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Closing my business

     
10:33 pm on Nov 28, 2018 (gmt 0)

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Hi everyone, I've made the sad decision to close my very long-running online store. I've moved on to other things and can't keep up with its demands any more. Any advice for me through this process?
11:20 pm on Nov 28, 2018 (gmt 0)

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Register the domain name for another ten years, and move to a bare-bones host (or sell your server and move to space on a smaller one), as all you'll be doing from here on is serving up 410s.

Er. That's not actually what you meant, is it.

How about “stop making sales several months, preferably a full year, before formally closing down the business”. If you’re to become only a memory, let it be a positive memory rather than “I bought this widget from what I thought was an established firm, and two weeks later when it developed a problem, the vendor had packed up and disappeared.”
11:54 pm on Nov 28, 2018 (gmt 0)

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Instead of closing it, can you sell it to someone else?

Even if you don't get much money for it, some is better than zero. And it could be a great opportunity for someone else to pick it up and run with it.
2:11 am on Nov 29, 2018 (gmt 0)

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If you have moved on the happy journey!

Place holder for the site for a year or two is not a bad idea. After all, sometimes that side trip does not go the way we'd like.

If there is any kind of value in the domain name, hold on to it for a bit. After all, in this increasing turmoil of sites coming on line, some one might offer a bucket full of cash to obtain it.
2:22 am on Nov 29, 2018 (gmt 0)

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Did the website have anything to do with your username "Tonearm"?
11:53 am on Nov 30, 2018 (gmt 0)

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NickMNS, it did not.

The problem with my business is the website (frontend and backend). It's built on a legacy framework (which I'd rather not name) for which devs are too difficult to find these days. Also I built it around myself to too great of a degree and I've moved on to other projects. I tried transitioning it to the last dev shop with expertise in the legacy framework I use but that did not go well and the transition had to be aborted.

There is some news though. When I notified my employees of my plans, my #1 employee was adamant that he wanted to continue the business himself. Here's my plan:

- dump the current website completely
- I close all business accounts and licenses
- my former employee starts a new LLC and accounts/licenses for the new company
- my former employee starts over on a platform like Shopify or Ecwid that doesn't require technical expertise
- I transfer the domain name (which receives free traffic and has ~20 years Google trust), inventory, equipment, and some cash to the new company and in return become a minority owner

What do you think? I'm trying to figure out how to get the valuation of everything right along with the amount of cash to contribute to the new company so that I'm asking for the right percentage of ownership.

Also I want to give my remaining employees who have been with me for years a nice severance package and any advice there would be much appreciated.
12:44 pm on Nov 30, 2018 (gmt 0)

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Tonearm, that's a much better solution than just shutting the business down. :)
My first thought:
Why dump the website - I know you said it was legacy framework, but if it's workable, your employee should know this. Why not offer it on the basis that they know it can't be updated? Therefore, they know there is no liability on you if it breaks.
1:38 pm on Nov 30, 2018 (gmt 0)

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Probably the biggest problem with the legacy website is that it's running in a very out-of-date environment and updating the environment would require making changes to the website that I don't have time to do myself and I wasn't able to delegate to the only dev shop with the right credentials. But there are plenty of other problems. We need something that can be changed and evolved without a technical background.
2:54 pm on Nov 30, 2018 (gmt 0)

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I was thinking of an analogy: You own a school bus, and the bus and you're not wanting to continue taking the kids to school. The bus needs some attention, but it'll still run for a little while. One of the pupils you drove to school has now grown up and says, "i'd like to take over the bus and to take the kids to school." You're not prepared to invest in upgrading the bus.

The point I was trying to make was that the grown up kid wants to take over your role, and may be happy to take over the old bus and upgrade it themselves. Or to even buy a new bus.

The bus being the website, the pupil being your employee.
3:23 pm on Nov 30, 2018 (gmt 0)

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I tried to have the bus upgraded by going to the only dev shop with the expertise to work on the framework I use but it didn't work. I see starting over with Shopify/etc like buying a new bus.
4:28 pm on Nov 30, 2018 (gmt 0)

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If the site is moved to a new framework, make sure that old URLs are not just left to break.

Make sure that every possible URL from the old site is 301-redirected to the equivalent URL on the new site. Get the redirects organized in advance so they're ready to deploy the instant the new site goes live.

Time spent creating appropriate 301s will be time well invested, I promise!
4:32 pm on Nov 30, 2018 (gmt 0)

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The problem there is the new site will launch with <1% of the products of the old site and then slowly build up products from there. We can 301 those 1% properly but I guess we'll have to 301 to /index.html for the rest. :(
5:45 pm on Nov 30, 2018 (gmt 0)

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I'm trying to figure out how to get the valuation of everything right along with the amount of cash to contribute

Valuation is basically the present value of future earnings plus goodwill.
Goodwill being the intangible value that the business has, such as it 20 years of history, its client base, brand recognition, domain name, and so on. These things can hold a lot of value in some circumstances. But really this is the most difficult to assess.

The present value of future earnings is straight forward. Just go back in time a certain amount, say 5 years and project those earnings into the future, then discount them by some rate of return. If earnings were steady with little variability you can take a low rate of return (say 10%) and if your earnings fluctuated a lot then you use a high rate of return (25 to 50%). A lower a rate of return will result in higher valuation. It is very possible, if you are loosing money that this portion of the valuation will result in a negative value. This is specially true if the business is carrying debt, in which case the negative value needs to be subtracted from the Goodwill. Choosing the right rate of return is the important part here, and since there is no "right" rate of return per se, it comes down to what the investor are willing to accept (ie: to be negotiated).

The important thing in carrying out this valuation is not to take into consideration the benefits that futures changes will make. Example, if an investor comes in and invests 100k to rebuild and then you expect that the website can double it sales. One should not take those doubled sales into account in the projected earnings. You don't have the 100k, you don't have the doubled sales. The value is calculated based on the business as is today.

This valuation may be very academic and subjective but it is a good exercise to determine where the company is at and provide a an objective basis for negotiation and decision making. If you undertake the exercise with your employee you will both be able to view the business from them same perspective. Then you can negotiate on the subjective elements, namely goodwill and rate of return.

...right along with the amount of cash to contribute

The question of how much cash to contribute will depend on the valuation of the company. If you are transferring a portion of ownership of the company this is equivalent to investing that % of the valuation. Now to determine the valuation of any additional cash that will be put into the company, this is the expected change in earnings that the investment will bring. If you expect that the investment will increase sales by 10% then you take the dollar value of that 10% projected into the future and discount to the present value with a rate of return. This rate of return does not need to be same as the previous one, it will likely be higher because to make projections into the future with no historical data is far more risky than predicting the future of an established business. (side note: the rate of return is based on estimate of the risk or uncertainty of the business, more risk higher rate of return) Once a present value (PV) is calculated take that amount divide it by the your share in the business and that is what you should contribute in cash and equity. Say you plan to contribute 100k (cash + equity) and you calculate the PV to be equal to 50k, then you should either not make that investment or make changes to the business plan such that the valuation coincides with the investment.

I hope this helps...
7:38 pm on Nov 30, 2018 (gmt 0)

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Thanks NickMNS. It's tricky because the old business is shutting down and a totally new business is starting. Only the domain name, inventory, and equipment is being invested from the old business by its owner (me) into the new business.
8:45 am on Dec 5, 2018 (gmt 0)

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Update when you can, once you know what you will be doing ... (results, not details!).

Best of luck going forward!
12:29 pm on Dec 5, 2018 (gmt 0)

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I sure will. I'll know soon if my employee decides to go through with it.