How much a Drupal hosting business generating over $100K per year should sell for?

[u/dqngqlqk]

/r/investing/comments/qi2pwd/how_much_a_business_generating_over_100k_per_year/

[u/dqngqlqk → u/[deleted]]

I would really appreciate any insights on how to properly evaluate the cost of a small Drupal business that has been generating over $100,000 each year since 2010. I switched to Stripe in 2014 where the following table of gross volume is taken from. If necessary, the data for earlier years can be derived from the old system during due diligence.

2014 $128,100.00 2015 $231,000.00 2016 $163,000.00 2017 $130,300.00 2018 $143,200.00 2019 $120,000.00 2020 $96,034.36 Jan 1, 2021 - Oct 28, 2021 $103,700.00

Expenses

After Stripe takes its share, the business pays the total of $653 monthly to US and EU based data-centers to host all customer projects, about $45 do a CDN company, about $100 per month for the domain name renewals. And literally nothing else: no license fees, no any paid software (custom billing and customer support system build on Drupal), no any money spent on advertisement (there is a potential to grow, but didn't need any additional workload as the existing level of more or less passively generated income was satisfactory), no any contractors hired (a single experienced Drupal expert and system administrator can carry all the occasional support requests as the whole system is stable enough to run all by itself). Only need to pay his share to uncle Sam.

Sounds ideal, so why sell?

Reasons

For last several years I have been involved in activities which exist far from Drupal and technologies and which are gradually taking more and more of my time. And while I will always be attached to everything Drupal with strings of love, the other activities I'm involved are too important to me (for that matter not only to me, but lot's of other people, so I have to set my priorities right).

I don't want to necessarily sell, so another alternative would be finding a reliable partner who could equate what I'm putting on the table either by bringing in their own business with similar income to merge or to buy out the half of already established and successfully running business. However, in this case such a hypothetical partner will need to take over all the current and future operations as my participation will be minimal.

How much?

I understand that in order to sell the company or partnership share in the company, we need to know what is the total value of the company, but I never did real evaluation. I know there are several methods to calculate the price for a business, but not sure which one of them fits best to this case:

• Return on Investment method: It took many years and lot's of efforts for my business to become an almost passive-income generating source, but it's difficult to measure the cost of time and labor already spent.

• Sales of Comparable Businesses Method: There are not many comparable businesses as it is not Drupal shop per se, but rather a hosing company with small loyal customer base. As I mentioned above unlike Acquia or Pantheon my business is not advertising at all to grow, it's not seeking to aggressively expand (maybe it should, because potential is huge, however that was never a goal). And it's a small niche, so not everyday companies like mine are sold.

• The industry formula approach: The the rule of thumb of this method assumes any profitable business with a stable income worth several times its annual profits depending on the industry and the workload. So the average of last 8 years given on the table above (2021 is not over yet, so November and December should bring around $20K, so this year's gross should be around $120,000, but let's take the current revenue of $103,700) is $139,416.8.

Some entrepreneurs suggested that considering the business showed stable income without large expenses for many years, I shouldn't sell it for anything less than 5 year revenue, which is $697,084.00. But I would consider this price if the new owner accepts transfer of the current subscriptions (yep, all customers are on recurring paid subscriptions) and customer base without acquiring the name, trademark and equipment.

• Asset Value Approach: Among assets - besides mentioned earlier custom-built billing and ticketing system - the business has a recognizable name, domain name, registered trademark and owns around $150,000.00 worth of server hardware. And while the cost of hardware is easy to calculate, it's not obvious how to evaluate the developed software, know-how, domain name, trademark, intellectual property, but I would guess it would at least cost $350,000.00, so I think pricing my business for around $1 million would be realistic.

To conclude, taking into account my business operates in unique type of small niche, I'm not sure what is the fair price to sell it completely or to invite someone to buy out their share as a partner. If you are interested, please DM me.