The Profit and Loss Statement is one of the most important components to the successful sale of a website. Showcasing a poorly structured or inaccurate Profit and Loss Statement can leave your website significantly undervalued, or even worse, unsold. In this post, I’ll explain how to create a Profit and Loss Statement when preparing your website for sale, as well as provide access to a free Profit and Loss template and real Profit and Loss statement examples from actual websites that sold for more than $10,000 on Flippa.
What is a Profit & Loss Statement?
The Profit and Loss Statement illustrates the following:
Revenue – Expenses = Net ProfitTo elaborate, the Profit and Loss Statement is a financial document that categorizes the revenue and expenses of a company over a specific period of time, usually the trailing twelve months (TTM), in order to determine its profitability.
The Profit and Loss Statement is also sometimes referred to as:
- Income Statement
- Profit & Loss Sheet
- Profit & Loss Report
- Statement of Operations
- Statement of Profit & Loss
- Income & Expense Statement
Does my website need a Profit and Loss Statement?
Yes. In addition to being a good business practice in general, if you ever decide to sell your website the Profit & Loss Statement will almost always play a critical role in the valuation, and it is also generally the single most requested financial document by potential buyers. Inaccurate or incomplete Profit and Loss Statements can prevent buyers from completing due diligence, which can in turn lead to a plummeting website valuation.
My website doesn’t make any money, do I still need to provide a Profit & Loss Statement?
Yes. Even if your website does not make money, it probably has recurring expenses such as domain registration, hosting, etc., and potential buyers are entitled to know about these expenses. As a transparent seller it is your responsibility to be forthcoming with a reasonable Profit and Loss Statement that they can evaluate.
I don’t have financial records, and/or they are not relevant to my website sale
Some website owners don’t have financial records and some believe a Profit and Loss Statement is irrelevant to their sale. I often encounter sellers who believe their websites should be valued based on the traffic, the domain name, the size of the userbase or customer list, or some other non-traditional valuation method, and because of this, they are reluctant to fill out a Profit and Loss Statement.
Other common situations include:
- Failed to keep any financial records
- Kept records, but they were inaccurate and unreliable
- Intermingled financial records among multiple businesses
Buyers value transparency. If they feel you are withholding financial information or aren’t committed to the sale, they will decrease their valuations and/or move to another market opportunity. If you want to maximize the value of your website sale, then it is almost always to your advantage to create a reliable Profit and Loss Statement. If there is any uncertainty in your records, do your best to hash it out, and be upfront with buyers about all discrepancies.
Free Profit and Loss Template
In the following guide, I’ll show you how to create a Profit and Loss Statement by taking you through this free Profit and Loss Template step by step. This template is meant to be a starting point and should be modified to accommodate your individual business. If you have an eCommerce business with inventory you may wish to use this eCommerce Profit and Loss Template.
How to Create a Profit and Loss Statement
If you are claiming revenue on Flippa, then you must be able to provide proof of that revenue. Proof is typically provided by producing screenshots or video walkthroughs of backend reports or related accounts. If, for whatever reason, you cannot provide proof of some amount of revenue, that revenue should not be included in your Profit and Loss Statement.
Step 1: Establish a Time Frame
Before you can perform an accounting of revenue or expenses, you need to establish a timeframe of analysis. Because websites are especially prone to financial volatility, buyers in this industry are concerned with recent financial performance. Seasoned website buyers prefer an accounting of the trailing twelve months, and because of this, that is how we have structured the included Profit and Loss Template.
Note: If you have historical financials records outside of the trailing twelve months, click to the historical financials tab, and add these records into the spreadsheet.
Step 2: Categorize Revenue Streams
Depending on the size and type of your business you may have multiple revenue streams, only one, or none at all. In the below Profit and Loss Statement example, we can see that the business is monetized via Google AdSense and Direct Advertising.
Feel free to modify the revenue section of your Profit and Loss template as you see fit. The list of income streams is not meant to be exhaustive. If you need to add new income streams not already mentioned, or if you simply need to modify the existing sources, do not hesitate to do so. The purpose of this section is to communicate the financial performance of your business to prospective buyers as effectively as possible, and each business is different.
Step 3: Categorize Operating Expenses
The Profit and Loss Statement can vary slightly depending on the Business Model. For instance, advanced eCommerce businesses may require a P&L with a Cost of Goods Sold section to better account for inventory. So again, be prepared to adjust your P&L as needed in order to best accommodate your business.
In this example, we see that the primary expense is salaries, followed by Writers and nominal web hosting and domain registration costs.
Step 3: Add-Backs
Most websites are valued based on a multiple of earnings known as Seller’s Discretionary Earnings (SDE). SDE is the TTM net profit excluding income taxes, one-time expenses, and owner’s compensation. The Add-Backs section of the Profit and Loss Template provides an opportunity for the us to add back one-time expenses and owner’s compensation so that we can arrive at the net profit on an SDE basis. The idea is that these expenses will not carry over with the sale of the business, and so they should not affect the profitability by which the business is to be valued.
The Add-Backs section (also known as the “normalization” process) can be a point of contention during a sale. Sellers are incentivized to argue for broad interpretations of one-time expenses, and buyers are incentivized to argue for a limited interpretation. Ultimately, the key to getting a deal done is to be reasonable.
- Acceptable Add Backs: Owner Salary, One-Time Business Trip, Lunch With Your Attorney
- Unacceptable Add Backs: Hosting, Domain Registration, Ongoing Marketing
Step 3: Calculate Profitability
The last step of the Profit and Loss Template is to calculate profitability. Taking the results of the example Profit and Loss Statement from above, we can see the upward trending Monthly Revenue and Monthly Profit.
Example Profit and Loss Statement
Pulling it all together, we end up with an example Profit and Loss Statement similar to the following.
|Total Add Backs
|Total Net Income
Real Profit and Loss Statement Examples
To provide more practical insight, I’ve compiled the following list of real Profit and Loss Statement examples from actual websites that have sold on Flippa. To exemplify the differing types of P&L’s that may be required, I’ve broken the list down by business type.
Example Profit and Loss Statement: Content
Example profit and Loss Statement: eCommerce
Example Profit and Loss Statement: SaaS
Example Profit and Loss Statement: Services
Dealflow is a full service white-glove Website Brokerage specialized in the sale of web properties ranging from $100,000 to $15,000,000. Their team of qualified website brokers have both educational and professional experience in Accounting and Financial Management, so you can be sure they’ve got the skills needed to help you create a clean and polished Profit and Loss Statement.
The rise in popularity of the subscription monetization model means that parties to a website sale are increasingly confronted with the challenge of transferring existing paid subscribers from seller to buyer.
Are PayPal subscriptions transferable?
Transferring Paypal subscriptions from one account to another is not possible. However, transferring a PayPal account from one party to another is sometimes possible, which in effect, also sometimes makes transferring an underlying subscriber base possible.
Which PayPal accounts are transferable?
Instead of asking “are PayPal subscriptions transferable?”, we need to know “What type of PayPal accounts are transferable?”
There are two primary types of PayPal accounts:
|PayPal for Individuals
||For individuals who buy and sell online on their own behalf.
|PayPal for Businesses
||For merchants who buy and sell online using a company name.
PayPal For Individuals: Subscriptions cannot be transferred
Unfortunately, if you are processing subscription payments with a PayPal for individuals account (or Personal PayPal account), the subscriptions are non-transferable, no matter the circumstances. The reason being that with PayPal for Individuals, each account is tied to an individual. Thus, when a subscriber enters into a recurring agreement to pay a PayPal for Individuals account, they are agreeing to pay that individual. PayPal cannot legally allow that individual to then sell/transfer those agreements to another individual or entity.
If you find yourself in a situation where you want to sell a website, but the subscriptions are held in a personal PayPal account, the business may be valued lower than expected by potential buyers. The reason for this is that in order for a business buyer to take control of the subscriber base, all subscribers would need to resubscribe to make recurring payments to an alternative PayPal account controlled by the business buyer. Because this will lead to user churn, the buyer will value the business less than they otherwise would have if all subscribers could have been transferred without churn.
Clearly, churn can greatly influence the value of your website. For example, if you decide to sell your website which is monetized exclusively by 100 subscribers, but it is expected that user churn upon re-subscribe will lead to a 50% loss in subscribers, the business would effectively lose 50% of its value. This might not seem like much, but imagine a business worth $100,000 that is now worth just $50,000 – all because the owner decided to charge subscription payments on a PayPal for Individuals account.
Can I transfer PayPal subscriptions with a Business Account?
Consider Jeff. Jeff owns a dating site with 100 recurring subscribers. Jeff sells his website to Tom on Flippa. As Jeff begins transferring the assets to Tom they’re faced with the challenge of transferring the recurring subscription payments. We already know that if Jeff processes the existing subscription payments with a PayPal for Individuals account he won’t be able to transfer this account (or the underlying subscriptions) and Tom will have no choice but to ask all subscribers to re-subscribe under another account he controls. However, if Jeff has a PayPal Business Account it’s possible he could transfer this account and the underlying subscriber base to Tom, assuming certain criteria are met.
How to transfer a PayPal Business Account?
In order to transfer a PayPal Business Account, you need to change the contact name on the account. This contact name is not the name of the business, but rather, the name of the business operator. Taking the above example, the parties would need to submit a name change request, asking that the business operator name be changed from Jeff to Tom. The one major requirement is that both parties must be located in the same country, otherwise PayPal will not honor the request.
If both parties are located in the same country the following steps can be taken to request a name change:
- Write a formal letter requesting the contact name change for your business account.
- Identify the previous name on the account, and the name that you want added.
- Provide a copy of a valid photo ID for the new contact person.
- Acceptable forms of ID include a driver’s license, passport, or any other form of government-issued photo ID that contains the individual’s date of birth (DOB.)
- Provide proof of Social Security Number for the new contact person.
- Acceptable forms of proof include a copy of a social security card, recent pay stubs, w-2, or official tax statements that show the individual’s complete social security number.
- Provide proof of business formation including the business name & new contact name:
- Acceptable forms of proof include Articles of Incorporation, an active business license, or any official business documents filed in the business’s home state.
- Provide a bank statement for the bank account tied to the PayPal account.
- If the bank statement does not display the name of business and the new contact person, a Name Change Authorization Letter is also required.
- The Name Change Authorization Letter needs to contain a letterhead, company logo, and signature of an officially designated company representative.
Once you have the information above and are ready to request the name change, take the following steps:
- Log into your PayPal Business Account
- Navigate to the Business Profile Icon and select Profile and Settings
- Select My Business Info
- Select Update Business Information
- Change the Business Name
For security purposes PayPal won’t allow you to submit the supporting documents by email, so you can either submit them by uploading them or faxing them. If you prefer fax, you can fax the supporting documents to 402-537-5731, just be sure to include a cover page with your name, and a description of the request.
At the end of the day, the decision to process subscriptions via PayPal can have dire consequences when it comes time to sell your website and transfer these subscriptions to a new owner. Though I’ve done my best to outline the general considerations of this process above, I would always recommend reaching out and contacting PayPal directly to get the most up-to-date information about transferring PayPal subscriptions and accounts.
Female entrepreneur Casey Gheen was looking to buy a business that would allow her to work from home and spend more time with her newborn daughter, so she bought EcocentricMom.com for $15,000 on Flippa. In this interview Casey tells us why she bought the environmentally friendly subscription box business, and how she increased the number of recurring subscribers by over 100% in just seven months.
Tell us about your educational and career background and what brought you to Flippa?
I received a Master of International Affairs from Columbia University. I then spent most of my postgraduate career in finance, investment banking, and working for various startups. After the birth of my first daughter, I was left with the desire to work from home and spend more time with her. As a result, I decided I wanted to own a web based business, and this led me to Flippa.
How did you find the right business to buy on Flippa?
Though I have no technical or coding skills, I am well versed in the area of business management. So, I focused my search on businesses that would benefit from fundamental leadership initiatives. On the flip side, I wasn’t looking for passive income. I was instead looking for a new business challenge which would allow me to build upon my understanding of online ventures. After a few months of searching Flippa, I finally found the perfect fit and I acquired EcocentricMom.com
Tell us about EcocentricMom.com
Ecocentric Mom is a 4-year-old subscription box company that curates boxes of natural and toxin free products for delivery to moms in various stages of motherhood. We currently offer a pregnancy box, a mom and new baby box, and a general mom box. Each of these packages is meant to suit women at these particular milestones in their lives. The business had some history, having already changed ownership once in its lifespan when the founder sold it to the Flippa seller.
Preparing a shipment for Ecocentric Mom
Why was Ecocentric Mom a good fit for you?
As a business, I was attracted to Ecocentric Mom because it is relevant to who I am and the things I care about: environment, health, wellness and family. The subscription model it was built on is gaining in popularity. The business had recurring revenues and even a small monthly profit that I knew would serve as a good base for its growth. It also had a positive body of Internet reviews and a well received brand. Perhaps most importantly, the purchase included a solid group of assets including the eCommerce platform as well as a collection of social media accounts and the blog.
What have you done with the site during the seven months since the acquisition?
Since acquiring the business, I have more than doubled the number of recurring subscribers. This was accomplished through a mix of marketing initiatives, overhauls to the product offering and box content, and some website changes that gave the business more social proof. Along the way there were lots of challenges! The main challenges have been low margins and stiff competition. There is a lot of pressure to provide a box that is much more ‘valuable’ than the cost of the box itself. However, by making lots of small changes (front end, back end operations, product procurement and branding) the business is continuing to grow.
What do you plan to do with the business moving forward?
We’re currently preparing to overhaul the product offering and pricing options. We’ve also been testing new acquisition strategies and investing more in those that seem to be working. Changes to the website itself have proved to be important but focusing on the product has been more important to driving growth and revenue than technical improvements, and we plan to keep this product focused mission in place moving forward. In the end, I’d like to continue to build the business in the short and medium term, and sell it in a few years when we have achieved some growth milestones that make it a strong acquisition target.
Any advice for others looking buy websites on Flippa?
I was lucky to find Ecocentric Mom via the Editor’s Choice section (and an email that I had signed up for to be notified about such opportunities). Sometimes it can be time-consuming to weed through all of the listings on Flippa, and Editors’ Choice is a great way to save time by getting instant insight into the top businesses for sale. Another piece of advice is to be ready during the last few hours of the auction, as this in when most activity will occur. Changes to the Buy it Now price can be made by the seller up until the last minute so you have to be ready to jump on those.
That’s Casey’s Flippa story. Read about the sale of another subscription box eCommerce site here.
Today we interview web entrepreneur Jon Dykstra, who purchased the 8-year-old entertainment blog PopOptiq.com for $10,000 on Flippa. Jon talks about the power of internet marketing, his experience buying a website on Flippa, and his due diligence advice for other web entrepreneurs.
Tell us a bit about your background and how you got involved in this space?
In 2006, a small professional firm at which I worked needed a website, so I took on the task of getting one built. After it was built we needed a way to drive traffic to the site, so I started blogging on topics related to the services we offered. The results were nothing short of spectacular. The new website and blog attracted many new clients, and really opened my eyes into the possibilities of what can be achieved through web development and internet marketing.
Any special skills that you bring to the table?
I consider myself a jack-of-all-trades, and ace of none. I’m a decent writer, but I’ll never win a writing award. The most important skill I have is not a skill, but instead a passion for being a website publisher. While I enjoy the collateral benefits of being a website publisher such as flexible hours, no commute, being my own boss and earning a decent living, none of those are a motivating force. Instead, the motivating force is my desire to build successful websites.
What brought you to Flippa?
For a long time I failed to recognize the benefits of buying a website. I always figured I could just as easily build it from scratch. However, after building a few websites from the ground up, it became apparent that buying an established website can save a lot of the time and effort. With Flippa, the primary benefit is the unmatched selection. Scanning thousands of websites for sale at any one time, many of which are cash flow positive with sustainable traffic, is what makes Flippa so truly unique.
How would you describe your experience on Flippa?
My experience with buying my first website on Flippa was very good. The built-in escrow system eliminates many of the trust issues that arise when completing private deals. The Flippa support team is very helpful, and the seller was also very cooperative providing me access to all the data I requested while I performed due diligence.
Tell us about your recent acquisition of PopOptiq.com, what is the site about?
Popoptiq.com is an 8-year-old quality popculture website that covers film, TV, comics and video games. The site maintains a large community of contributors who write articles about these topics. It was started and built as a passion website. That is to say, everyone involved in the original project was passionate about the purpose of the site, and it really showed, as the content they produced was excellent (and there is a lot of it). All in all, this is a business that has tremendous growth opportunities, which is why I ultimately decided to bid.
What have you done with the site since you acquired it, and how has it performed?
I’ve been working with the seller, who has stayed on as editor-in-chief. I’ve hired more editors and writers, and the focus is to leverage the site’s authority with more popular evergreen content. Specifically, I have researched the existing content to determine which type of content performs the best, and then I reinvested into that type content. The result has been better performing content overall. While we’re very focused on traffic growth, we’re also working on improving our social media reach by attracting more fans/followers as well as posting content that receives higher engagement.
Any advice for other web entrepreneurs looking buy websites on Flippa?
Before starting your search, know what you’re seeking. If you’ve got specific criteria around traffic or financials, or even more subtle criteria around things such as site type, vertical, or site age, then you’re going to find it much easier to qualify and vet potential opportunities. My background is publishing content-rich websites monetized with display ads and/or affiliate offers. That’s what I know, and therefore, that is what I search for when I’m looking to buy.
The biggest tip I can suggest around due diligence is to secure read-only Google Analytics access. A website’s traffic is its lifeblood and Google Analytics is a great tool for evaluating traffic. It is incredibly important that you don’t rush this analysis because it can help you avoid a bad purchase or help confirm a good deal.
Once Google Analytics access has been granted, I always analyze the following:
Traffic by Source/Medium
Search out traffic anomalies, for example a steep decline in Organic Search traffic typically indicative of a search engine penalty. Identify the sustainability of each traffic source, and confirm which (if not all) sources will carry over to the new owner.
Traffic by Device
It’s good to know if any site receives most traffic on mobile or desktop. Neither is better than the other, but it’s good to know because monetization strategy may change.
Traffic by Country
I think this is obvious since traffic from some countries is more valuable than other countries.
Enjoy reading Jon’s story? Continue reading more Flippa case-studies now.
During his senior year, David Sinick read The 4-Hour Workweek and then dropped out of college to become a web entrepreneur. In 2015 he acquired PaleoLifeBox.com for $13,000 on Flippa, and in the five months since he’s cut costs by an estimated 35% and added 100 new customers. If you’re interested in subscription box businesses, you don’t want to miss this standout interview!
How did you become an online entrepreneur?
College wasn’t for me. I started off at the University of Pittsburgh, then left and went to the University of Colorado at Boulder for 2 weeks, and then University of Miami for my Sophomore and Junior years — and then I dropped out my senior year. That same year I read the book “The 4 Hour Workweek”, and from that moment on I was determined to make money on the internet.
How long have you been buying and selling websites?
I bought my first website on Flippa in 2010. After financing the acquisition by dipping into my college savings, taking out a loan from my parents, and bringing on a business partner to split the costs, I finally had my first real web venture – True Foods Market. In my opinion, the education I received running that business was far better than any education I ever received in college. Despite the venture not working out the way I planned, I gained invaluable knowledge and experience that I continue to utilize to this day.
Why do you use Flippa?
Honestly, it’s the best marketplace for finding legitimate websites for sale, and it has a much better selection and quality of listings than all of its competitors. Flippa has done a fantastic job curating high-end sites and keeping junk and scammers out. For the most part, the marketplace is made up of a wide array of unique business opportunities being sold by an eclectic crowd of entrepreneurs.
You acquired PaleoLifeBox.com on Flippa, tell us about the business and why it was a good fit for you
Paleo Life Box is a subscription box company that curates new paleo snacks each month — around 7-8 per box — to introduce our customers to new, delicious Paleo snacks at an affordable price. I found the business for sale on Flippa, and I loved the fact that it was a year old and was growing at a steady pace. Additionally, I already run a large Paleo website, and I knew Paleo Life Box could be easily plugged into this site as as a new service offering.
Has there been any major challenges since you acquired the site?
We’re selling Paleo based snacks, and so they are usually more expensive with tighter margins than other similar food. Because of that, I’ve spent a lot of time vetting vendors and making sure we focus on high quality reasonably priced snacks. The thinking is that if we can provide a great experience for our customers, we’ll never have to worry about them coming back for more.
What changes have you made operationally to make the business more efficient?
We started off fulfilling orders and packaging shipments in-house, as in, my apartment (see picture below.) A big shout out to employee Ali Jangbar for being a trooper and fulfilling all these shipments by my side. Luckily, a while after taking over the business we were able to find a fulfillment company who provided cheaper boxes and better transport pricing.
PaleoLifeBox orders awaiting shipment at David’s apartment.
What would you say have been your biggest achievements since taking over the business, and what are your plans for the site moving forward?
We’ve shaved off 35% of our monthly costs by adding a new fulfillment partner and doing a better job of overseeing our vendor program. The site has performed great, and we added about 100 new customers in December without any promotion. We are planning on doing our first big promo this month, and I’d like to get us up to the 2-3,000 customers range within the year. Though we’ve got some aggressive growth targets, we’re making sure that we grow sustainably, so that every customer continues to receive a top notch experience.
What advice do you have for other web entrepreneurs looking to buy and sell websites on Flippa?
Make sure that any company you are seriously considering going after is not doing anything shady, or taking advantage of some sort of web gimmick that doesn’t have a real business model. This means you need to conduct proper due diligence and gaining an in-depth understanding of how the business makes money. Another tip is check Flippa regularly. I check the site at least once a week for websites that fit in with my existing portfolio. Listings come and go quite frequently and you need to pay attention to the market to ensure you don’t miss out.
If you want to acquire a high-quality business like PaleoLifeBox.com check out the top websites for sale on Flippa.