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Ask HN: Does my company with $140,000 annual revenue have any value?
69 points by webdev2010 on July 3, 2010 | hide | past | web | favorite | 38 comments
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.

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.

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.

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.

What do you think? Am I just trying to sell a full-time job or is there value in this business?

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...

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?

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.

e-myth is a great book to check out

another one I liked is: http://www.amazon.com/Built-Sell-Turn-Your-Business/dp/09864...

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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?

$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.

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.

I've looked through 'bizbuysell.com' a bit, there are lots of real businesses there but also quite a few that look like the online equivalent of 'pump-and-dump'. If you go there as a buyer looking for an online business better do your homework real well.

if it is truly passive why in the hell would you want to sell it?

There's passive(stock dividends) and passive(almost no ongoing maintenance), those are two entirely different things, one doesn't require any thought, one does.

The reason for selling businesses that are passive income is threefold from my point of view:

1. Without maintaining the website/business you run the risk of being overtaken by a newcomer and lose your passive income.

2. Even passive businesses take some amount of work. For example you need to file your paperwork / sales tax / taxes / everything else related to the boring side of things. Even if you have people to do those things you still need to talk to them to make sure it is getting done.

3. If you want to turn that 200k income stream into some other business with more potential you can get 200k * X where X is the multiplier that you get for selling now. you can then take the 200k * X and invest that into some new thing.

Yeah I totally understand what you are saying.

1.) Definitely. This will be a slow burn unless someone wants to blow you out of the water and totally undercut you in every way/shape/form.

2.) You are right. That was the idea of my comment, there probably isn't such a thing as passive income without buying an object(not asset) that pays a royalty/dividend, I just thought you were using the word in a way in which it isn't intended.

3.) Totally, i think you need to build the support systems around the business. People will want to buy a money machine, not a hassle. Having as much of that handled before you go to sell it will make it at least at first glance a way better investment. if they are looking at buying a business, aside from them being a competitor, they are basically saying, "You know, I don't trust TNK, and i'm really tired of buying stocks, maybe i'll sink some money here" then they look at your recipe for making money and decide if they want to buy the whole lot.

I just think if you are making 200k you can probably find someone that would be happy as hell to manage most of it and you dabble in it a few hours per week. So mathwise (rounding a week to 50) 4k a week..you can certainly find someone that wants to take some equity and try to build upon that, figure out some sort of metrics for gain aside from salary handled things(what you don't ever want to see, q/a etc) and go from there.

Good additional points. I do want to say that I am not the original poster. I was speaking from the benefits I would see if I was in that situation.

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.

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.

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.

I think a buyer will be findable. Not easy but surely one or more are out there.

You have enough business savvy to find customers, use the same savvy to find buyers.

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

PHP. ~200 active clients.

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.

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. ;)

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.

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

That hopefully answers your question around value vs job.

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

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:


happy to sign NDA before code review/discussion starts.


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.

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

Any way to contact you?

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

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

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