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I have a one man SaaS that nets me $100k/yr in revenue. It's button-click simple to setup and requires zero maintenance aside from collecting the money each mo

by phil21 3y ago

I have a one man SaaS that nets me $100k/yr in revenue. It's button-click simple to setup and requires zero maintenance aside from collecting the money each month. The net assets are basically $15,000 worth of IT gear like a laptop and some servers. There is current month to month contracted revenue spread across a diverse base of users paying $5-100/mo each. How much would you offer me for this company? How much would you take for this company if you currently owned it? Something is worth what someone else is willing to pay for it. Obviously whatever the company sells for is worth exactly that amount at that moment in time. Valuing such a business at $15k would be absurd, just as valuing it at $15m would be. Thus, the difference in asset value vs. what you paid is just called "goodwill" - perhaps the name hangs people up a lot. If you then turn around and sell the same company later for a loss, you take a write down on that goodwill. Certainly not perfect, but there aren't too many other ways you can express the present value of a company other than what it sells for.

JohnFen 3y ago
> have a one man SaaS that nets me $100k/yr in revenue. That 100k/yr, though, is tangible and pricing it is straightforward. That's a very different situation that doesn't require making numbers up. > Thus, the difference in asset value vs. what you paid is just called "goodwill" - perhaps the name hangs people up a lot. The name absolutely doesn't help, but I don't think that's what I'm hung up on. I'm hung up on the idea of making up a monetary figure out of whole cloth and pretending it's real in some way. This disconnect confuses me greatly, and the only way I can make it make sense in my head is in the sense of "creative accounting". Which just explains why I didn't choose a career in finance, and highlights why I view the financial world generally with tremendous skepticism.
- ruds 3y ago
  The monetary number is not made up out of whole cloth. It's the difference between the book value of the tangible assets of a company as an accountant understands them, and the amount paid for the company. An income stream arising from the operations of a business doesn't count as a tangible asset. You can absolutely assign a value to that stream. That's how you arrived at the purchase price in the first place! But that income hasn't been realized yet and it's not written in stone. The income could be higher or lower depending on what happens in the future.

by phil21 3y ago

JohnFen 3y ago

> have a one man SaaS that nets me $100k/yr in revenue. That 100k/yr, though, is tangible and pricing it is straightforward. That's a very different situation that doesn't require making numbers up. > Thus, the difference in asset value vs. what you paid is just called "goodwill" - perhaps the name hangs people up a lot. The name absolutely doesn't help, but I don't think that's what I'm hung up on. I'm hung up on the idea of making up a monetary figure out of whole cloth and pretending it's real in some way. This disconnect confuses me greatly, and the only way I can make it make sense in my head is in the sense of "creative accounting". Which just explains why I didn't choose a career in finance, and highlights why I view the financial world generally with tremendous skepticism.

ruds 3y ago
The monetary number is not made up out of whole cloth. It's the difference between the book value of the tangible assets of a company as an accountant understands them, and the amount paid for the company. An income stream arising from the operations of a business doesn't count as a tangible asset. You can absolutely assign a value to that stream. That's how you arrived at the purchase price in the first place! But that income hasn't been realized yet and it's not written in stone. The income could be higher or lower depending on what happens in the future.