The Deal

[Gaulkin]

This is a dedicated server hosting business that i found for sale. He
wants $5k its 2 months old and makes $400 a month net profit. It comes with a
website, 10 servers and 6 clients. The guy selling it wants to be the manager of the company after
her sells it to me and make 30% of the profit, he has been in this
industry for 5 years and working for alot of companys. Ive seen all the paper work and things needed to ensure this is a real business. If i do this i will fly and sign the contracts with him in person. I would like to know if this is a good deal or not please state why. Thanks

[The Stealthy One]

Can you verify that this person has worked in the industry so long? Try to get professional references.

[The Stealthy One]

Additionally, if you ultimately decide to make the purchase, work out a payment plan - do not pay the full $5,000 up-front. In fact, a strong contract would enable you to remit no more than 10% up-front, with the rest of the payments due in increments according to criteria agreed upon by you and the seller.

[Gaulkin]

Yes he gave me references about who he has worked for and what he has done.

[The Stealthy One]

Have you verified these?

[Gaulkin]

Yes i have

[syia]

do you have any relation with the person that is selling to you or do you know his credential?

[David Rocci]

What are the plans for aquiring new customers? Why is he selling? Understanding the motivation for selling can uncover hidden issues.

How solid are the contracts on the 6 existing clients? How long are they locked in for?

If you retain 70% of the company, then that $400 of monthly revenue turns into $280. It will take you 18 months just to break even ($5000/$280 = 17.9). And that doesn't account for any of the costs associated with running the business.

Are the servers owned free and clear? Do you have to pay colo costs or anything for bandwidth?

-dr

[Gaulkin]

I met this person online and do not know them. He is selling because he does not want to run it all on his own because its to much work and he has no time to expand the business, he wants to manage it instead. The 6 clients are not under contract it is month to month. 6 of the servers are owned free and clear and 4 are rent to own. Yes we have to pay that but it still comes out to 400 net profit at the end of the month. He also has not spent any money on marketing. The payment will be 500 upfront and then 1000 a month for 5 months.

[Paint and Air Sportz]

I would personally say its not worth it, the risk to return ratio just isnt strong, their are much better online business that you can buy for 5000$

[jasaunders]

I am not sure of the value of the servers, but if they are estimated at $1000 each, you have $6k in assets right there. Based on the very, very limited information given, it would sound like a feasible deal.

[Gaulkin]

Nope the servers were bought used and the best one is worth 500 and goes down from there. He however knows how to buy them extremely cheap so expanding the business does not cost alot. For 3k i can get another 6-10 servers.


Ps. What other internet business would be a better investment?


Pss. The contract would be made by a florida attorney and signed in another state, he is also underage and would require his parents to co sign.

[Young Spark]

There's the first problem... if he is underage your taking a high risk. I am not demeaning youth entrepreneurs, but how did he get the money to get the first 6 servers?

Also, you need to keep in mind that its easy to get a server... what isn't easy (and become a liability in a way) is the co-location prices for it. Co-location prices isn't cheap to say the least... you need to have some strong income.

And assuming he has $400 for the 6 clients... that is computing that each is paying $65 a month... not a bad price but your losing money at the end of the month, especially if the servers (and I am assuming) have some feasible stats.

The key here is to SLOW DOWN! He's trying to build the business up too quick with 6 servers and 4 rent to own servers. If you want to know the truth, here are 2 facts to face:

1. The guy is lying. There is no way that he can have 6 servers in a datacenter and $400 be able to cover the co-location prices for each one. In this case either 1 of 2 things: he's lying OR the $400 comes AFTER paying any expenses and such revenue that is a liability. CO-Location prices are too high for all of that.

2. $400 isn't enough to operate the business. As I explained to you once... he needs to have the server, datacenter, server software, control panel software, somebody who can do server maintenance. Just the server software and datacenter alone will suck up the majority of that money.

I don't know but something isn't adding up. I think (and for $400 a month) --- he is lying. $400 a month WILL NOT be enough to cover the datacenter fee's alone. Even if the rent to own servers are dedicated servers offered with a more higher upmark for a profit... that's the only way I see feasibility in this deal.

If you have 6 servers, you may need to up the price on them or something.

I don't know... my response is perceived off the lack of information so keep that in mind.

[Gaulkin]

$400 dollars is the NET PROFIT after everything is paid.

NET PROFIT means take home pay

[Young Spark]

Okay... so its safe to say each client is paying almost $200 a month right? $200 * 6 would make $1,200 --- that COULD POSSIBLY pay the cost of the co-location fee's but NOT the fees for maintaining the server though. So all in all, your still coming to a rocking halt. Don't forget taxes and things along them lines.

You can probably get co-location rates for that of a regular dedicated server, but multiply that by 6 ($150 * 6 = $900) --- so we're assuming these servers are good sized servers (one's that are legit enough to be priced at $200 and above.)

If the server's aren't... then this business deal is faulty. And as I said once... your took ambitous, slow down and have some patience and let time progress a possible hosting business... this is your second time asking and I told you, first off the industry is too saturated first and foremost but if your anxious, start off with beginning a small hosting company utilizing a dedicated server.

BTW: Net profit doesn't necessarily mean "take home pay." It means how much is left remaining after the expenses and such are paid. And you can't guarantee that $400 every month, there are such things as "unexpected expenses." Keep that in mind as well. And how do you plan to advertise and perform solid marketing techniques?