From 0 To $240,000 Per Year PROFIT In 18 Months (Acquisition Entrepreneurship)

[doitman]

Question to OP,
I looked at a biz that went from $200 revenue to $3400 in 6 months. Website is 2 yrs old. The current owner bought wrote 100 articles and improved.

Now he wants 30x $3400. I said that's crazy and I can do a 24x last 6 months average.

What would you do in this situation.

May I ask what general niche the blog is written for? I am leary of spikes in earnings over a short period of time. Blogs take a long time to develop traffic. I'd be surprised if the owner is using AdSense and getting that kind of revenue. I'd get Google Analytics access to see if the traffic corresponds to earnings. Also of course ask for proof of earnings from there ads provider.

Speaking of GA, it tells me a lot. Especially looking at the growth curve and the countries that the traffic is coming from. For that type of spikes in earnings, I would expect to see a ton of US traffic during this spike in revenue.

What's the month revenue for the last 6 months?

 

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[doitman]

Just wanted to say there is alot of great wise info in here. Thanks @richardd

I'm glad it has been helpful to you. Inspired to do the same?

 

[empireflippers]

Great thread, Richard, and congrats on your success so far!

Just wanted to clear up a couple of things, though:

I don't like Empire Flippers because they focus mainly on ecommerce. And they typically do the 20x monthly revenue valuation. Not even profit based. Two things I hate about this. One, the business could have good revenue numbers but poor margins leading to ROIs way lower than my 50% threshold. Two, I'm not good at ecommerce from the stand point of constantly finding new products to market when the current ones drop in sales due to passing fancy or decreasing market share from saturated markets.

We typically have somewhere around 80-100 listings available at any one time, ranging from $20K or so on the low end up to mid-high 7 figures.

Roughly 50-60% (at any one time) of the listings are eCommerce related. That leaves us with 30-40 listings not related to eCommerce, usually.

We rarely sell at 20X, though. Valuations typically range around 25X - 35X monthly earnings.

Also, that's earnings/profit, not revenue, for obvious reasons. If we had an eCommerce business (let's say) selling $100K/month with net margins at 10% and we're selling at 30X, the price would be $300K for the business, not $3M.

I hear you regarding not loving physical product businesses. While I (personally) prefer them, my business partner is in the same boat as you. "Horses for courses" I think the saying in Australia goes...

 

[doitman]

Great thread, Richard, and congrats on your success so far!

Just wanted to clear up a couple of things, though:



We typically have somewhere around 80-100 listings available at any one time, ranging from $20K or so on the low end up to mid-high 7 figures.

Roughly 50-60% (at any one time) of the listings are eCommerce related. That leaves us with 30-40 listings not related to eCommerce, usually.

We rarely sell at 20X, though. Valuations typically range around 25X - 35X monthly earnings.

Also, that's earnings/profit, not revenue, for obvious reasons. If we had an eCommerce business (let's say) selling $100K/month with net margins at 10% and we're selling at 30X, the price would be $300K for the business, not $3M.

I hear you regarding not loving physical product businesses. While I (personally) prefer them, my business partner is in the same boat as you. "Horses for courses" I think the saying in Australia goes...

Yeah, I stated 20x monthly revenue, not profit in the quote.

As a former commercial printer, my preference is to stay away from physical products due to COGS. There are non-ecommerce listings so there is some value for me to check out the listings. But due to the 25-30x valuation, I shy away from them since I can find businesses that perform better.

One of the main points of my progress/execution thread is to have criteria when evaluating buying a business. My criteria is based on my own personal experience as well as my personal strengths. There is no one-size-fits-all.

 

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[payingkarma]

May I ask what general niche the blog is written for? I am leary of spikes in earnings over a short period of time. Blogs take a long time to develop traffic. I'd be surprised if the owner is using AdSense and getting that kind of revenue. I'd get Google Analytics access to see if the traffic corresponds to earnings. Also of course ask for proof of earnings from there ads provider.

Speaking of GA, it tells me a lot. Especially looking at the growth curve and the countries that the traffic is coming from. For that type of spikes in earnings, I would expect to see a ton of US traffic during this spike in revenue.

What's the month revenue for the last 6 months?

It's in personal vehicle niche. NDA, so can't b tell much. Not adsense but mediavine or afthrive is used.

Plus revenue from affiliate links too.

Us traffic is 90% of all of it and it's North of 80k monthly sessions.

 

[J. van Driessen]

Thank you for this post! It has inspired me to look into buying businesses again, something I've always been interested in and have not in the past once (unsuccessfully to be honest). I was lucky to run into a good deal quickly and I'll be closing on a very small but profitable deal that I'll use to generate cashflow to do bigger deals.

 

[doitman]

Thank you for this post! It has inspired me to look into buying businesses again, something I've always been interested in and have not in the past once (unsuccessfully to be honest). I was lucky to run into a good deal quickly and I'll be closing on a very small but profitable deal that I'll use to generate cashflow to do bigger deals.

Great! You'll have to tell me about your failed business acquisition.

 

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[pumpking]

Great! You'll have to tell me about your failed business acquisition.

I'd also be curious to hear, just to share the learnings and hopefully avoid mistakes in my own venture.

 

[fruki]

@richardd this post is super inspiring. My wife and I were in the middle of a purchase for RE and we just stopped it after reading the Fast Lane Millionaire and this post. We are all for building our wealth now instead of our previous plan of retiring in 10 years.

So now we are seriously into looking buying an online business, the first question is: Did you use a Broker to find you the deals/help you with the legal stuff?
If so, who would you recommend? I found Latonas.com where they assign you a broker straightaway but other than that where would you find good brokers?
If you didn't use a broker, how did you handle the legal paper work?

 

[doitman]

@richardd this post is super inspiring. My wife and I were in the middle of a purchase for RE and we just stopped it after reading the Fast Lane Millionaire and this post. We are all for building our wealth now instead of our previous plan of retiring in 10 years.

So now we are seriously into looking buying an online business, the first question is: Did you use a Broker to find you the deals/help you with the legal stuff?
If so, who would you recommend? I found Latonas.com where they assign you a broker straightaway but other than that where would you find good brokers?
If you didn't use a broker, how did you handle the legal paper work?

Glad to hear! I don't use a broker to find deals. I just search online for them. When you get into a purchase agreement, you work with the sales broker. I never had the need to hire one since I know the process. I don't hire a lawyer anymore with the deal size that I focus on. If I were buying $250,000 businesses, I probably would. But for the businesses that I buy nowadays, I use the same sales agreement template, but just modify the terms.

 

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[steelandchrome]

Glad to hear! I don't use a broker to find deals. I just search online for them. When you get into a purchase agreement, you work with the sales broker. I never had the need to hire one since I know the process. I don't hire a lawyer anymore with the deal size that I focus on. If I were buying $250,000 businesses, I probably would. But for the businesses that I buy nowadays, I use the same sales agreement template, but just modify the terms.

Maybe I missed it, What are the sizes of business that you are actively targeting? Is it a size of revenue or size of purchase price? I've dug through a bunch of listings between $30-80k and nothing that seems exciting yet. Thanks for the thread and conversation either way!

 

[doitman]

Maybe I missed it, What are the sizes of business that you are actively targeting? Is it a size of revenue or size of purchase price? I've dug through a bunch of listings between $30-80k and nothing that seems exciting yet. Thanks for the thread and conversation either way!

That is the price range that I target. Currently I don't see anything of strong interest either. I was recently looking at forwardmx.io on Flippa, but the auction went higher than I wanted to spend on it. I was hoping to get it for $20,000, but it went up to $26,000. It makes about $1100 a month in profit and it's SaaS. That is around 50% ROI at the winning bid price, but it's revenue is trending down. So maybe initially if I were to have spent $26,000 on it, the ROI might have dipped below 50%. It did satisfy pretty much all my 11 criteria though. But then I spent the weekend reproducing the server setup to do domain email forwarding, and was successful. So I thought when I have some free time, maybe I'd just build it and become a competitor.

 

[pumpking]

Hey @richardd ,

Quick follow up question- in your strategy do you actively plan and work towards a greater than 50% ROI, from a basic planning point of view? Essentially, since your strategy involves continuing to purchase businesses for greater revenue, you're also continuously taking on two year "agreements" so to speak- such that for a serial entrepreneur such as yourself, you'll always be two years behind profitability (until such time as you make the decision to stop buying and run steady state for the last two years).

Is that accurate?

 

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[doitman]

Hey @richardd ,

Quick follow up question- in your strategy do you actively plan and work towards a greater than 50% ROI, from a basic planning point of view? Essentially, since your strategy involves continuing to purchase businesses for greater revenue, you're also continuously taking on two year "agreements" so to speak- such that for a serial entrepreneur such as yourself, you'll always be two years behind profitability (until such time as you make the decision to stop buying and run steady state for the last two years).

Is that accurate?

I am not taking on any type of two year agreements. The only agreement that I have with one business is financing for 6 years. The monthly payments although considered mainly a capital cost from an accounting perspective affect the "real" profit numbers year over year. I take those payments into account when calculating ROI. Based on this, the business is netting $70k in profit annualized. As an example, it will make $95,000 in sales over the next 12 months from recurring revenue. $14,000 will be paid out to the previous owners for financing purposes. $11,000 goes to my software contractors. That leaves $70,000 real pre-tax dollars that are saved in my bank account.

 

[pumpking]

Apologies- I realize now that my question was really unclear. I was referring to a two year "agreement" in more of a metaphorical sense: basically, the business model you are working from factors a 50% annual ROI as an assumption. It may turn out to be greater than 50%, so less than two years, but for now let's assume it stays at 50% ROI year over year consistently. As a result you will not be "in the black" from the standpoint of your original investment money until two years has elapsed.

My question / comment was more plainly that since your plan is to continue purchasing businesses with the same 50% ROI assumption for each, you would be re-investing the capital earned from your existing businesses back into new ones. So while you are overall increasing your net worth, on a monthly basis you aren't realizing any spending money. In order to start living a "Fastlane" lifestyle, you will eventually need to stop buying businesses and allow your money trees to start paying you, rather than planting seeds for more trees. Is that more or less correct?

I'm very much interested in going down a similar path to you, so most of the above is a result of my trying to fully get my mind around how it works and what my expectations should be.

 

[doitman]

Apologies- I realize now that my question was really unclear. I was referring to a two year "agreement" in more of a metaphorical sense: basically, the business model you are working from factors a 50% annual ROI as an assumption. It may turn out to be greater than 50%, so less than two years, but for now let's assume it stays at 50% ROI year over year consistently. As a result you will not be "in the black" from the standpoint of your original investment money until two years has elapsed.

My question / comment was more plainly that since your plan is to continue purchasing businesses with the same 50% ROI assumption for each, you would be re-investing the capital earned from your existing businesses back into new ones. So while you are overall increasing your net worth, on a monthly basis you aren't realizing any spending money. In order to start living a "Fastlane" lifestyle, you will eventually need to stop buying businesses and allow your money trees to start paying you, rather than planting seeds for more trees. Is that more or less correct?

I'm very much interested in going down a similar path to you, so most of the above is a result of my trying to fully get my mind around how it works and what my expectations should be.

I understand what you're saying. From an accounting and real world view, that's not how it actually is. The money that I invest in these businesses would only be lost if my businesses fail. After say two years, assuming my businesses keep the same ROI, they would be worth approximately the same on the open market as when I purchased them, and therefore, I would be able to sell them to recoup my initial investment while realizing income earned over those two years.

 

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[pumpking]

Ahh, yes- that makes sense. I hadn't factored the overall value of the business itself into my calculations. In that sense, as long as it's not decreasing in profitability, everything earned from day one is actually "in the black". I had put all of this into a spreadsheet yesterday and was scratching my head a bit, but this resolves it. Thanks!

 

[Bertram]

I do agree.
I'd not purchase an online business outside of FEI or empireflippers.

Make sure to hire a professional to help you during the DD phase.

This is such valuable info. What is FEI?

 

[Bertram]

I agree on all your points. Poor bookkeeping can be just that. There are ways to validate based on bank statements as well as tax returns.

Yeah and getting access to their accounts, even if only view through desktop sharing or over their shoulder is key.

Thanks for this really valuable information, and congratulations @richardd .
I read this thread through once before all the while thinking this is beyond my capacity. Now reconsidering, it looks like a learning curve of a year or even a half brings buying a business within the scope of possibility. Does that sound right?
Who do I need to hire to vett a business?
And where are the best places to look for businesses for sale?

Thanks again, this is truly gold. Thanks for the wake-up call @broswoodwork .

 

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[doitman]

This is such valuable info. What is FEI?

FE International: Professional M&A Advisor

Our experienced M&A advisors offer a highly personalised service and access to a large network of investors looking to buy and sell successful websites.

feinternational.com

 

[doitman]

Thanks for this really valuable information, and congratulations @richardd .
I read this thread through once before all the while thinking this is beyond my capacity. Now reconsidering, it looks like a learning curve of a year of even half a brings buying a business within the scope of possibility. Does that sound right?
Who do I need to hire to vett a business?
And where are the best places to look for businesses for sale?

Thanks again, this is truly gold. Thanks for the wake-up call @broswoodwork .

You would be surprise how quickly you can ramp up. Don't think in term of time, otherwise you'll overwhelm yourself. Just start looking at businesses for sale on the web. Find some that interest you even if you don't have the funds or the knowledge to take it on. Then start asking the seller questions about their business. I forgot to mention, before searching for businesses, come up with your list of criteria that you are looking for in a business. You read my thread. Go back to my 11 criteria in the original post, and come up with your own similar to mine.

I may seem way ahead of you now, but to give you an idea that we are basically in the same situation... I'm looking at a business now that is way beyond my budget. It may be had for about $110,000. I don't currently have that kind of cash on hand since I blew through my nest egg. But I know that I can raise it in 6-9 months, so I'll be ready for it if it's still available. Also, it's a business that I don't have much expertise, let alone experience, in. So, I know I can get it.

Maybe the thing I do have much more experience than you is experience in buying businesses. But that only comes by doing. Anyone can do it as long as they have capital or good negotiation skills. And if you need help, you can ask me or many people on this forum. Start a thread on it. There are many truly knowledgeable people on here that will be able to answer your questions.

 

[pumpking]

@richardd quick question, when you are estimating the ROI, is that calculation done after taxes have been deducted?

 

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[doitman]

@richardd quick question, when you are estimating the ROI, is that calculation done after taxes have been deducted?

Sadly no, lol. It's before taxes.

 

[pumpking]

Sadly no, lol. It's before taxes.

Ah ok. So to walk through an over simplified example, say you purchase a business for $100 with an expected ROI of 50%, you would earn $50 for the first year, but the net profit would come to $45 assuming an equally simplified 10% income tax rate (also ignoring deductions for now). So that would mean the actual ROI is 45%?

 

[doitman]

Ah ok. So to walk through an over simplified example, say you purchase a business for $100 with an expected ROI of 50%, you would earn $50 for the first year, but the net profit would come to $45 assuming an equally simplified 10% income tax rate (also ignoring deductions for now). So that would mean the actual ROI is 45%?

Correct. Although in normal accounting, taxes are not included in calculating ROI. For example, if you bought stock totaling $100, and the first year it went up to $150, you would realize a gain/profit of $50 with an ROI of 50%. Taxes would vary depending on if you help the stock long term or short term in the US.

Similarly, taxes owed on business income would vary drastically depending on your situation. So, to utilize tax liabilities when calculating ROI would make it more difficult to analyze how a business is performing year over year.

 

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[Bertram]

I feel I can do this but will need to learn a lot more about business structures ASAP. Three jobs monn, bring it.
If I start an INSIDERS thread on the forum while going through the process of buying one or two businesses at $20-25K over the next year, am I going to be laughed out of the INSIDERS Forum?
Or will the people give solid, good advice? Are the bizzes offered below $10K truly riskier for the most part?
I work abroad seasonally but don't know much of anything about initializing a foreign corporation.
This must be done.
One more question. How much capital should I risk on this, as a percentage of my portfolio?
Thanks, merci, gracias.

 

[doitman]

I feel I can do this but will need to learn a lot more about business structures ASAP. Three jobs monn, bring it.
If I start an INSIDERS thread on the forum while going through the process of buying one or two businesses at $20-25K over the next year, am I going to be laughed out of the INSIDERS Forum?
Or will the people give solid, good advice? Are the bizzes offered below $10K truly riskier for the most part?
I work abroad seasonally but don't know much of anything about initializing a foreign corporation.
This must be done.
One more question. How much capital should I risk on this, as a percentage of my portfolio?
Thanks, merci, gracias.

I can't promise you that you won't get laughed out of the INSIDERS forum. But I'll say that I won't be laughing. People around here generally are content with people who execute. And if you start a thread about putting your money where you mouth is, you will most likely not get ridiculed by the masses. On the contrary, there will be many that will show excitement for you. They will also give you good advice.

As for how much should you invest, I can't answer that for you. That is a personal question based on your personality, your level of risk aversion, and your current financial position. I will say this though, at the start 18 months ago, I decided to risk it all betting on myself. What's the worse that could happen? I could lose it all. But I came up with my search criteria to mitigate risk. All of my businesses have been running for years and profitably and with recurring revenue.

So, I asked myself, do I want to play it safe, and store $200,000 is low-yield investment instruments earning 2% or do I want to run a company that makes 50% or more a year? Of course the third option is a hybrid dedicating a percentage of your capital to business and the rest to savings. For me, I'm somewhat impatient, and I saw the light at the end of tunnel, exiting the slow lane. So, I decided to let it all ride. And I tell you, nothing motivates you more when you have very little savings. But I knew I'd rather have recurring income than money in my bank account. That's a no-brainer for me.

Ask yourself if you believe in yourself, and if you want to exit the slow lane. If you answer yes to both, then it's time to let it ride. If you're not quite sure of yourself, then start smaller. I honestly would stay away from businesses less than $10K. They are much riskier for multiple reasons. Typically these are startups that have limited history, or are failing businesses. Not all, but generally speaking.

 

[biophase]

Yeah, I stated 20x monthly revenue, not profit in the quote.

I don't think I've ever since a site ask for 20x monthly revenue on empire flippers or any other brokerage. That would mean that a business grossing $1M a year would be asking $1.67M! That just never happens, and especially not in ecommerce. I'd love to see some examples of this.

FYI, I sold my ecommerce business for 9x monthly revenue or 36x monthly profits.

 

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[doitman]

I don't think I've ever since a site ask for 20x monthly revenue on empire flippers or any other brokerage. That would mean that a business grossing $1M a year would be asking $1.67M! That just never happens, and especially not in ecommerce. I'd love to see some examples of this.

FYI, I sold my ecommerce business for 9x monthly revenue or 36x monthly profits.

Here you go. I had my eye on this one:

forwardmx.io - SaaS listed on Flippa

SaaS / Internet

flippa.com

Sold for under $26,000. Makes $1300 a month profit. $1300 x 20 = $26,000.

 

[biophase]

Here you go. I had my eye on this one:

forwardmx.io - SaaS listed on Flippa

SaaS / Internet

flippa.com

Sold for under $26,000. Makes $1300 a month profit. $1300 x 20 = $26,000.

When you say monthly revenue, are you talking gross revenue or profit? I think there's a disconnect here.
Of course on a SAS like this, the expenses are so low that both numbers are very close to each other.

But you had mentioned this for an ecommerce store in your previous post, "I don't like Empire Flippers because they focus mainly on ecommerce. And they typically do the 20x monthly revenue valuation. Not even profit based."

I have yet to see anything close to this in ecommerce.