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Thanks! Re: valuation - reputable online businesses are typically valued in the 2-3.5x annual net profit range. See http://feinternational.com/blog/how-do-you-

Thanks! Re: valuation - reputable online businesses are typically valued in the 2-3.5x annual net profit range. See http://feinternational.com/blog/how-do-you-value-an-online-business/ http://feinternational.com/blog/how-do-you-value-an-online-b... for more info about valuations. But honestly, it comes do to what the market is willing to pay for a financial (as opposed to strategic) acquisition.

petercooper 11y ago
When I realized this, I knew I'd stick with my business for the long haul (at least until any interest went above 'FU money' level). If I can make $1m profit per year to take out as dividends, selling it for a once-off $3m seems bizarre unless I had a rapid need for money elsewhere.
- charlesdm 11y ago
  This depends on the tax situation of the country you live in. If you do the math, you might realise to get $1m in personal income by declaring dividends, you actually need to earn $2m in corporate profit. So to get $3m (capital gains from a sale), you would need to earn $6m in taxable income. Meaning it would take you 4/5/6/7 years. Also, if you then reinvest that $3m in more traditional assets (stocks/bonds/property/alternatives), you can earn 5-10% on that capital ($150-300k per year), WHILE working on something new. Capital is awesome.
  - petercooper 11y ago
    Boring calculation for people in the UK (as I am, and I've thought about this quite a bit ;-)). Under certain conditions you can use "Entrepreneurs' Relief" to only pay 10% capital gains on your sale of a business (up to a limit of £10m), so a £3m sale could net you £2.7m in hand. Depending on many circumstances, £1m in dividends (per year) should net you around £750k. So it would take about 3.6 years to make the same as selling for current 3x annual profit. However, if your profits were increasing by more than 10% per year, it would be a wash.
    - charlesdm 11y ago
      You also don't need to pay corporate tax when booking a capital gain on your shares, so the tax advantage is actually a lot more. £1m in corporate income is taxed at 20%, so you're left with £800k after tax. Then you declare a dividend, and pay a dividend tax. That'll be 25-30%, so you'd be left with £800k - 30% = £560k in pocket. To earn £3m (in pocket), you would have to generate approx. £5.25m in pretax corporate profit. Whereas with a share sale, you will be taxed at 10%, meaning you're left with £2.7m (if you sell for £3m). A significant difference. I live in Belgium, where the difference is even larger. Capital gains on share sales are tax free, corporate income + dividends are taxed at about 45%.
- bdcravens 11y ago
  Obviously this assumes market conditions will remain stable. Moreover is the issue of the developer/entrepreneur: if you want to stop working for a period of time, the cost to replace your job roles in the company usually means increased cost/decreased profit, so the calculus changes given those factors.

petercooper 11y ago

When I realized this, I knew I'd stick with my business for the long haul (at least until any interest went above 'FU money' level). If I can make $1m profit per year to take out as dividends, selling it for a once-off $3m seems bizarre unless I had a rapid need for money elsewhere.

charlesdm 11y ago
This depends on the tax situation of the country you live in. If you do the math, you might realise to get $1m in personal income by declaring dividends, you actually need to earn $2m in corporate profit. So to get $3m (capital gains from a sale), you would need to earn $6m in taxable income. Meaning it would take you 4/5/6/7 years. Also, if you then reinvest that $3m in more traditional assets (stocks/bonds/property/alternatives), you can earn 5-10% on that capital ($150-300k per year), WHILE working on something new. Capital is awesome.
- petercooper 11y ago
  Boring calculation for people in the UK (as I am, and I've thought about this quite a bit ;-)). Under certain conditions you can use "Entrepreneurs' Relief" to only pay 10% capital gains on your sale of a business (up to a limit of £10m), so a £3m sale could net you £2.7m in hand. Depending on many circumstances, £1m in dividends (per year) should net you around £750k. So it would take about 3.6 years to make the same as selling for current 3x annual profit. However, if your profits were increasing by more than 10% per year, it would be a wash.
  - charlesdm 11y ago
    You also don't need to pay corporate tax when booking a capital gain on your shares, so the tax advantage is actually a lot more. £1m in corporate income is taxed at 20%, so you're left with £800k after tax. Then you declare a dividend, and pay a dividend tax. That'll be 25-30%, so you'd be left with £800k - 30% = £560k in pocket. To earn £3m (in pocket), you would have to generate approx. £5.25m in pretax corporate profit. Whereas with a share sale, you will be taxed at 10%, meaning you're left with £2.7m (if you sell for £3m). A significant difference. I live in Belgium, where the difference is even larger. Capital gains on share sales are tax free, corporate income + dividends are taxed at about 45%.
bdcravens 11y ago
Obviously this assumes market conditions will remain stable. Moreover is the issue of the developer/entrepreneur: if you want to stop working for a period of time, the cost to replace your job roles in the company usually means increased cost/decreased profit, so the calculus changes given those factors.