How much would you offer? - Searchfunder

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by a searcher
in United States

8mos ago

How much would you offer?

***Additional info*** Situation Overview: The company has 3 equal owners: Owner A: Retired, not contributing operationally. Owners B & C: Actively involved in daily operations. Owner A’s spouse serves as office manager. The 2 active owners wish to remain on payroll. Team Composition Beyond Owners: 1 Office Manager (retired owner’s spouse) 1 Engineering Leader 4 Software Developers 1 Creative Leader 1 UX Designer 2 Customer Success Specialists 1 Sales Rep Key Considerations: Cash flow constraints: Paying owner salaries plus debt service may be unsustainable. Potential friction: Owners may have differing views of how to run/grow business and might cause friction if remain involved Potential Acquisition Structures in Mind: 1) Full Buyout + Short-Term Payroll... Buy all owners. Keep active owners and office manager on transition contracts. Reduce salaries after purchase. 2) Earnout / Deferred Compensation... Mix of upfront payment and seller note or earnout. Defer some owner compensation until business performs. 3) Buy Retired Owner Only... Purchase only the non-contributing owner’s equity. Maintain current salaries for active owners. I could get taste of business ownership while keeping my day job. How would you proceed? --- Additional context: - Niche web development - 25 years old - 11 employees + owners - Legacy, outdated technology in dying space but could pivot to modern tech redacted

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reply by a searcher 8mos ago
in Washington, D.C., DC, USA

Id' say - 1x to 1.5x - With AI it's tough to see the legacy web-dev working out but I see a positive up-trend so I'm not sure, what their selling strategy is and if they already have pivoted to using AI (so even if it is Legacy Tech, they might be using AI to scale operations).

reply by a searcher 8mos ago
from American University in Fairfax, VA, USA

After reviewing the information shared, I don't believe there's enough data to arrive at a credible valuation. While the poster has provided high-level P&L figures for the past three years, that alone doesn't give me sufficient insight to assess the true value of the business. "Niche web development" is a broad and somewhat ambiguous category. If this were a deal I were personally considering, I'd need to dig much deeper. Key questions come to mind: How sticky is the client base? What technology stack is the team using, and does it have long-term viability in an evolving landscape shaped by AI and low-code/no-code platforms? Are there competitive threats on the horizon—whether from more agile startups or AI-driven solutions—that could significantly disrupt the business? Another observation: The company has been around for 25 years and currently has a team of 10. For a web development firm founded in 2000, that headcount feels modest, particularly given how much the digital services industry has expanded. It also appears that the CEO is included in that 10-person count. Based on the 2024 financials, the CEO took a salary of $163K from $2.6M in revenue. That puts average revenue per employee (excluding the CEO) at around $272K. This suggests the business may be relying heavily on offshore talent, which is further supported by the absence of payroll taxes in the P&L. This leads to even more important operational questions: How is new business generated? Is the owner currently handling both business development and project management? What happens post-sale—does the company have processes in place to ensure continuity without the current leadership? There are too many open questions at this point. Before assigning any value, I’d want a much clearer picture of the operations, team structure, client retention, tech stack, and market positioning.

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