Ask HN: Does my company with $140,000 annual revenue have any value?

#1

Post by webdev2010 » Sat, Jul 03, 2010, 6:26 PM UTC

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?

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#2

Post by jacquesm » Sat, Jul 03, 2010, 6:30 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#3

Post by miles » Sat, Jul 03, 2010, 6:34 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#4

Post by kinlane » Sat, Jul 03, 2010, 6:51 PM UTC

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

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#5

Post by dkuchar » Sat, Jul 03, 2010, 6:54 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#6

Post by zacharyz » Sat, Jul 03, 2010, 6:57 PM UTC

miles wrote: post #3

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#7

Post by ibgeek » Sat, Jul 03, 2010, 7:03 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#8

Post by ibgeek » Sat, Jul 03, 2010, 7:03 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#9

Post by vetinari » Sat, Jul 03, 2010, 7:27 PM UTC

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.

Re: Ask HN: Does my company with $140,000 annual revenue have any value?

#10

Post by apowell » Sat, Jul 03, 2010, 7:57 PM UTC

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.