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I Merged My One-Person Software Company with a Bigger Player (2018)

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Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#11

Post by ProCicero »

kristianc wrote: post #9
cabaalis wrote: post #6

Earlier quoted context omitted.

I find the term personally confusing when only one individual is involved. Most definitions of the word include multiple people. It would seem that's an unpopular opinion here. Meh, can't win them all.

It's about establishing and limiting legal liability. Being able to establish a solo business as a company means that you don't lose your house and possessions if your company fails.

There is very little liability protection for a single-member company. You are usually going to be personally liable for your actions, and can get sued individually along with the company. Incorporation / LLC does not protect you from acts where you are also personally liable, and it does not shield your personal assets in that case either.

Edit: in the US, that is.

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#12

Post by C1sc0cat »

cabaalis wrote: post #3

I want to make a minor point that is not a critique but more a statement so first of all, congratulations on your success! I think we as a society need to stop referring to single member entities with no employees (meaning a single, sole person) as a "company." "Business" seems like a better term, or even just "product" if that's what you're selling. But "company" naturally implies multiple people, which lends creden…

Most single person consultant companies have more than one shareholder.

In the UK my mother was the company secretary for my Fathers company he used for consulting.

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#13

Post by charlesdm »

ProCicero wrote: post #11
kristianc wrote: post #9

Earlier quoted context omitted.

It's about establishing and limiting legal liability. Being able to establish a solo business as a company means that you don't lose your house and possessions if your company fails.

There is very little liability protection for a single-member company. You are usually going to be personally liable for your actions, and can get sued individually along with the company. Incorporation / LLC does not protect you from acts where you are also personally liable, and it does not shield your personal assets in that case either. Edit: in the US, that is.

This depends on the country. Most (single member) companies in EU countries have excellent protections in place for directors and shareholders as long as you don't do anything illegal.

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#14

Post by [deleted] »

caprese wrote: post #8
cabaalis wrote: post #3

I want to make a minor point that is not a critique but more a statement so first of all, congratulations on your success! I think we as a society need to stop referring to single member entities with no employees (meaning a single, sole person) as a "company." "Business" seems like a better term, or even just "product" if that's what you're selling. But "company" naturally implies multiple people, which lends creden…

A lot of people fought for the legal framework to become competitive enough to include single member entities in the word company, as it inherits all the privileges of multi member companies without the administrative hassle or prerequisites. Another definition just because your society hasnt caught up to the legal benefits conveyed would be redundant and not be informative at all. This is a significant reason why yo…

[deleted]

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#15

Post by slivanes »

everdev wrote: post #10
kreetx wrote: post #7

In the text the author discusses also selling the company outright - question: how does one calculate a price for this usually? A few years' profit?

Yes, service companies usually sell for 2-3.5x annual recurring revenue (ARR), which is measured by averaging your last 3-5 years of revenue. And you'll need to be easily replaceable.

Recurring revenue or profit?

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#16

Post by username444 »

charlesdm wrote: post #13
ProCicero wrote: post #11

Earlier quoted context omitted.

There is very little liability protection for a single-member company. You are usually going to be personally liable for your actions, and can get sued individually along with the company. Incorporation / LLC does not protect you from acts where you are also personally liable, and it does not shield your personal assets in that case either. Edit: in the US, that is.

This depends on the country. Most (single member) companies in EU countries have excellent protections in place for directors and shareholders as long as you don't do anything illegal.

This.

For Canadians: https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs06641.html

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#17

Post by runako »

everdev wrote: post #10
kreetx wrote: post #7

In the text the author discusses also selling the company outright - question: how does one calculate a price for this usually? A few years' profit?

Yes, service companies usually sell for 2-3.5x annual recurring revenue (ARR), which is measured by averaging your last 3-5 years of revenue. And you'll need to be easily replaceable.

The company in the article appears to be more of a software company & less of a service company. From the conversations I've had, I would expect to see a valuation in the range of 2-5x the company's earnings.

(The term of art is SDE/Seller's Discretionary Earnings, and is basically the sum of all the money the owners are able to take out of the business, including paychecks and bonuses.)

FEI and other brokers write a bunch about valuing small businesses: https://feinternational.com/blog/how-do-you-value-an-online-...

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#18

Post by kreetx »

slivanes wrote: post #15
everdev wrote: post #10

Earlier quoted context omitted.

Yes, service companies usually sell for 2-3.5x annual recurring revenue (ARR), which is measured by averaging your last 3-5 years of revenue. And you'll need to be easily replaceable.

Recurring revenue or profit?

Revenue would be nicer I guess, but if it's software that simply works then maybe they are not much different? Not how revenue and profit compare in other types of industries that is.

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#19

Post by gnicholas »

slivanes wrote: post #15
everdev wrote: post #10

Earlier quoted context omitted.

Yes, service companies usually sell for 2-3.5x annual recurring revenue (ARR), which is measured by averaging your last 3-5 years of revenue. And you'll need to be easily replaceable.

Recurring revenue or profit?

In the few conversations I've had, it's always been revenue. This provides an incentive to spend lots of money on user acquisition, even if doing so means losing money (or not making as much).

I wish there were a standard assumption that if a business is profitable, then we use profit instead of revenue, and (crucially) use a much larger multiplier. It feels like I'm always having to remind folks that revenue ≠ profit, and that normal guidelines (we invest in companies with $X00,000 revenues) might need to be adjusted for smaller, breakeven or profitable businesses.

Re: I Merged My One-Person Software Company with a Bigger Player (2018)

#20

Post by neogodless »

cabaalis wrote: post #3

I want to make a minor point that is not a critique but more a statement so first of all, congratulations on your success! I think we as a society need to stop referring to single member entities with no employees (meaning a single, sole person) as a "company." "Business" seems like a better term, or even just "product" if that's what you're selling. But "company" naturally implies multiple people, which lends creden…

I think I'll be the oddball here, and lightly agree with the gist of the comment. "Company" as per dictionary definition is "a number of individuals assembled or associated together; group of people" and in this context, "business" is at least equally as accurate, if not more so. Because you can be a "company" of chorus singers that go door-to-door giving out free song, but "business" much more precisely means you provide something in exchange for currency, either by yourself or as part of a larger group, and really "software" can be set up to be a "zero person" company, something capable of making money regardless of the people involved. That's something you can really sell.

I think the reason this comment is so disliked is because it's strongly worded as if the original word usage was a horrible, systemic mistake.

> we as a society need to stop

This is unnecessary. Sure, the vocabulary choice would probably be improved a bit with "business", but it really didn't take away from the story. If not for it saying "one-person" in the title, it might haven taken slightly longer to process "Oh, solo entrepreneur, got it" vs "small company with a few employees" - which is not totally insignificant. It's a bit of a difference between a personal choice that affects one person vs. a leader and some followers who are being taken down a different path.

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