March 26th, 2011, 12:11 PM
Value of template based website project???
Having been approached with a partnership oppty. I would really appreciate the thoughts of others insofar as how do I properly determine the value of a template based website I will be bringing to the partnership. Here is some background on my situation.
In May of 2008 I was approached by a client to develop a website solution for his automotive business. He owns about 15 auto repair shops in 4 states and several markets. He contracted me to design this elaborate system to which I charged him approximately $25,000. You may view some examples here -
Omaha Lincoln Kansas City
Upon completion of this project I obtained the permission of client to use the programming of the system to develop and offer for lease a website solution to auto repair shops and he agreed. The end result has been a great success with my having successfully leased my website to about 100 clients across the US and Canada for modest monthly lease fee of $29.95 per month.
One of my clients who has become a friend told me that he is very interesed in "partnering" with me to expand my template website to other service industries and charge a significantly higher monthly lease fee. Although I've had many tell me that it is not in my best interest to proceed with a partnership I feel that it would be possible with this person to achieve some really good results. He would be in charge of all sales and marketing.
This now brings me to my question on the value of my website. I bought a book on How to Form a Partnership and one of the aspects of such a consideration is what is each partner bringing to the partnership. My partner has committed $30,000 to the partnership. In the rough draft of the partnership agreement his attorney had indicated my contribution to the partnership be that of my website, also valued at $30,000.
As I have been reading up on partnership considerations I began to wonder just what the value of my contribution, ie. the website, really is and what implications determining that value may have on my overall best interest in the partnership.
My thoughts on as follows. Although it is really hard to pinpoint the value I would think that the fact that a client paid me $25,000 for the project and that I have been successfully leasing it to clients for the past 2 1/2 years (see View Websites) would leave me to think that $25,000 is a good basis by which to begin determining a value. But I believe that what should also be taken into account is that over the past 2 1/2 years I have made significant modifications and enhancements to the website as well. And though I did not keep detailed records of the same, I would think that these modifications & updates would add additional value to the website. For sake of argument, let's say an additional $20,000 bringing the total value to $45,000. Does this logic seem reasonable? Also is there any value that should be considered insofar as the websites capability to generate continual passive income as it has done so for the past 2 1/2 years, bringing in approximately $30,000 per year in monthly lease fees?
Thank you in advance for taking the time to read this and possibly sharing any thoughts you may have. I truly value the opinions of those of you who take the time to help guys like me out.
Today the world, tomorrow the universe...
March 26th, 2011, 08:07 PM
I don't want to speculate on the value involved, but for tax and other reasons I'd recommend not forming a legal partnership, look at some other business structure like a LLC or S-Corp.
Partnerships are problematic if there are disagreements among the partners, or if a partner should die.
I've never been able to appreciate the sublime arrogance of folks who feel they were put on earth just to save other folks from themselves .." - Donald Hamilton
March 26th, 2011, 11:46 PM
Doug, thank you very much for your interest and reply to my situation. I could not agree more with your thought on the LLC being the better option. I quickly came to the same conclusion as I read chapter 1 of the NOLO book on Partnerships. I wish there was a good way of determining the value of my initial contirbution to the business. Again, thank you. Tom
Today the world, tomorrow the universe...
April 7th, 2011, 01:47 AM
I don't want to speculate on the value involved, but for tax and other reasons I'd recommend not forming a legal partnership, look at some other business structure. You really need to compute your expenses and contributions as early as you can to avoid delays and before its too late.
February 6th, 2012, 10:51 AM
if i was looking to buy into your business as an investor, i would consider that $25,000 as sweat equity - the value of the product, or inventory if you were to think of it as a merchant.
in addition, 1.5-2.5x yearly profits.
so... if you are leasing 100x $30/month, that's $3000/m. or $36k per year
but that doesn't include your expenses, including taking out what you pay yourself to manage the business...finding all these deals etc etc.
figure out what your shareholder (net) profits would be, multiply that by the variable above and add $25k for the value of the product itself.
that's the value of the business. figure out what percentage $30k is of the value and divvy up shares accordingly.
sounds like the valuation at the moment is definitely not leaning in your favor... i think they are coming up with something that suits their interests