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Also, I'm in Canada and they the US. In Canada, we get killed on earnings over $110,000 with taxes (like 46% tax or something). Do I ask for installments over the years?
I'm leaning towards saying no unless they floor me with a number. On the other hand, I'm not confident that this kind of lead / commission business will be around for another 5 years. What would you do? They haven't put out a number yet, but what amount would make you take it? Keep in mind that this is my main earner. I think I know what I'm doing with my newest site, but who knows if I'm fluking it or don't realize what's 'really' bringing me the hits on my old site.
Any advice on this?
I have a new website that I'm working on that I believe could be even stronger, but who knows if I get the magic on this one like I did the last. Nothing is for sure.
Brian
I think 10 years of earnings is way too high- most industries are 1-2 times annual earnings, but your mileage may vary.
Factor in that without spending any time on your main site, you will be able to devote that time/energy to your new site. Or use the time/energy to relax.
Since they are the ones making the proposal, let them name a figure. Probably best to go with your gut feeling when they come back with a number, although it's probably safe to assume their first offer can be negotiated up.
I would put some projections together showing how much (roughly) the site is making, growth, the size of the markets and opportunities involved, the goodwill you have developed, client-base, coding technology, startup costs incurred etc. You should be able to come up with a pretty good number. Pump that number up a bit. Assume they will offer half that. If they laugh at you just have an itemized fact sheet of why the price is what it is.
Basically the idea is that if they wanted to develop a site like this on their own it would be a lot more expensive and time consuming and risky, so it's a good idea to spend $x on your established site w/ consistent income and more potential vs. $y from scrach, and with $x they should see a faster/better ROI and it will be a profitable investment for them.
The company that wants to buy the site is the same company that I am making leads off of. So they know how much I've been making, and how that number has been going up. I guess they figure they want the whole cut, and skip me out of it. Fair enough for me if they compensate me enough.
Brian
They should also be able to advise you on tax issues - here in the UK, the sale of a business would be subject to capital gains tax (with taper relief) rather than income tax, so it may not be as bad as you think.
hope that helps, a.
PS No - don't ask for installments over later years. If you do that then you lose the main advantage of selling the business, which is that your future (risky) cash flows are turned into a certain (and immediate) lump sum. If you sell equity for installments in later years but the business goes bust (maybe because the new managers messed it up), then you're screwed.
Businesses are usually valued on their future cash flows - that's what all the other valuation methods are trying to reach - so just because your business is a recurring revenue one, that isn't a bad thing.
[edited by: andye at 6:38 pm (utc) on Mar. 22, 2006]
A good site with hundreds and thousands of links and nice income cannot be built over night ..thats why you have a buyer interested..
a reasonable amount is in the 3-5 times earnings range on quality sites..
Pure Domains ..no websites- just generic domains with type-in traffic go in the 8-10 years PPC range
I'll also look into the business broker route. Thanks Andye.
This site has been around since 1999, so yeah, it'll take ages to build the kind fo site in the eyes of google that I have right now. I'm also #1 in some very competitive terms in g, so they'd abviously be interested in this site because of that. No PPC is happening, but all organic. I'd want probably 4-5 years worth or I wouldn't do it. It'd be like selling my only child. This is all I've really known business wise the last 5 years or so.
Brian
Thanks Andye
No problem at all! Do sticky me and let me know how you get on with the brokers, I'd be interested to hear how it goes.
No PPC is happening, but all organic.
This could be a good thing as far as valuation is concerned - ideally you want to convince a buyer that there's things they could do (such as investing money in PPC marketing) which would increase the future cashflows that the site could generate.
best, a.
Dont sell at 1-2 times earnings..only BUYERS will tell you thats what they go for ..
Buyers and... the market!
Don't trust buyers to price your site, don't trust unknown third parties in forums to pluck figures out of thin air. Test the market and see how much it will pay! Start high and go down if it doesn't sell.
Business brokers, like estate agents, sometimes price sites too high simply to ensure you sign up with them. After several months, if it hasn't sold, they'll advise you to drop the price. Don't get excited by "valuations".
don't ask for installments over later years. If you do that then you lose the main advantage of selling the business
My site makes no where near the income you've stated, but it does make a decent amount. If I wanted to sell and only was offered 1-2 X's annual earnings, no deal. I'd make more money if I just let the site gradually die a slow death. So maybe your $50 K income would be $40K next year, $30 K the following year, etc. Perhaps this is not feasible for all types of sites, but it would certainly work for mine.
I would never take an installment payment on a website, though I have on brick and mortar buildings. If the purchaser goes belly up, at least I get the building back. If the building burned down, the certificate of insurance I required would cover it. There is little tangible about a website; not sure it even has value as collateral.
I'd advise do take installments over later years - it's opens up your market to a lot more potential buyers... just be savvy about the security, the business is not a good security when you don't have controlling interest.
Then we're in agreement. :)
best, a.
so your business makes say $100,000 a year your looking at 500,000-700,000k but this is for a brick and motor company the web is undefined yet...
business.com alone sold for $7,000,000 no site included....
is your site growing or slowing down, and if you get killed in canada with taxes, why not look into moving to grand cayman where you only have to pay a duty, and they welcome any business as long as it doens't take a job from a local....
ask your self what you would pay for your business, then add a little bit then tell them thats what you want....
as for the post about getting tons of links he's right.... years ago people would link to anyone, now you have to pay or trade, and people play games of adding a link, then dropping it next month......
also is the biz a sole per. or c corp? i know here in the us a c-corp would get taxed heavy, but you could offset this buy rolling the money into a new business.... check into this, maybe you could roll it into an investment company... aka retirement management company....
rich make the rules, and they use them.... your turn to see how the rules benfit you....
and ask SEVERAL accountants... not just one....
I have people telling me to stay an LLC, but I know there are reasons that EVERY major corpartion is a c-corp..... FRINGE's comapny car, trips, just look into the laws.... you may be able to save tens of thousands from changing the business type, and having a wife leave a 20-30k a year job to head your company as ceo....
Dreams are hard to build so don't sell yourself short you built a business now see why would you want to sell it.... maybe you hven't found the right search and ask questions dumb questions answered are better then not knowing and selling your self short....
for all you know this company may buy your site, and turn it into your worst nightmare.... noone is connected to their own site like the orginal owner...
If the majority of the income is from affiliate sales ... will the company be around for several years selling the same product with the same name? If, for example, your site is called Buy-ABCwidgets.com and they change their product name to XYZwidgets in two years, your Buy-ABCwidgets.com site just became worthless.
They could reorganize and change their affiliate program structure. If they cut their payments in half, your income just cut in half.
They could go under. This is a concern both as an affiliate and if you decide to take payments over several years. Both big and little companies go under all the time ... and even if their financial situation is good now, who knows what it'll look like in five or ten years?
The other thing to consider is naughty behavior from the company. If you say, "No, I don't want to sell, I want to stay an affiliate ..." and they want to pressure you to sell they could find ways to lower your income, some more obvious than others.
Leva
I don't. I think 10x profit is the perfect number. For you somewhere between $500K and $900K.
I would take $500K today in cash and pay the tax. I'd of course try to negotiate $900K today in cash, but, settle for $500K.
I don't like installments, it is too complex, and you have no real idea if they will still be around in the x years to pay those installments.
Pay the tax now, get the money now, invest the proceeds, pay more tax on the returns of those proceeds and be happy :)
One thing you didn't mention is if the agreement to sell bars you from the competing in that market for a period of time? Or offering your services to people in that market?
I assume it will, but, if you can make that market work you can make another market work....so, pocket the cash ASAP, pay the tax and move onward and upward in another industry:)
