Well after 2 1/2 years I have finally decided I will be selling my hosting company (it's really hard to let go, I guess that’s why I keep putting this off :). I had a couple questions for anyone that has any experience with this.

1.) Should I hire a lawyer? I will be obviously writing a contract etc. however do you recommend getting a lawyer to look over it/ help me with the selling process?

2.) What is the best way to work payments (all at once or monthly payments)?

3.) What price could I get for my company?

Thanks for any help you can offer!

1) Yes forsure! If you are dealing with selling a company you don't want to get ripped off. For the amount it costs I think you are better to do it legal.

2) I would suggest all at once. Monthly can always come back to bite you later if the buyer runs out of money.

3) I have heard the going rate is 8 months - 12 months revenue, but it depends on a lot of variables. Good company will probably garner something close to that.

Good luck with your sale.

Lawyers - yes, they seem to be a necessary evil nowadays.
Payments - it often depends on how much you want to sell your company for/how much it is worth + whether you actually want to receive a lump sum or monthly payments (you might make more in the long term with monthly payments but of course, it takes more time). This all depends on what you want and only you can really decide this.
Price - 12 times the monthly income is often a fair estimate, but again this depends on how you want to receive payments, monthly or all at once. You might want to start a little higher to give room for negotiations so 13 times your monthly income might be better, then work values under that.

I'd start negotiating higher than 13 times monthly revenue... Don't start too high or you may scare some off. I think 16 times monthly revenue would be a good starting point for you though, if you're running a quality company. Also, if you're including any assets, not just selling customers, don't forget to add those to the price. You might want to toss in some basics for free, but nothing that is worth too much.

Originally posted by KarlZimmer
I'd start negotiating higher than 13 times monthly revenue... Don't start too high or you may scare some off. I think 16 times monthly revenue would be a good starting point for you though, if you're running a quality company. Also, if you're including any assets, not just selling customers, don't forget to add those to the price. You might want to toss in some basics for free, but nothing that is worth too much.

Agreed. In these forums companies are being sold for less than they should be, and can be in reality. A quality web hosting company can easily be sold for 12-16 months of revenue. Don't let anyone talk you down to anything under a year.

Thanks for all your replies. What would be the best way to go about finding the right lawyer for this circumstance? And does anyone know about what it will cost to have a lawyer do this?

Originally posted by Amdac
Agreed. In these forums companies are being sold for less than they should be, and can be in reality. A quality web hosting company can easily be sold for 12-16 months of revenue. Don't let anyone talk you down to anything under a year.

I would say the operating keyword here is "quality". Surely most owners would like to think their business is of "high quality" and will demand top prices. But the potential buyers may not agree. And if there is no buyer at x6 months revenue, anyone willing to bet that the business is worth x12 months of revenue should pony up the money and snatch the apparently "good deal" that nobody else wants.

This is strictly from a buyer's perspective of course. Now, if anyone is willing to buy my "fabulous high quality web host business" at a price of x18 months of revenue, that is different. :D

Depending on the specific business (years established to show stability, number of clients, ave $ per client, retention rates, proof of sales and profits, etc. etc.) we have seen 1x annual revenues to a max of 1.5x or 18 months. All depends on the strenghts of the business and of course ultimately the buyer (and terms...that is all cash deal v/s some financing or earnout, etc.).

I found several for sale who were giving outrageous bandwidth/storage limits for their prices. Is this really worth anything?
Seems to me that the value depends heavily on this factor (and therefore profitability). What is the valuation from a profitability approach , turnover approach?

yes, ultimately the x on the valuation has to be based on profits ultimately (if profits are really solid then perhaps it is the 1.5x and if they are very low per giving away bandwidth, etc. then maybe 1x or even less if way off for some reason). Usually a 1x revenue should meet up with a 2-3x on profits. Hope that helps.

Usually what happens is that the company willing to buy you out signs a NDA and then you give them your customer list along with revenue details. Then they decide if they would like to really purchase your company, and if yes at which price.

We were contacted a few times to sell our customers, but our managment was not willing to sell.

I would not disclose the customer list until very deep into due diligence.

Originally posted by rossw
I would not disclose the customer list until very deep into due diligence.

Hi,
You mean the customers name / contact information correct? I already made and gave out a list containing our customers next biling date and amount (however no contact information / name etc). It is ok to give out this information correct? (I can't think of any reason why unless I am overlooking something).

We kist recently offered high bid and began talking about actually finalizing the sale. After asking for P and L and expense statements they balked. If you're offering, back it up. If you cant, expect much less than it might be worth.

If you have something worth selling, expect to pay a %tage of the sale price to your lawyer.

If you have a large company (hundreds of customers - thousands of $$ in revenue) then maybe you should explore a brokerage. There are companies out there that help people sell their businesses. Maybe try looking for one of those.

Originally posted by buba69
If you have a large company (hundreds of customers - thousands of $$ in revenue)...on what planet is that a "large company"? here on earth, where i live, that is a small company.

More like a small business, but then what is your point datapimp? The point is obvious that something tangible will have built-in protection expenses no matter wether its a big business or small. Also your comment is purely relative, a business with 1000 dollars in sales with only 10 dollars of overhead IS big business =)

LCH - showing some example of names or the actual names are (not domains) and all is ok (definitely no contact info) especially if you got a NDA in place first. Why? there are crooks out there that can now pitch to each of your clients a price less than yours if they have all that data. That's why i advise my clients to show everything but not vendors or clients where possible but show financials etc. - again only AFTER a NDA is signed. And then I won't disclose much more until they put an offer in writing (LOI). Again you have to show quite a bit to get there (like Samual said, P&L, traffic reports, idea on clients size, etc.).

Samuel - right on. need to have all your data ready. P&L's, etc. A full package is even better. If you are selling be ready to sell.

buba - great idea and I agree haha ;-)

Originally posted by Samuel
a business with 1000 dollars in sales with only 10 dollars of overhead IS big business =) ...on what planet?

Originally posted by datapimp.com
...on what planet?

Not sure what you're getting at here, maybe if you took as much time as others are taking to try to communicate you wouldn't have to ask so many questions.

Originally posted by datapimp.com
...on what planet?

Not sure what you're getting at here, maybe if you took as much time as others are taking to try to communicate you wouldn't have to ask so many questions.

Originally posted by datapimp.com
...on what planet?

Is there a point to your posts? Your two cents have absolutely nothing to do with the discussion. Whether or not it's a "big" company is completely irrelevant to the topic being discussed.

Originally posted by Amdac
Is there a point to your posts? Your two cents have absolutely nothing to do with the discussion. Whether or not it's a "big" company is completely irrelevant to the topic being discussed. i see.

and your post is relevant to the topic how, exactly?

not at all? well, then you should have said something like, "there is a double standard here. some, such as myself, can make irrelevant posts, and some cannot." then i would have understood your point right off the bat.

the point of asking "on what planet" $1000 of income qualifies as a "big business" should be painfully obvious. i think the question is valid. maybe there is a planet where making a thousand dollars qualifies as "big business," if so, i want to hear about it.

i love to learn, you know.

How would anyone care to take the time to elaborate on posts such as yours, its simply not worth the time. If you dont have a clue about simple Profit and Loss, then you will not understand the analogy of the relative nature of what makes big business.

If you were illiciting responses other than trying to incite, that would make a big difference, but you would rather be provacative with your questions, not kind.

$1000 is big profit if you only spent $10 to get it.

If you can keep doing it day after day, week after week, then yes i would consider than big business...

Originally posted by Samuel
How would anyone care to take the time to elaborate on posts such as yours, its simply not worth the time. If you dont have a clue about simple Profit and Loss, then you will not understand the analogy of the relative nature of what makes big business.

If you were illiciting responses other than trying to incite, that would make a big difference, but you would rather be provacative with your questions, not kind.

You've summed it up perfectly. :D:agree:

Originally posted by buba69
$1000 is big profit if you only spent $10 to get it.

If you can keep doing it day after day, week after week, then yes i would consider than big business...

Now that type of business would only be possible in fantasy land:D hehe

Back to the Topic:

You should find out a good brokerage company that will help you find a reputable company to sell to. You wouldnt want your customers to be handed over to a company that will make their life miserable and eventually lose them :)

P.S. you should ask Aussie Bob for help, he has sold a good company HTTPme.com Im sure he can be of help

thanks & best of luck

what must one do to send a PM or eMail? a couple posts i wanted to make were considered self promotion. i understand the need to block that believe me, but then again, if generally trying to help and i'm saying "hey i can help call me" that should be an ok post i would think. but anyway i'm fine w/pm or email but won't let me. do i need to pay for that upgrade?

Originally posted by rossw
saying "hey i can help call me" that should be an ok post i would think.

No. Its not. Read the rules. That is spamming. Regardless of if the help is genuine or out to make a dollar. The forum rules are used to prevent someone from watching, then waiting for a thread that relates to what they offer, signing up and spamming the member. Not saying that is what you are doing, but that is what the intent of not allowing PMs or URLs.

need to have all your data ready. P&L's, etc. A full package is even better. If you are selling be ready to sell.

The funny thing is, most people selling host nowdays do not even have this or they don't even know how to do it in Quiken. :)

Ahh ok. Well either way I like to think I've helped a bit with some "third party" info and if anyone wants, my signature is there. So no problem. I originally came here anyway as I was looking for anyone with a webhosting biz interested in selling their business (I'm not selling anything per se ;-)

haha....yeah trust me, most small-mid sized businesses could use a hand with accounting and organization. I recommend keeping your accounting VERY straight (and should match supporting docs like merchant/bank/tax records). And for your own sake, please please keep your business banking seperate from your personal. Oh my that's frustrating.

Hi,
Would it be worth considering a business broker? What commision do they usually charge? Also if I were to do this on my own how would I go about finding a buyer? Thanks for any help you can offer.

Originally posted by LCHwebHost
Hi,
Would it be worth considering a business broker? What commision do they usually charge? Also if I were to do this on my own how would I go about finding a buyer? Thanks for any help you can offer.

It really depends on how much your business is worth. If you are expecting only a few thousand, then i would say a broker is a waste of your profits. I would say it would be worth it if your business is worth $20,000 or more. But that is only my opinion.

I am sure the biz brokers that have allreay poped their heads up in this thread will be willing to give you a fair estimate of if their services will be of benefit or not.

Usually 10-12% of the selling price. Some charge up front some fee usually for a "valuation" - I would advise against using those brokers. Also, most will ask for 6 months - 1 year of exclusivity. I would not recommend more than 6 mos. Why? Well most will sell in a few months and can definitely take 6. But a year is way to long to lock into a bad broker. Also double check the % I mentioned as most also have minimums like $10-15k. Meaning, if they have a min of $10k but your busienss sells for $75k...you pay much more than 10% actually. Good luck.

Thanks for your replies. I think I am going to head in the business broker direction. Does anyone have a list of good business brokers?

Anyone...?

If I were buying your hosting clients, I would give you a firm offer given the following information.

1. spreadsheet of some sort listing how many clients are on each plan, another spreadsheet showing how old the clients are etc.

2. detail of your hosting plans, what is offered at what price etc.

3. age of your company, # of employees if any, where servers are located, and as many other details as you are willing to provide.

In order to finalize the sale, I wouldn't want a printout from your accounting software. Your profit and loss would be completely meaningless to me, and I wouldn't care if you kept your accounting records accurately or not. I would require cc merchant account and bank statements dating back to when the company was incorporated. With these I could easily reconstruct the income history.

Something a lot of people don't consider is the fact that there will be some/many clients who will not want to move. They will simply go and find a new host for themselves. In addition, I would be afraid that you would enter the hosting business again at some time in the future, and attempt to take clients back. I know that we would sign a contract prohibiting that, but in the real world...

There is no easy to determine the "quality" of the clients. As a result, the buyer takes on significant risk. This is why the bids for your clients will seem low. Sometimes a bunch of clients will move without much difficulty, but losing as many as 65% happens.

If you want good money for your business, make sure you can move the clients without loosing too many of them, and obviously the way to get the highest price is to take payments rather than a lump sum.

I think a fair deal would consist of a lump sum payment in addition to monthly paymnets for some period of time.

Some things that make your clients worth more:

- They all pay by credit card
- They are not on 2.95 unlimited plans
- They are not pissed off at you for never answering support
- They are willing to take on a new host :)
- They are willing to move to a new control panel/datacenter/etc.
- And of course, the more clients you have the higher the price/client