
How to put a price on my business? - edgeztv
Back in 2007, I got laid off from my job, and the following year I launched typeracer.com - the first online multiplayer typing game, which became an instant sensation on the web (it&#x27;s been mentioned on HN several times over the years).<p>Over time, TypeRacer grew into a pretty good lifestyle business for me and I haven&#x27;t had a &quot;real&quot; job in the past 10 years.  Now I have an offer from another entrepreneur to sell the site.  The offer is in the low six-figures, and while tempting, I was hoping for more.<p>I wanted to reach out to the HN community before I make a decision to sell.  I&#x27;ve never sold a business before, and I could really use some feedback.<p>My site stats are as follows:<p>* Registered users: 1,922,104 (the game doesn&#x27;t require an account to play, so the real numbers are much higher)
* Game plays: 94,912,406 total (~250,000&#x2F;day)
* Google Analytics (last 12 months): 13,618,464 sessions (avg. session duration: 09:27), from 6,515,980 users
* Revenue: ~$85,000&#x2F;year from AdSense + another $10,000 from premium account subscriptions and schools<p>What do you guys think is a fair price to sell this website?
======
gamechangr
That's pretty fair where you have it.

The argument would be how many hours does it take to manage. If it's very,
very little - it might be worth more.

I have bought and sold a few businesses. Even getting six figures is actually
high.

My business broker always said take away loan repayment before putting a
number to it. They always calculate from 80% loan - before establishing a
price. So they would take $95k (I will make it 100k) and pretend the buyer
takes on an 80k loan. They would estimate payments as maybe 8-10k a year.

So they would take $95k - (8k for loan services - fake buyer situation ) and
say the remainder is the price. In your case it would be $85 - $87k.

Hope that helps.

~~~
nostrademons
It seems silly to sell a business that generates $85K/year in passive income
for $85K. Just wait a year and bank the income.

I plugged some of the numbers the OP gave us into an NPV calculator [1],
assuming that the $85K/year drops by $5k each year as advertising economics
deteriorate, and got a NPV of of $345K assuming a discount rate of 3% (which
is around what you can get with T-bills these days). Purchasing it for $85K
implies an IRR of roughly 90%, which is a really, really good investment.

The going rate for small passive-income businesses I've heard is around 4x
revenues, a bit less if they require significant maintenance or the revenue is
declining, which is roughly inline with what the NPV calculations give.

[1] [https://www.calculatestuff.com/financial/npv-
calculator](https://www.calculatestuff.com/financial/npv-calculator)

~~~
gamechangr
This is nuts....4x revenue?

It would have to make $10,000,000+ for that to make sense.

I really don't want to argue and respect that there are many opinions out
there (we all can have one), but OP please ask around to an actual business
broker. I have on three businesses this year.

The amount of revenue is really important. Basically - can a buyer imagine
living off the business? What's his opportunity to cost? (like it takes 15 hrs
a week away from other investments). How much capital would someone need to
build it from scratch (might be time in your case).

That's what I ask when I am considering buying.

~~~
nostrademons
I think the contrast between our replies is illustrative of why there's so
little liquidity in small businesses.

Mine was basically "In strictly financial terms, you're nuts to sell for
$85-100K." Yours was "As a buyer, you're nuts to buy for more than "$85-100K."
What's going on economically is that transaction costs will eat up most of any
surplus for a business worth < $1M, and so both statements are true.

In practice, the small business owners I know usually just milk their business
into the ground. They treat it like an annuity that generates $X of additional
income, and if it ceases to become profitable or worth the trouble, they just
shut it down.

~~~
gamechangr
Agreed.

> the small business owners I know usually just milk their business into the
> ground.

You're right... I see it all the time. It's hard to someone to even want to
buy enough to make an offer. If they do... I always try to flip the role.

"how much would you offer for a business that supposedly made $95,000 - in an
industry that you maybe unfamiliar with?"

That's what a buyer would pay.

------
byoung2
I think the usual formula is maybe 1-3x earnings for small businesses (under
250k annuall, maybe 3-5x for a really reliable income stream or a record of
growth. Yours might be at the lower end since you rely on a traditionally
fickle income stream like advertising, which seems to be on the decline.

