Advice on buyout scenario
Hello, Hackers!
Let's say that you and a friend build a Saas business. That business makes around $100k per year. Your friend is interested in going at the business alone and wants to buy you out. The business grows only organically so any growth at all is slow.
How do you calculate a fair buyout price?
The industry standard valuation model for small SaaS is 'seller discretionary earnings' - basically any annual profitability of the business, minus the founder / owner salary, x3-4.
You'll find SaaS brokers like FE use this fairly consistently, you can see some guides on this, and in practice with the valuations of small SaaS companies they list on their site.
https://feinternational.com/blog/saas-metrics-how-to-value-saas-business/
https://www.valuadder.com/glossary/sdcf.html
Really helpful, thanks!
makes around 100k = 100K turnover or 100K profit ?
I guess turnover.
I am not any sort of an expert in this, and the profitability and long term prospects for growth should really be factored in. As well as any debts or foreseeable liabilities.
Without knowing any of that , I would value the company at 2x its annual turnover, so 200K. And so buying out your 50% would be a flat 100K. But I am very interested to hear what others think.
Great points, very helpful thanks!
This comment was deleted 7 years ago
OK, thanks! This is where my head was at as well but I was unsure of how much of a revenue multiplier to add. Thanks again.