Forums: Discussions for entrepreneurs and small business.

This is my first post here at startupnation.com I heard the guys on the radio and thought it would be a good place to start some dialogue. I am looking for advice on where to go look for investors in my company. I started out around 5 years ago and have grown the business from making around 14k a year profit our first year to making around 1.5 million a year profit. I have diversified to the point that I might want to take a look at selling this part of our companies assests. I am at the point of taking on new challenges and cashing in on our sucess. Does anyone have any advice on where to go and what would be the asking price. Our In House C.P.A. said the normal business price would be between 4-6 x profits. We are dealing with an internet business with recurring membership in excess of 10,000 active members. I have heard people state that you would be only able to get 2x. I feel we have been in business for enough time that we are not a flash in pan company and would like to be able to get legitimate price for this part of our company.

All feedback would be appreciated.

 

Why don`t you offer your members private stocks in the corporation. You could do a Small Corporate Stock Offering to members. However, you must follow your states guidelines. If your site is password protected, you can offer this. If you are looking for a larger investor, you may want to check with Venture Capitalist organizations in your area under SBA. However, you may lose some or all controlling interests in your organization.

Thanks for the Reply. I have seen a comptetior do this a few years ago with his members and raised around a million dollars. I would like to find investors that want around a 30% return on their money. Would venture Capitalist  companies or groups think that is a good R.O.I. Where is a good place to look nationally for groups of investors.

Thanks for your help

I don`t think many sophisticated investors are going to want to come in as unsecured minority investors for a max upside of 30 per cent a few years down the road. They can easily lose it all, and the payout isn`t all that exciting. The longer it takes to pay out the 30 per cent, the more that is true, as the lower the annualized ROI becomes.

You also mentioned selling a part of the business and what multiple you can expect. All the numbers you cite are possible - you might get 2x annual net revenues, or 4x, or 6x, or for that matter 20x.

There are external factors that will affect it, such as what multiple the market is giving to companies in the same industry right now. These can fluctuate even in mature industries, and the last deal done will affect what`s offered to you. For mature, cash cow type businesses, interest rates also are a factor (for this kind of business, it`s all about what kind of annual return you get off your capital, and you compete with t bills and corporate bonds for that). Generally, the lower long term interest rates are, the more willing investors are to pay a higher multiple.

The multiple you can get will also will depend on markers specific to your business - how rapidly you are growing, how rapidly you can grow, what the competitive landscape is, how sustainable your business is, whether you offer something strategically important to a bigger player, and so on. You need something special in this area to bump you out of the standard multiples.

Last but not least, how good a job you do selling it will affect it. Big companies can hire investment bankers to shop their business, and investment bankers are great at getting top dollar. Smaller companies either do it themselves or hire small business brokers, and small business brokers generally don`t bring that much vision and energy to the party.

As you calculate your returns for purposes of calculating the multiple, don`t forget to include as a cost what it would cost to hire you or someone like you to do what you do, in case you are not taking a salary. A surprisingly high number of webpreneurs taking no salary but pulling a $100k a year off their website think that the website makes a $100k a year in profits. If it would cost $100k a year to replace them, it really makes zero a year in profits from the vantage point of an investor.

A good investment bank can give you an estimate of EBITDA multiples for an industry and by transaction size. 

I just posted a link to the Green Manning & Bunch 3rd quarter M&A review on my blog.  Might be worth a look.

Marshall Lebovits

 

Thanks for the all the great informations. I pay myself a salary of 92k a year and my partner get the same We have around another 100k in total salaries for other employees.Then we split around 1.2-1.3 Million per year. The employees also work on other projects for us and that is what some of our problem is. Human resources is the toughest thing to find. We have some new projects that are not getting adequate attention and would like to cash in our sucess and move onto some really good projects.

This site has been really good and have gotten a lot of good feedback. I will start down a path and hope good things are down it.

 

I am also currently in the process of selling a business.  The best thing to do would be to go online and find a business broker.  They will probably list your website on websites such as bizbuysell.com as well as use any contacts they may have to help you sell it.  I am currently in the startup stage of another project that is a website.  I am curious to know which website it is that you are pulling down those kind of numbers and also how you did it! 

Greg Caplan

You`ve got options. Do you want to:

• Cash out = sell the business
• Bring in capital
• Reduce your involvement -so you can do something else

The steps you need to take vary according to the option you choose.

If you want to discuss your specific situation, send me a private message.

Robert Johnson

 

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Business Growth Masters, LLC -
Capital Catalysts for Entrepreneurs
Home of the Scalable Business Plan and QuikStart Capital Programs
http://www.bizgrowthmasters.com
info@bizgrowthmasters.com

At the risk of sounding like an infomercial..

Planning your exit strategy can be a bit of the classic "chicken & egg" dilemma - without knowing what you want (when you want, how much money you want, who you want to sell to) you won`t know how to sell (a higher price might make sense for 3rd party sales but lowest defensible value, LDV, may make better sense for tax implications for insider transactions).

At the same time, without having some idea of what`s possible it`s hard to nail down what we`d like to achieve.

After working with business owners who came to me just before they needed to sell, I realized that it was a real need to advise them sooner vs. later - sometimes it`s a bit like patients who smoke, eat poorly & don`t exercise for years coming come in to their doctor`s office & saying "can you help me?"

Recently, I became affiliated with BEI just for that reason.

This organization helps business owners like yourself by connecting them with advisors who specialize in guiding them through a systematic approach to exit planning. The founder of BEI, John Brown, and author of How to Run Your Business So You Can Leave It In Style has developed this process over years of helping his clients.

It sounds like you have a pretty good handle on things. If your current advisor team is working with you to take steps to walk away with the maximum benefit to you and minimum tax consequences, great!

If not, I invite you to sign up for our free Exit Planning newsletter and talk to me or any of the BEI advisors.

 

John Y. Chang, MBA
Business Broker / Exit Planning
Daniel Winkler & Associates
1302 Solano Ave
Albany CA 94706
510-550-7255

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John Y. Chang, MBA
SEO Copywriting / Web Marketing /
Exit Planning Consulting
Daniel Winkler & Associates

(510) 550-7255

You are asking three questions here, (1) were to get investors, and (2) should sell your company (3) for how much should you sell. To answer the first question, go to www.breadstreet.com ,the second, I am not qualified to answer, and the last is to get a business evaluation to find out what the company is worth. The people at Breadstreet.com are very friendly and can help you out with your other questions.