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So, I Got An Offer to Sell My Business... (I'm 25 Years Old)

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Jon Anthony

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Hey, all. I just got an offer from someone to buy my business.

I've had people interested in it before, but the deals didn't pan out.

In a nutshell, I'm wondering how to valuate my business. I've seen all kinds of different formulas, and have no clue which to use.

Here's some quick stats:
  • Industry Stats
    • Affiliate Advertising Industry
    • Health/Fitness & Self-Help (Dating, Making Money, etc.)
    • Website Niche is Very Versatile, So Can Be Monetized w/ Almost Anything
    • Growing Industry (All Online)
  • Website Metrics
    • 120,000 New Users/Month
    • 2018 to 2019 Unique Users Growth: +693%
    • 2019 Q4 to 2020 Q1 Unique Users Growth: +198%
  • Income Metrics
    • Earned ~$111,000 in 2019
    • 2018 to 2019 Net Revenue Growth: +61%
    • 2019 March to 2020 March Net Revenue Growth: +157%
    • 2019 Q4 to 2020 Q1 Net Revenue Growth: +47.7%
  • Operating Costs Metrics
    • 2019 Baseline Operating Costs: $1,100/month
    • 2018 to 2019 Operating Costs Growth: +5%
Obviously this is a very prime business for someone to buy, because of the extremely rapid growth rate and low overhead.

I've seen estimates anywhere from $500,000 to over $18,000,000 depending on the calculators I use, lol. So, I'd appreciate some help.

My business is growing extremely rapidly, so unless I get a really good offer, I probably won't sell. That being said, a good offer of $1,000,000+ could give me a ton of nest egg money to start a new business venture, and this time, I'd be starting one with all the experience I have, so it would end up growing 10x faster than my current business did.

This is a very key moment in my career, especially because I'm only 25 years old, so this decision could have a very long-lasting impact. Hence, why I'm here - to see if I can gleam some advice from entrepreneurs who have not only talked the talk, but walked the walk.

Any help from the veteran entrepreneurs here would be much appreciated! Thanks, guys :)
 

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Hey, all. I just got an offer from someone to buy my business.

I've had people interested in it before, but the deals didn't pan out.

In a nutshell, I'm wondering how to valuate my business. I've seen all kinds of different formulas, and have no clue which to use.

Here's some quick stats:
  • Industry Stats
    • Affiliate Advertising Industry
    • Health/Fitness & Self-Help (Dating, Making Money, etc.)
    • Website Niche is Very Versatile, So Can Be Monetized w/ Almost Anything
    • Growing Industry (All Online)
  • Website Metrics
    • 120,000 New Users/Month
    • 2018 to 2019 Unique Users Growth: +693%
    • 2019 Q4 to 2020 Q1 Unique Users Growth: +198%
  • Income Metrics
    • Earned ~$111,000 in 2019
    • 2018 to 2019 Net Revenue Growth: +61%
    • 2019 March to 2020 March Net Revenue Growth: +157%
    • 2019 Q4 to 2020 Q1 Net Revenue Growth: +47.7%
  • Operating Costs Metrics
    • 2019 Baseline Operating Costs: $1,100/month
    • 2018 to 2019 Operating Costs Growth: +5%
Obviously this is a very prime business for someone to buy, because of the extremely rapid growth rate and low overhead.

I've seen estimates anywhere from $500,000 to over $18,000,000 depending on the calculators I use, lol. So, I'd appreciate some help.

My business is growing extremely rapidly, so unless I get a really good offer, I probably won't sell. That being said, a good offer of $1,000,000+ could give me a ton of nest egg money to start a new business venture, and this time, I'd be starting one with all the experience I have, so it would end up growing 10x faster than my current business did.

This is a very key moment in my career, especially because I'm only 25 years old, so this decision could have a very long-lasting impact. Hence, why I'm here - to see if I can gleam some advice from entrepreneurs who have not only talked the talk, but walked the walk.

Any help from the veteran entrepreneurs here would be much appreciated! Thanks, guys :)
You aren't going to get $1 million for this.

Average sales price for affiliate sites are anywhere from 2x-4x trailing twelve months profit (profit, not revenue).
 
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Jon Anthony

Jon Anthony

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You aren't going to get $1 million for this.

Average sales price for affiliate sites are anywhere from 2x-4x trailing twelve months profit (profit, not revenue).
So, something like $500,000 max would be more reasonable?

How is that taxed, btw?
 

Ing

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I would Sell and repeat!
The brother of a friend of mine sold his SEO business for 8 mios a decade ago. Half a year later he had the same with a new name.

that could avoid taxes, too.
 

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You would probably get 3x on your net so somewhere around $300k if youre operating costs are 1k and your earned is 111k.

Given the niche and that it's affiliate income Id sell it now.

Pretty sure its capital gains tax - @CareCPA would know
 
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Jon Anthony

Jon Anthony

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You would probably get 3x on your net so somewhere around $300k if youre operating costs are 1k and your earned is 111k.

Given the niche and that it's affiliate income Id sell it now.

Pretty sure its capital gains tax - @CareCPA would know
Why would you sell now, specifically because it's affiliate?
 

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Why would you sell now, specifically because it's affiliate?
Affiliate income is flimsy. You dont control it, it can come fast and go faster. Amazon shut down their associates from sending traffic to their website. Imagine buying an amazon affiliate website a month ago.

If you can exit and pocket $200k you will have money in a time where money is scared. We're in a recession and for the foreseeable future having cash is going to be one of the best things you can have for opportunity. Whether you buy another business, buy some real estate, or keep it in the bank and start something new it's better than having an affiliate business that could disappear quickly.
 

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cash in and create a success! ..... put a chunk away .... use the knowledge and rest of the cash to start anew with all you have learned!
 
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Jon Anthony

Jon Anthony

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Affiliate income is flimsy. You dont control it, it can come fast and go faster. Amazon shut down their associates from sending traffic to their website. Imagine buying an amazon affiliate website a month ago.

If you can exit and pocket $200k you will have money in a time where money is scared. We're in a recession and for the foreseeable future having cash is going to be one of the best things you can have for opportunity. Whether you buy another business, buy some real estate, or keep it in the bank and start something new it's better than having an affiliate business that could disappear quickly.
Wait, what? That's just not true at all. I'm still making Amazon affiliate income this month.

I like your approach to having cash in the bank now, though.

I think crypto and real estate will be great buys in Q2 and Q3.
 

1step

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I have a friend who sold their affiliate based website for 30x monthly profit. Would imagine you could find a buyer in that same range.
 

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cash in and create a success! ..... put a chunk away .... use the knowledge and rest of the cash to start anew with all you have learned!
Agreed. Great time to have cash on the sidelines. Many opportunities are around the bend.
 

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Jon Anthony

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I have a friend who sold their affiliate based website for 30x monthly profit. Would imagine you could find a buyer in that same range.
Did that factor in growth? Was it average monthly income, or most recent monthly income?
 

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Just to say that selling your company at 25 is a fantastic achievement, congrats!! I remember reading in Unscripted that you can sell if you don't see yourself making any more money out of it, or if you get a very good offer. It's true that having cash for the next following months/years is a good idea.
 

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@Jon Anthony - Be careful with the advice you're taking in this thread at this time. The only person that can make a decision on your business is you.

The overwhelming majority is looking at your business from the same lens right now: the economy is tanking, affiliate marketing businesses are risky, having a nest egg at 25 would be good...

However, we're all missing a lot of info - exactly what the website is, who you are, the potential of the business to keep growing in a recession, and your ability to keep growing the website. These are all questions that you have to answer. We can't answer them.

In terms of valuation, @CareCPA hit the nail on the head...

2x-4x trailing twelve months profit
That's likely what you're looking for.

Considering that someone reached out to you, there's likely two options: a) They really want to add the business to their portfolio (high valuation); b) they're going to waste your time.

Get on a quick call. Feel the guy out. Do some background research. If the answer is "a", then push for a 4x multiple.

P.s. If you want my advice, I'd sell if possible but I wouldn't go out of my way to do it. You weren't planning to sell before, so it seems like you have a plan in place. If you sell, either replicate what you did before, or take a portion of that money as a downpayment for a $2MM SBA loan to buy a $500k cashflowing business.
 

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Like others have said, I’d sell. It’s affiliate business. Could go bye bye pretty quick.
 

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On the tax treatment, the answer isn't just one thing. I know @CareCPA would have more detailed info on this, but taking all the cash at once means you'll realize all the taxes in one year. That could mean you hit a higher bracket, right? So either doing a structured sale, or holding a note for part of the sale, might optimize the tax situation.

Also, to be slightly contrarian, a going concern might be more valuable than cash, if you think the current situation will result in a higher supply of cash in the economy, compared to lower production. That would mean that there is more cash per unit of products/services being produced, and cash would therefore decrease in value compared to products and services (cost of products/services goes up). Higher demand and lower supply of "stuff to buy" while cash is being injected into the economy, becomes inflation under the concept of supply and demand. So, not to get too analytical on ya, but cash doesn't always have to be the #1 choice.
 

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I have a friend who sold their affiliate based website for 30x monthly profit. Would imagine you could find a buyer in that same range.
That's in line with the 2-4x annual mentioned by CareCPA.
 

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Do you need to sell it?

The question is can't you keep it, outsource ongoing maintenance and use cash for doing something new.

Spending cash is much easier then building another successful business.
 

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I'm not a CPA, but I'm pretty sure that the money made on the sale of a business like this is subject to capital gains tax, not income tax.

However, why are you selling now? $100k/year isn't all that much, and if you have a system that can grow 60% y/y, ride that out for a few more years. See if you can increase that rate of increase. Get up to $1M/year and then sell.
 

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Wait, what? That's just not true at all. I'm still making Amazon affiliate income this month.

I like your approach to having cash in the bank now, though.

I think crypto and real estate will be great buys in Q2 and Q3.
Depends on your niche and if they consider your recommended products "essential"
 

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Jon L

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Did that factor in growth? Was it average monthly income, or most recent monthly income?
how much of the growth are you responsible for in your company? (If the answer is 'most of it,' then growth can't really be factored into the selling price like it would be if you had a company that was growing on its own without much involvement from you.)
 

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A sale of a business is generally ascribed as a long-term capital gain. So the rate can be 0% up to 20% (with some rare exception where the rate is 28%)

I'm not completely sure, check with a CPA, etc first. But there may be chances of avoiding taxes at all if you have a holding company which owns the business you will be selling and invest that money in new business.

Back in 2012-2016, I knew a guy who bought/sold businesses. He mentioned that due to long-term capital gains there were 0% taxes. I don't know how he structured his companies and I don't know if anything has changed since then. Just mentioning it as a possibility that a professional would know more about.
 

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A sale of a business is generally ascribed as a long-term capital gain. So the rate can be 0% up to 20% (with some rare exception where the rate is 28%)

I'm not completely sure, check with a CPA, etc first. But there may be chances of avoiding taxes at all if you have a holding company which owns the business you will be selling and invest that money in new business.

Back in 2012-2016, I knew a guy who bought/sold businesses. He mentioned that due to long-term capital gains there were 0% taxes. I don't know how he structured his companies and I don't know if anything has changed since then. Just mentioning it as a possibility that a professional would know more about.
The tightened up some of the like-kind exchange features of the revenue code in the US in 2018 I believe. Maybe he was using part of that. You can still defer gains via structured sale or financing, and thereby prevent maxing out the capital gains rate.
 
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Jon Anthony

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@Jon Anthony - Be careful with the advice you're taking in this thread at this time. The only person that can make a decision on your business is you.

The overwhelming majority is looking at your business from the same lens right now: the economy is tanking, affiliate marketing businesses are risky, having a nest egg at 25 would be good...

However, we're all missing a lot of info - exactly what the website is, who you are, the potential of the business to keep growing in a recession, and your ability to keep growing the website. These are all questions that you have to answer. We can't answer them.

In terms of valuation, @CareCPA hit the nail on the head...



That's likely what you're looking for.

Considering that someone reached out to you, there's likely two options: a) They really want to add the business to their portfolio (high valuation); b) they're going to waste your time.

Get on a quick call. Feel the guy out. Do some background research. If the answer is "a", then push for a 4x multiple.

P.s. If you want my advice, I'd sell if possible but I wouldn't go out of my way to do it. You weren't planning to sell before, so it seems like you have a plan in place. If you sell, either replicate what you did before, or take a portion of that money as a downpayment for a $2MM SBA loan to buy a $500k cashflowing business.
Thanks so much!!! I think this is what was missing from most of the other posts here :)

That being said, thank you everyone else for your input, as well!
 

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It sounds like it made about $92,000 in 2019. Cost you about $12k, so you're looking at around $80,000 in profit. But on top of that, you mentioned that you grew net revenue almost 50% in the last quarter. So if you were making $23,000 per quarter in 2019, then the Q4 2019 to Q4 2020 you made $34,000.

Which is why I'm really hesitant to say just sell it off.

There are two big factors here I would consider:

1) How much of your time is this business taking from you?

- If this is largely passive and requires 10-20 hours per week or less, I think you are in a great spot. You have steady income and have plenty of time to work on business #2 while not giving this up.

2) How can you diversify what you are currently doing to protect yourself from future hiccups?

- Like others have said in this thread, affiliate marketing income can be flimsy. But you can protect yourself to an extent. Are you capturing information, like through an email list? Have varied sources of affiliate income? Clean, white hat SEO and/or a solid paid advertising campaign?

These are the two questions I'd ask myself if I were in your shoes. It sounds like you have a well-oiled machine that you can work on for the foreseeable future to try and grow, as well as to further develop your mastery of this niche. What sort of price tag can you put on that?

Personally, unless you're working 60+ hours per week on this, I don't see anything you can't do (in this general niche) with an income of $10k per month versus having a big sell event and then no income, which comes with its own problems to manage. Do you really need 50k/100k/500k right now to start a business or could you do the same in 3-4 months savings while keeping this? Assess your 12-month risk of keeping it and figure out how much time it is taking from you weekly and make your decision based on that.
 

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@Jon Anthony - Be careful with the advice you're taking in this thread at this time. The only person that can make a decision on your business is you.

The overwhelming majority is looking at your business from the same lens right now: the economy is tanking, affiliate marketing businesses are risky, having a nest egg at 25 would be good...

However, we're all missing a lot of info - exactly what the website is, who you are, the potential of the business to keep growing in a recession, and your ability to keep growing the website. These are all questions that you have to answer. We can't answer them.
#GOLD
 

Ronak

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Anything that grows that fast can tank just as fast. Ask me how I know.

I like the idea of taking some chips off the table and investing in other cash flow assets, especially now that valuations will likely come down due to the downturn for businesses that manage to survive. Also, theres probably nothing preventing you from doing it all over again after you sell, right?
 

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On the tax side, most of it is Capital Gain with online businesses.

You can spread out that gain by using an installment sale, but I wouldn't. If the company fails and the Buyer stops making payments, you're left trying to chase them through the court system.
 

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On the tax side, most of it is Capital Gain with online businesses.

You can spread out that gain by using an installment sale, but I wouldn't. If the company fails and the Buyer stops making payments, you're left trying to chase them through the court system.
The way to deal with that is have them put part of the sale price into an "immediate" annuity (or more than one if deferring parts for multiple years). Set the annuity's payout option so that it defers payment 1,2,3, up to 20 years, depending on what you're trying to do. The annuity should be guaranteed by an A+ rated life insurance company, so you have a state guaranty fund to fall back on in the unlikely event the carrier fails.

That's how I've seen it done anyway. IRS is supposed to treat this as an installment sale for tax purposes, but no broke buyer to chase down. M&A life hacks.
 

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