Ask HN: Need your help determining the market value of my business

[alexstoica]

Hey HN,

I'm looking for advice on calculating the market value for my business.

At the beginning of this year, my partner and I decided to part ways and sell our business that started as a side project in October 2013. Over the years we received several offers but never seriously discussed this option. Unfortunately, last year the pandemic changed our priorities. I have to mention that we live in Eastern Europe.

Let me briefly describe our biz - it's a SaaS project that has generated over $2.5 million to date. 99% of the revenue is subscription based – mainly B2B. Refunds under 1%. Everything was processed through PayPal from the beginning - same account.

The problem is, we never incorporated a company for this project. So everything was done in our name.

How can I figure out our market worth?

Thanks for your help!

Edit: I have no experience selling a business, that's why I ask.

[WheelsAtLarge]

The problem with many small businesses is that they are really a job disguised as a business. Meaning that with out the owner working every day the business could not exist.

If it's really a business then it should have a net income after all expenses and fair salaries, for everyone, are paid. You then multiply the net income by 10 which gives you a starting point. Increase multiple if it's a fast growing business or decrease the multiple if it's a slow growing business. There are so many ways to make a business look profitable without really being profitable that buyers will want to see a history of growth.

A job disguised as a business is priced differently and it's all related to the prospects and the business's asset value. Annual sales revenue is an iffy way to price it since you can sell a lot and have very little income. I once heard of a company that sold over 5 million a year but could just support 2 employees at a 35k salary. But at least it was able to cover the expenses and salaries. Many businesses can't even do that even though they have lots of sales revenue. You should look for a business broker and see if you can hire them as consultants for a fixed price.

But the least you need to do, if you want to sell, is to turn it into an business entity and make sure you can transfer all assets and intellectual property independent of your and your partners interests and liabilities.

[alexstoica → WheelsAtLarge]

"But the least you need to do, if you wat to sell, is to turn it into an business entity and make sure you can transfer all assets and intellectual property independent of your and your partners interests and liabilities."

- The broker recommended same thing.

[muzani]

Personally, I just put a price at 3 years of profit, calculated at a growth rate of 2200% annually, and was surprised someone took it (e-commerce app). It had nothing to do with the cash in the end, but because our CAC was so much lower than the acquiring company's current channels.

For tech, you're often selling an asset in some form and not necessarily a profit stream.

It could be a difficult integration (like payments in certain countries). It could be a type of market niche, e.g. Estonian restaurants. It could be a channel - if users are loyal to the brand, you might just be reaching out to them. It could also be some form of stickiness; if someone is integrated into say, Evernote or Medium, a better product would have trouble pulling them away because there's costs to changing.

For a lot of acquirers, they're trying to expand into a certain market but don't want to localize and build from scratch. Especially when there's bureaucracy and licensing involved. Sometimes it could take a year to get a fintech license for a thing, so someone tosses $50m at the problem to buy the license. Hiring is also quite difficult, so instead of interviewing and finding recruiters, some people might pay a premium to get a team that's proven.

But some people do buy simply for the profits. If that's the case, you could follow all those tips of calculating the numbers.

[lostboyscratch]

Personal Accounting - recommend to talk to an accountant about the sale. - the sale of the business will be counted as personal income and because it is in your name you will be income taxed immediately. Just be careful to ensure that you hold $ for the large tax bill.

Business Sale - The business 9 years old, that's attractive. - Again talking to a business broker or accountant will be useful. To sell you will need to have some documents in the right structure so buyers can assess the business fairly.

[mtmail]

https://feinternational.com/blog/saas-metrics-value-saas-bus... There's many factors but if your take-home profit is good (how much the owners can extract per year), some growth, low churn then roughly rule of thumb I've read is 2-3x annual revenue for SaaS B2B.

[alexstoica → mtmail]

Thanks for the article! Profit 50%+. Churn under 5%. We discussed with another broker, but they request a company,not individuals.