to date, however a far better way to ascertain it's true value would be to offer it on the open market through auction; you are not obliged to sell it although who knows if the offers are large enough , you might well be tempted.

 

Some of the items you listed would be considered expenses for the "Asset", your website. Time invested and capital are two of the most common measurable aspects of an asset.

 

What a good question.
I have good accountants and even they don't really know the answer. It is a bit if a grey area.
The whole point of outting it on the balance sheet is to write it down for tax, if it were a car say.
Can't really do that with a website as no value is lost.
Really everything with a website is actually off the balance sheet
domain name rental
server renatl
link rental
Will be hard to put them on the sheet unless you buy a server for example
With regards the revenue if you are making tonnes register a company off shore and rent it from yourself, avoid tax

 

Exactly why I'm soliciting ideas from other webmasters

The site itself is just some code really, so until GAAP has some sort of website asset valuation standard, we'll just stick with revenue and expenses I guess.

 

Intangible asset.

 

Don't think they ever will in the UK. I have some tasty domain names, but as a domain name/ website they are worth nothing, but when you support them with sales figures and accounts, that is when they have a value.

Thus after having slept on it
"Websites have little or no value in the eyes of the taxman, unless supported by certified accounts, that show solid year on year sales and profit"
It you can show profit directly against the site, then you can write it down. I would suggest a period of at least 3 years is the mak for accounts.

Summary
Off Balance sheet
hosting
renewals
links
adwords etc
On balance sheet
Nothing, unless supported by a few years of solid accounts linking the site to heathy sales.
Thus after about three years you should be able to depreciate the site,
linked back to the first year, in order to have a tax break for upgrading the site. The exception to this is if you have purchased the site from a third party, then you could immediately put it on the balance sheet and depreciate it. Thus it may be advantageous to own several companies and sell the finished sites to yourself thus establishing a market value.
All legal

 

A balance sheet has two columns. Assets and Liabilities.

They have to balance.

If you arbitrarily set values for your assets, you would have to set an entry on the other side of the balance sheet to compensate.

I cannot fathom why you would want to undervalue or overvalue a site. When it sells for less than your costs, it's a loss, and for more, it's profit. The balance sheet value is meaningless unless you are selling your entire business.

Anyone savvy at the site buying game would laugh if you told them, "this is what I estimated my site to be worth on my balance sheet".

The true value of a site, depends upon how much some poor, idealistic sucker is willing to pay for it and if you can locate said sucker when it is time to sell it.

 

Well this discussion has nothing to do with selling websites; it's about creating proper financial statements.

And when it comes to a proper balance sheet, it should have assets, liabilities, and owner's equity.

But thanks for chiming in

 

Erm.
He doesn't want to sell the site. He wan't to do his accounts and we are talking about how do qyantify a site without selling it. Lets hope no one looks up you threads before bidding on any of you sites, as you have just done a Gerald Ratner!

 

If you want to create proper financial statements, you cannot arbitrarily value goods. This is Accounting 101.

Owner's equity is a liability. There are two columns on a balance sheet.

If you think you will show the site(s) with a higher asset value than their cost (why you would capitalize those expenses is beyond me, because many of them occur "in period" and have no tangible value) then yes, you could reflect the corresponding entry on the balance sheet in owner equity.

But in some countries, you have to pay capital gains on profit from the sale of assets. So you are actually creating another cost to yourself for the vanity of showing the site(s) as capital assets.

A basic rule of thumb, is that you expense everything in the financial reporting period that you possibly can by law. Assets are subject to depreciation (dependent upon their class) and now that expense you incurred 3 years ago is written off, but when you get paid for it, you may be subject to capital gains.

The only time I can see placing a website on a balance sheet as an asset is if you buy it, as now it is a form of property however you should only be placing it on at the value you paid for it, not what you arbitrarily think it might be worth (higher or lower).

Accounting is an exact science.

 

You completely miss the point. At the time of sale, the value is determined by the market. That's when you realize a profit or loss.

http://findarticles.com/p/articles/mi_m0ITW/is_6_85/ai_n14897255

As far as my sites, I don't sell them. That's not my business model. They are either valuable to me, or worthless to everyone.

 

Well guerilla you have some good advice in your second post, but it seems like you're assuming we are doing all sorts of stuff like this in practice. This thread is simply for discussion and learning. We're just running through different scenarios for fun since this is a relatively new business area.

 

LOL, anything beyond cash and cash equivalents has some amount of estimation. And even cash isn't exact, I have passed on investigating a multi million dollar discrepancy in the bank recs of a large publicly traded company. The only time accounting is exact is in textbooks or VERY small companies.

OP,

I haven't been current in the standards for over 10 years so I don't know the answer to your question. But if you are really interested you will find the answer for GAAP at www.fasb.org. There is a proper methodology, companies with large internet presences couldn't get clean audit opinions if there weren't. Ten minutes or so reading the FASB's should show you why I am no longer practicing, and why I am not doing the research into this topic, it is too darn boring. I don't think you are going to find a simple answer though, it will greatly depend on the circumstances.

Tom

 

Thanks Tom. I haven't been to that site since I heard about it in high school accounting class! (probably for the reasons you mentioned... )

 

This is possibly the most boring thread ever now