

Ask HN: Does my company with $140,000 annual revenue have any value? - webdev2010

I am a 21-year-old web developer who operates a company (incorporated) with a couple unique web apps relating to website management and ecommerce.  The software is downloaded and hosted by customers (not SaaS) but uses licensing and encoding technology so that sharing the code has not been a problem.<p>Licenses for the software bring in around $35,000 per year, while related custom development by myself brings in around $110,000 a year at a $150-$250 per hour rate.  I work part-time, take vacations, etc.  Bottom line: It's a great job with great clients and I couldn't ask for much more at 21-years-old.<p>However, I have just graduated with a degree in a field of research that I want to pursue with grad school.  My plan is to sell the business in a year and move on to graduate school.<p>But is there any value in this business?  Will other web development companies see value in acquiring my clients, products, and websites?  There's little money to be made without work: I would predict $25,000 per year could be made without answering any emails or doing anything.  However, if a company or person kept up with sales/support and doing custom development, they could easily make $200,000 in a year.<p>What do you think?  Am I just trying to sell a full-time job or is there value in this business?
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honopu
So you are billing out 110k a year which is 733 or less hours per work a year.

Somewhere between 110k and 733 hours of labor is an asset you are just looking
to throw away.

If you look at subbing it out to someone else(though they get full source, i
mean they have to) and if you pay this/these guys 60/hr, you are looking at
paying out around 44k-ish a year plus lazy bloat so probably 60k a year.

You should hopefully realize you have built something pretty awesome, you are
just missing the steps covered by: [http://www.amazon.com/E-Myth-Revisited-
Small-Businesses-Abou...](http://www.amazon.com/E-Myth-Revisited-Small-
Businesses-About/dp/0887307280)

which basically means that you need to put processes into your system where
you can sub yourself out as needed and someone else can handle this. Support
requests and RFQs going to your personal email aren't conducive to this. Using
things like zendesk, some other support app etc would be really beneficial.

So really you have 25k a year + a hose of consulting money you can divvy
up/spray around as you see fit.

You really have something cool here, you should value it correctly. People buy
jobs all the time, isn't that what college is all about?

~~~
hartror
Excellent point and I hope webdev2010 pursues it. I'd just like to add a
cautionary note that shifting a business to this footing takes time and that
in all likelihood there will be bumps in the road. But having a relatively
large relatively passive income while at grad school would be totally worth
it.

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dkuchar
My first business was incredibly similar to yours in terms of success. A
partner and I share about $75K/year in profit, and at this point we only
answer occasional technical support (no custom development or contracting).

Neither of us were looking for the additional contracting work that you take
on, we instead regarded this as passive income, and took the liberty to travel
and relax.

I've now moved onto a new (bigger/riskier) project full time (with another
partner), with my month-to-month financial burden still being taken care of by
this first business.

From my experience, what I'd suggest is that, if you haven't already, build
out incredible demonstrations, tutorials, how-tos, videos, etc for your
customers, in an attempt to render yourself as useless as possible (on the
contracting side). Then I suspect (based on the particulars of your business),
that you could just maintain the project for some amount of time, only fixing
problems, enhancing support materials and answering technical support, while
earning significantly more than the $25k you suggest.

I say some amount of time because these things don't last forever, especially
if you aren't growing it. But to me this doesn't sound like a killer business
- it sounds like some passive income that you can use as a stepping stone to
the next big thing in your career.

So don't sell it. Round it out with a last big push, turn it into a solid
source of passive income, and let it fuel your future endeavors.

If you want to talk about this more in private shoot me an email, it's in my
account info.

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apowell
Here's my off-the-cuff analysis based on the limited information you've
provided:

Keep it. The consulting business is worth very little, I think you're right to
view it as "selling a job". Take it out of the equation for now. You have $25k
- $35k in passive product-based income. That's your sellable asset.

So what's it worth? Three years of demonstrated profit would probably be a
fair selling price. Based on that you're looking at about $75k pretax. Why do
that when you can just sit on it for three years, realize the profit, and
still have a business that generates income?

If you don't want to do any more consulting work but have recurring business
coming in, consider finding a trusted developer who can assume your clients
and will pay you a commission on future billings.

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ibgeek
Keeping the business may be to your advantage. Stipends at graduate schools
are often around $25k/year, so your business would allow you to make the same
amount of money with almost no effort. Since they are often funded out of
professors' grants, you're limited to working with professors who have funding
and have to do their research. If you keep the business and fund yourself,
you'd basically be able to go to grad school almost anywhere you wanted and do
research in whatever area you wanted with almost anyone.

~~~
hadley
As well as paying your (meagre) salary, the funding usually also covers your
tuition. So while $25k / year will cover your salary, it won't also cover your
tuition.

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miles
_I would predict $25,000 per year could be made without answering any emails
or doing anything_

Then it might be a better value for you to keep the business (while putting
little to no effort into it) and consider the $25k/yr an annuity of sorts. In
four years you've got a hundred grand, which should offset the grad school
expenses nicely.

~~~
zacharyz
I agree - perhaps take on some outsourced employees that can handle the
repetitive stuff when it does occur.

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csomar
Idea: Don't sell it. You are profitable. Hire a geek, let him learn the
framework and do custom development for you. Take a part, for example, if he
bills $120/hour you take $20/hour. You'll also make passive money selling
licenses. Hire a customer support person if you don't have time to do it
yourself. You can hire it remotely; but I prefer that the developer is hired
locally.

HN, please comment on my idea, as I don't have any real-life experience.

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jacquesm
The value in your business is you, with the exception of the license fees. So
any buyer will want you as a part of the deal, expect to have to stay on for 2
to 5 years depending on how specialized your knowledge is.

Also, if you are selling a business that small consider building it our
yourself first and train your replacement while you're at it. That way an exit
becomes both more likely and much more profitable.

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slay2k
You realize there are highly skilled, entrepreneurial people willing to work
for $100-200/hr, right ? Especially part time.

I'm your inverse in the sense that I'm done w/ grad school and now doing
freelancing/consulting to fund my own web-based projects.

Hell, go get your degree and I'll grow your business while you're gone, all
the while kicking back 20-25% of consulting income. So you'll make a passive
$60k+ a year while continuing to own your operation. And I won't have to spend
time looking for clients.

Trust is a real issue, of course, but there are genuine hard-working people
out there. If you want to talk more, my email's in my profile.

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omarchowdhury
If you're billing at 150 to 250, I'm sure you could hire someone at 50 to 75
to do all the support work full time.

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genericbusiness
While we're discussing this: I've written some software that generates
approximately $200k/year in passive income (and growing), with almost no
ongoing maintenance or support required. Anyone working on it full time could
double it quite quickly, I think. (I'm working on some other projects.) At
that level, how should I go about selling it?

~~~
lftl
$200k/year is probably pushing the amount that would be worth trying somewhere
like flippa.com, but I have seen a few businesses in that range there.

Bizbuysell.com has a lot of businesses more in that ballpark, and if you want
to be a little more proactive in selling it you could talk to a business
broker about selling it.

~~~
jacquesm
Better read the fine print really good, business brokers worth their money are
very hard to find and it's easy to get locked in with some shyster that will
bank on you selling your business eventually and him pocketing a part of the
sale. They're worse than real estate agents.

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dennisgorelik
Why do you want to go to grad school if you have successful business on your
hands? It looks not only a successful business, but also such a business that
allows you to do your own research part time. That kind of research should be
more efficient that what you would get in academia.

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JohnInParadise
There surely is value in the business there. One basic formula for business
valuation is 110% of annual gross revenue + the value of any hard assets.

The recurring license revenue is nice. The billable hours are a little
difficult to value though since they are very dependent on you skill set. If
you are doing something fairly unique, and the buyer can't be trained easily
or successfully than it might be hard to honestly justify that revenue when
negotiating a business value and price.

What are you marketing and advertising costs now? If you say "basically zero"
then you might have a lot of untapped potential value.

Since you are not interested in running a business and hiring people, I'd
suggest selling now. It'll take a few months to find a buyer and a few months
to close a deal so might as well start now.

To paraphrase Warren Buffet "no one ever lost any money by taking a profit".

On the other hand, $2k per month of passive income while in grad school is a
great way to live and study and work without a lot of added stress.

I wouldn't take less than $125k for it, cash (don't carry a note for the
buyer). And offer the buyer 40-80 hours of training over the first 2 months.

~~~
webdev2010
Marketing costs are around $350/month for some simple BuySellAds spots.

I think the ideal purchaser would be a web development company or enterprising
web developer (PHP programmer with frontend skills too) who is willing to pay
~$100,000 up front for a growing and proven business, the client leads, etc.
However, I'm not sure if this is possible to find.

~~~
ttol
whats the language/platform of the software? how many customers/users are
there currently?

~~~
webdev2010
PHP. ~200 active clients.

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japherwocky
Hire an intern, teach them how to do the tech support, collect a check. I
think you'd be foolish to get rid of it.

I'd happily support it for you and pass on a cut of the earnings. ;)

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vetinari
To assess the value of the business you would have to look into finacial
statements. You are incorporated, after all, but I suppose you don't have many
assets and liabilities (I might be wrong though).

Revenues do not say much, you must subtract costs of running the business. To
do that, you must also decide, what is your wage (or what would cost to hire
someone to do your job) and what will be left as the profit.

To simplify, the value of your business is present value of future profits.

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skurland78704
Keep it; a decent income would've made grad school significantly less painful.
500 hours a year is not a full time job; I think your odds of selling it at
the price it's worth to you are very low.

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anbyr
If you are interested in selling - send me an email anbyr1010@gmail.com

That hopefully answers your question around value vs job.

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LookingToBuy
apologies for the throw away account.

Am guessing you've probably made your mind up by now which way your going to
go so if your selling it on, I may have some buyers for you, contact me off
list on:

throwawayaccout2010@gmail.com

happy to sign NDA before code review/discussion starts.

throwawayaccout2010@gmail.com

~~~
webdev2010
I'm not interested in selling right now. I am running and growing it over the
next 6 months, at which point I will look for a buyer.

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dansari
I'm also interested in helping you out as a skilled developer - please contact
me on gmail at ansari.daniel.

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mma
How can I contact you if I'm interested? My gmail account is mattmarksmail.

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fabiandesimone
Any way to contact you?

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kinlane
I learned this the hard way 2 years ago while going through my divorce with my
wife. We had both built up our web app development business over 8 years.
Income was 120-150K. But without "both" of us working the hours....it soon
wasn't worth anything.

I was able to liquidate the clients for 5K.

This was due to poor planning, documentation of process and of course a
divorce. (so communication was somewhat an issue).

You would really need to define the business...every nut and bolt...and module
that drives it. Then the processes that go with it.

Then if you could quantify that to someone, and show how it makes money when
operated correctly you might be able to get some money squeezed out of it for
grad school.

The likelihood you will get lump sum is small...but more like you could get a
residual with maybe a balloon.

Let me know if you need help packaging it up. I'm helping my current employer
with this now....info@kinlane.com

~~~
jaxn
I really hope you didn't get screwed in the divorce by taking the business.
Valuing a small business in a divorce is tricky.

