Selling an online business in the US

[csdude55]

I'm seriously considering selling my entire business. It's still doing well, but after 20 years I find that I just don't love the job anymore. Maybe I hate it. I dread getting up in the mornings, and I'm not even a little bit motivated to work. So if I could get enough money out of it, I'd wash my hands of it and walk away.

Have any of you done this? If so, my real question is, how do the taxes work?

Since it's over 1 year old then I THINK that it would be treated as a capital gains tax, right? So if it sells for $40k - $445k then it would be 15%?

Any other problems I should know before I move forward?

[phranque]

you really want to ask a qualified accountant or attorney about your tax liability.

[csdude55]

Of course, I'm just asking about generalized info from anyone that's been-there and done-that :-) I have an attorney that I've used a few times in the past, but I hate to spend $500 for basic information, ya know?

[Pjman]

There is a way to structure a sale as a capital gain, but it has to approved in by the buyer and the choice is not in their favor tax-wise, in most cases. Call a tax attorney for a counsel.

[Brett_Tabke]

Decide if it is a business sale or an asset sale.

Asset sales are much quicker and less painful because they don't require near the level of deep due diligence.
Business sales are going to dig into all the financials, assets, IP (trademarks, etc). I promise you any purchaser worth his salt is going to find problems. Be prepared to deal with those problems.

You will get a letter of intent to acquire - you will go through due diligence - you will renegotiate - and renegotiate again.

There is an old business joke:
Person A: "Would you sleep with me for a million dollars"?
Person B: "Yes".
Person A: "Would you sleep with me for one dollar"?
Person B: "NO, what do you think I am?"
Person A: "We already know what your are, now we are just negotiating for price".

You will end up at the negotiating price at every step of the way.

#1: if you get an offer, stipulate a "drop dead" date to complete an agreement.
#2: get a letter-of-intent-to-acquire with an earnest fee that if the deal doesn't get done - you keep it (this is getting more common)
#3: Once you get a letter of intent, that is the time to bring in a lawyer. And let the other side know you have counsel. (it will cut out a lot of bs and posturing).
4: CC your lawyer on anything of importance.

[ember]

Do an asset sale. So much easier. If you have held the assets longer than a year, then they are a long-term capital gain and taxed accordingly. Once all the assets (website domain names, files, etc.) are sold, then close the bank account (assuming you have a separate bank account) and file a final tax return. You might consider using a broker who will vet buyers and take care of the entire process for you. P.S. I am not an accountant or a lawyer - my comments are based on my own personal experience. I would suggest at least talking to an accountant before doing anything.

[csdude55]

@ember, you're hitting on something I was considering, too.

The business is currently a sole proprietorship, with everything ran under my SSN (in the US). And if I understand correctly, if I sell then I'll have to pay 15% in a capital gains tax.

But if I'm reading correctly then I could convert it to an S-Corp then I could sell the shares and pay 0 taxes. Right?

A concern there is that if I convert it to an S-Corp and it doesn't sell, then wouldn't I be stuck with considerably higher annual taxes? I know nothing about this, and really don't have the money to pay an attorney or accountant to teach me.

[ember]

As a sole prop, the amount of tax you would pay depends on your income and filing status. For a long term capital gain, the rates are 0%, 15% or 20%.

An S corp is a pass-through entity, which means that it does not pay any taxes on profits. Instead, profits are passed through to the shareholder (you) and you record the profits on your 1040 and pay taxes on the profits at your regular tax rate. There is no way to get around paying taxes on the sale of a business, unless it is worth less now than when you started it.

An S corp does not pay higher taxes. An S corp pays no taxes because all profits (or losses) are passed onto your 1040. YOU pay the taxes as the shareholder. An S corp actually helps save on taxes because you take a salary, pay FICA taxes on that but not on distributions you receive (things get complicated here).

S corps are tricky, so you really, really need to talk to an accountant before electing to become one. Again, I am not a lawyer or an accountant, and you really need one or the other (because everything I'm saying could be wrong). Not to do the whole transaction probably, but at least to get some guidance before embarking on this. You can probably sit with an accountant for an hour for less than $100. It is definitely worth the money.

[Pjman]

Funny, I came across this thread today.

I just completed the sale of all my websites last week to a single buyer. I've been running this collection of sites since 1999.

Have to say this week I noticed a huge decrease in my level of anxiety. Money is in the bank growing at 3% for doing nothing. I have a job with buyer for at least 3 years, if I want it past a year.

After the tax-savings, It came out to 6 years of take-home earnings, so it was a no-brainer.

If you can get your price, I highly recommend it. My quality of life has drastically improved.

[csdude55]

So far all I've dealt with are scammers and tire-kickers trying to get trade secrets :-/ So I've lost my optimism about the whole thing.

Most recently was a guy that pretended to have $7 million, but there were a ton of red flags that made me suspicious about him anyway. Then he sends over a contract, and hidden in the fine print in the middle of the contract was a statement that he would pay 25% of monthly revenue until it was paid off! Nothing upfront, just a percentage. Which, obviously, wasn't we had discussed. I pointed it out to him on Monday and haven't heard from him since.

[ember]

I've gotten some part-time jobs over the last few years, mainly teaching kids, but I couldn't keep any of them because I cannot handle having to be somewhere at a certain time, having to stay there until someone says I can go, having someone tell me what to do, etc. I've been doing my own thing for too long. I am looking forward to retirement, though, when (I hope) I can sell and let this go :)

[Pjman]

@csdude55

You might want to think about using a broker to vet buyers. It can really help.

@ember

"when (I hope) I can sell and let this go"

My thoughts were that AI content and Google man-handling the result page is just going to get worse each year. When I started this and for about 10 years after that, there was no such thing as zero-click results, it just gets worse every year.

It was a good time for me to pull the trigger.

[csdude55]

I'm afraid that I should have pulled the trigger about 4 years ago :-/ Income is WAY down (ad blockers, mobile, and COVID have all had a negative impact), and I don't have the money to combat them. I'm doing a big marketing campaign starting in January, and if that doesn't help me recover then I'm not sure what I'll do.

My company needs someone with a lot more capital than I have! The right person could bring in $9 million /year, so there's a ton of potential. I just don't have the money to get it there.

[robzilla]

The right person could bring in $9 million /year, so there's a ton of potential.

That's what every seller says, though ;-) Most people aren't looking to buy "potential" if that means a lot of work with an uncertain payoff. It's tricky with such a locally oriented business, and from all your programming questions I gather the system is mostly custom, so all that requires a very specific buyer.

I'm doing a big marketing campaign starting in January, and if that doesn't help me recover then I'm not sure what I'll do.

Sounds costly, hope you're confident it's going to make a difference.

If you want out, you may need to consider selling for (much) less, or simply cutting your losses and closing up shop.

[csdude55]

That's what every seller says, though ;-) Most people aren't looking to buy "potential" if that means a lot of work with an uncertain payoff.

Hahaha, right! LOL But in my case I have numbers to back it up. I can effectively market in one region at a time, and I can show the average return when I do that. But the full target audience is 100 regions, so using that average as a base then a marketing campaign in all 100 of them at once would gross $9 million.

More if they can hire salesmen, too.

It's tricky with such a locally oriented business, and from all your programming questions I gather the system is mostly custom, so all that requires a very specific buyer.

Yup. It's set up to be maintained pretty easily with very little knowledge, but updates in the future would be pretty extensive.

Sounds costly, hope you're confident it's going to make a difference.

"Confident" is a strong word... LOL

If you want out, you may need to consider selling for (much) less, or simply cutting your losses and closing up shop.

I'm not quite at that point. It's still doing well financially, but I recognize that without an injection of capital then I'm on a downward spiral.

Unless there's a major market shift (increasing the value of mobile ads, or an effective method of combating ad blockers) or I fall into a truck load of money, I have 3-4 years before I'll be getting nervous.

[tangor]

I have 3-4 years before I'll be getting nervous.

If that's the case, then trying to sell NOW might be a bit premature. Use this time period to LEARN what you need to know to promote a sale, or use that same time frame to find that angel investor to take it to the next level.

Just know that is the latter comes true, you will suddenly be working harder (and hating it more) than you are now. :)

As for ad blockers, gotta learn to live with them, and present content in a way that won't make them go crazy. They are not going away.

[csdude55]

Several years ago I realized what it would take to get to the next level:

1. A team of salesmen to focus on direct-sale ads

2. A marketing budget of $100k /month to reach all 100 regions in my target demographic

My business is 20 years old now, but I've NEVER had any success with hiring a salesman. I've tried countless variations of salary, salary + commission, and commission-only, but it all turns into a big waste of money. And without salesmen, I can't get the money to build up a marketing budget.

I try to do the ad sales myself, of course, but as time goes by I have to spend more and more of my day doing customer service, network admin, coding, and moderating. When I back off of one of those other responsibilities to focus on ad sales, everything else suffers. So I'm in a constant state of swapping one problem for another.

The only way that I can see to move forward is to either find that great salesman that will bring in revenue while I focus on everything else, OR find some sort of company that handles sales for me.

The right buyer for my company would be someone that already has a sales team in place (like a newspaper that's evolving), or someone that can spend more on an immediate marketing budget than I can. For that buyer, it would be MUCH cheaper and smarter to buy my established business than to start over from scratch.

As for ad blockers, gotta learn to live with them, and present content in a way that won't make them go crazy. They are not going away.

That's become a real issue for me, in large part because local computer repair places have no idea how to remove viruses! They just put in ad blockers to stop the symptoms.

By my count, a little more than 65% of my users have ad blockers. And most don't even know it! I installed the Adsense nagware for ad blockers, and immediately started getting hundreds of emails from users that had no idea what was going on :-/

For now I plug in direct-sale ads in place of 300x250 banners for ad blockers, but since I sell ads at a flat monthly rate then it doesn't help me any. I tried putting in affiliate banners but made like $1.75 in a month, so that was useless, too.

[Pjman]

@csdude55

I grew up lower-lower-lower-middle class. So never knew much about business at all, but happy to share my limited knowledge here.

Did you ever think of approaching Private Equity companies? If your plan is flawless, you just need the right spice, as you say, that would be the way to go.

They would give you some cash for stock and they are true business operators. They would know where to get those missing pieces. Their goal would be to heighten your business and then sell at a huge profit to them and you.

I've seen those companies make some friends, here in NYC, wealthy.

[csdude55]

Did you ever think of approaching Private Equity companies?

Ya know, several years ago I did talk to an Angel Investor's group, but I backed away when they explained that their goal was to get a 1000% return in any way possible. Including selling the business.

I'm not really all that motivated by money, and I didn't want to sell at the time. But I guess now that I'm thinking about selling anyway...

[Pjman]

I would definitely recommend it.

When I started being on page 1 or 2 of SERPs for any decent size niche and you could support your family. That accelerated to if you are not top 3, your nothing. Pretty soon that will #1 or nothing. I give it maximum 5 years, till that’s reality.

[csdude55]

I'm lucky in the sense that the wide majority of my traffic is organic; they're looking for me, not finding me on a search engine. The majority of those that do come from a search engine were searching for my company name, too.

There's also no real competition for me, other than Facebook. Thankfully, Zuckerberg is killing Facebook like a hog in a slaughterhouse :-)

Ad blockers and mobile traffic are my biggest obstacles, but unless there's a major shift in the industry then I don't know if that will ever improve. I have to hope that it will, because if it doesn't then the concept of the free internet is fading fast. At least I won't be alone in the welfare line, I guess...

[Pjman]

I would seriously consider contacting EF and see where you are at. My level of anxiety went from 8 out of ten, on my best days , to 2 maybe 3 tops since selling. Sleeping like a baby. Haven't been able to sleep well in 8 years.

[tangor]

I try to do the ad sales myself, of course, but as time goes by I have to spend more and more of my day doing customer service, network admin, coding, and moderating.

Give up the "one man shop" and hire someone qualified to do:

customer service
and
network admin, coding...

As for moderating, you might have to do that "end of day". :)

Build the ad sales, and use that to also train someone else in that capacity.

Much as we love the coding and creating (system wise), business is business! Can't wear all the hats at the same time.

[csdude55]

Give up the "one man shop" and hire someone qualified to do

There's a minor obstacle with that one... I don't have the money to pay for them when they're not actively bringing in money :-O Hiring a single full time employee for customer service (I really need two, to be honest), a network admin, and a coder would require that I have AT LEAST $12,000, ready to go, to cover payroll for the first month! And since that month would be mostly training, I would have to be prepared to spend at least 3 months of hand holding before I could move on to doing ad sales myself. So that's $36,000 invested.

Without capital, I'm always stuck in that same loop: I can't grow without salesmen, but I can't find salesmen that actually want to sell.

[tangor]

Sounds like you have concluded you are toast, either way.

Tough spot to be in.

You need help.

You can't afford it.

Investors will take over control (eventually)...

Been there, done that, years ago, even had six employees at the time. Sold it.

Could breathe free air after that. Fun ride, ate too many Tums, had a dismal social life... but what the hey? Had the adventure and fun and problem solving, creativity, and finally, in the end, a pay off that, while not a golden parachute, was reasonable enough to get on with other projects that were/are equally satisfying on many levels without the heart burn and constant need for cash infusion.

I don't envy where you are: "This much more and I can..." and "I can't make it as is..." and "All these years invested..."

Whew!

[csdude55]

Preach it, brotha.

I've had other business ideas, but can't move forward on them because I have to invest all of my time in this one! And without money to hold me over, I don't have a choice.

I have it on the market for $250k, which is really a bargain for the right person. If everything continues as-is then the buyer would be profitable within 2 years, or if they have equity then they could finance it and pay themselves a salary immediately! But I recognize that it requires a somewhat specialized person: someone with considerable coding experience, knowledge of the target demographic, and a desire to run this type of business for a living.

Or better yet, someone that has $500k that they can invest, giving them enough capital for employees and marketing so that they just sit back and make money.

Finding that person, though, has proven to be a challenge :-/

[ember]

If you're asking $250K, then get a broker to do the selling for you. They'll do the whole process, find and vet buyers and eliminate the tire kickers, make sure that the business is ready for sale, ensure that you get your money, etc. Yes, they take a cut, but that's better than never selling at all because you can't find a buyer.

[csdude55]

Can you suggest a broker? I'm using Flippa and have an account manager, but I still get the tire kickers. I guess it'd be a lot worse otherwise, but I'm disappointed that the 4 people that expressed interest turned out to be full of crap.

[tangor]

I'm disappointed that the 4 people that expressed interest turned out to be full of crap.

You will get a lot of farmer's friend before the right buyer shows up. Just hang in there (for as deep as your pockets can afford).

[Pjman]

This last exit I did a private sale to a firm that I did ad business with. They saw my margins (90%+), and we're super interested. Their due diligence was literally to just verify the incoming income, that's all they needed.

I sold a site through Empire Flippers during the super charged- online business frenzy during the pandemic days. It was a site that I didn't have time for. After fees, I walked away with 32x monthly revenues (12-month trailing). Mid-6 figures. Not sure you can walk away with that multiple now, with interest rates rising fast, but EF was great and they led everything.

I would at least have a discussion with them.