If your company has an account, better yet, if your company’s financials get audited every year, then what you need to gather to prepare for the sale of your business should be easy. If your company has unorganized financials, then it’ll be a bit more work, which will be covered in a future post. If your business is profitable but your financial statements are unorganized, this alone will bring down the value of your company, which will cost you in the transaction price. I’ve provided the spreadsheet you can download to organize your company’s financials. Remember that you also need to provide supporting material such as the monthly/quarterly/annual financial statements or management accounts that you prepared each period.
Listed below are key financial statement items that the potential buyer and their broker will ask for:
Now I’ll get into key traits for each item above that will value your company higher.
Scroll to the bottom to download the spreadsheet that you can use to organize your company’s financials.
Each company’s P&L will look different because of line items that are relevant to one company that are not relevant to another. But the basic items of a P&L (or aka income statement) are:
If your company’s financial statements fiscal year is from April 1 – March 31 and the period you’re valuing the company is August, then you need to show the last twelve months or the year-to-date P&L. This is to show that you’re not selling the company now because you suffered serious losses this past year or had some unknown adverse circumstance affect your business, such as the largest key account leaving you for a competitor.
If that is the case for why you’re selling, then you should reconsider and try to build the business back up before you sell or accept that you will receive a much lower price for your business than you originally anticipated.
Unlike a P&L, a balance sheet shows numbers in accounts and ledgers at a point in time, not for a period of time. So it may not make sense to show historical 5 years worth of balance sheet, but actually, analyzing historical balance sheet over the last 5 years shows a lot of useful information. A general grouped items on a balance sheet looks like this:
Now this is the exciting part. This is where you get to show how awesome your business is going to be in the future based on what you’ve built up to now. And these numbers are the crutch of what the valuation will be based on. But a forecast is only as good as the assumptions, and the assumptions are built off the historical numbers. So, you can’t bullsh#% these numbers.
The forecast needs to have legitimacy by showing evidence from the historicals, new sales contracts, evidence of improvement in operation efficiency, etc. A forecast model will look like this:
The more supporting evidence you have for your assumptions the better. If your financial statements historically and forecasts are organized, it shows that you know your business inside out and that your business is in good shape. Moreover, you need to show that your top line has been growing because it proves that once taken over by the buyers, the business will continue to generate healthy and growing level of sales. Margins also have to show enough profitability that the buyer can benefit from the profit from the first year. How the buyer improves the efficiency of the business to increase the margins is up to them, but the business needs to have a good foundation to start with.
There are many ways to generate new leads, get more customers, increase customer base, however you want to put it. Some methods will work better for your business than others depending on the customer profile you’re targeting and the value that your business provides. For instance, if your company is a local food delivery service on a college campus accessed via an app, then you’d want to employ online advertising on websites and social media groups where local college kids hang out. If your business sells coffins, you might do traditional advertising via direct mail in neighborhoods with an aging population or build relationships with senior homes in your area.
Below is a list of 36 ways you can increase customers, either offline or online. If there are methods missing in the list, please comment below or send me a message and I will add them to the list.
Missing something above? I would be grateful if you let me know so I can add it to the list.
You’ve built your business from the ground up, putting in sweat equity like no one else will understand and appreciate. For that reason, it’s hard to let go of your baby because you think it’s worth more than what others are willing to pay for it and you can’t trust anyone to run it like you. These are all considerations in finding the right buyer for your business, but trust that if you put in the right preparation, you can find the right person to sell it to that will leave you feeling glad and relieved that you made the right decision.
Part of exit planning is to know who the potential buyers are. The more interested buyers of your business there are, the more competitive and higher your selling price will be and you’ll be in a position to choose who will run the legacy of your business after you. The top mistake business owners make is that they don’t do their homework, so they end up exiting too early at a low selling price or they go with the first broker on their google search whose goals aren’t exactly aligned with yours. Avoid regret by following the steps below to identify the right buyer.
More on each below.
Finding a broker might be the easiest and hardest method. It’s easy because you can google local business brokers and you’ll get hundreds of hits. It’s hard because you have to then sift through the list and vet the right one to work with. If you don’t consider yourself financially savvy and would rather not hustle your way to finding a buyer, it’s most prudent to go with a broker.
Do remember that brokers can be expensive. They will usually charge a retainer fee of between $15,000 – $30,000 for a business under $5m and a retainer fee of between $30,000 – $80,000 for a business over $5m plus somewhere between 3% – 8% of the transaction fee, depending on the size of your business. For example, if your business has $10m in revenue, $2m in EBITDA and sells for $8m, then you will pay the broker ~$400,000, so you will actually receive $7.6m from the buyer after broker fees. Note that fees vary regionally and by industry, so these numbers are not the standard for every business.
Considering that brokers are expensive, you need to make sure to pick the right one. A good broker will possess the following:
Googling the brokers may take forever. I would advise starting here (International Business Brokers Association): https://www.ibba.org/find-a-business-broker/
If your business is in a specialized industry, google “[your industry] businesses for sale in [your city]” and look at where people who are looking to buy or sell businesses in your industry are gathering.
If your business is in a broad industry, you’ll have to rely on big market places that have a lot of traffic – not just where sellers are going to list, but where a lot of serious prospective buyers are going. The most well-known online marketplace to list your business is bizbuysell.com.
Sounds daunting and is a huge task at hand, but this could provide the most payoff with respect to:
The payoff from this approach comes from targeting and selling to buyers who strategically need your business. No matter how dedicated your business broker is, they won’t put in as much devotion as you will to find the best potential buyer.
The challenges are that:
If you’re ready to take on this challenge to reap high reward, the first step is to make a list of potential buyers. These are the types of buyers you want to search for in your industry and your region:
This method of identifying potential buyers and cold calling them is not for the faint of heart. You need thick skin, you need drive, motivation, and a kick-ass hustle mentality. You also need to have your business groomed in terms of historical financials, supporting basis for growth in your forecasts, supporting build-up of revenue, costs and operating expenses, and other areas of improving your business to the highest value.
What stage are you in your business? Are you ready to sell now or do you have some flexibility to improve your business, educate yourself in whom you can sell to and which of the above method you want to go with?
Describe your business below or contact us to get an assessment of where you are in the business cycle and what areas you need to improve in order to prepare your business for a successful sale.
If you want to sell your business, there are several technical valuation methods to determine the right selling price. You can hire a business valuator and spend thousands of dollars to publish a report IF you need a qualified valuator’s stamp of approval. But you may not need that and it’s good to educate yourself on how to calculate the selling price of a small business yourself first.
So, before you go onto any more steps and spend money on hiring a business valuator, follow these steps:
This strategy works for real estate, so why not for selling your business? For example, you may first get an estimate of how much houses on your block are sold for. Then you invest $80,000 to renovate your house or condo. That raises the value of your house by $150,000, so ultimately, the selling price goes up. Same method can be applied for selling your business.
The rough ballpark of your business’s selling price is to multiply your company’s EBITDA by 4. (EBITDA = earnings before interest, tax, depreciation & amortization)
For example, let’s say your business’s financials look something like this:
Revenue $3.5 million
Cost of Goods Sold $1.0 million
Gross Profit $2.5 million
Operating Cost $1.8 million
EBITDA $0.7 million
Multiply $0.7m by 4x. Therefore, a reasonable expectation of how much you can receive for your business is $2.8 million. Again, this is just a rough estimate of the selling price, but you need to know this as a starting point.
In reality, the number that you multiply to your EBITDA is typically somewhere between 2 and 6, which means that you can sell a small, private business that has been steady and stable for the past 5 years for somewhere between $1.4 million and $4.2 million.
That’s a big range, so how do you get the selling price closer to $4.2 million? Now that you know the starting point, let’s go through the factors that will get you to the highest selling price.
Maximizing the selling price depends on a multitude of factors, some with higher weighting than others.
The most important base factors your business should possess before you decide to sell your business are:
Other factors that affect the selling price are listed below. Scroll down to download the calculator.
At this point in your business where you’re considering selling your business but you aren’t in a rush, the most prudent way is to find out what the rough selling price would be for your business and grow your business’s valuation by targeting improvement in certain areas of your business. The list can go on but the truth is, there’s no such thing as the perfect selling price. In my days working for a fund, we followed 8-factor investment criteria that the companies had to meet in order for us to consider investing in. Some people rely on a “gut” feeling and others will do a full-blown 100-page research & analysis report.
Scroll down for the link to download the spreadsheet to find out how much you can sell your business for.
Once you’ve successfully improved your company’s performance to maximize the selling price, the following are the technical valuation methods that your business valuation report should include:
But the success of food trucks requires ingenuity on the part of creating a unique menu. On top of that, the food truck business requires a lot of devoted hours.
On the other hand, coffee trucks remove the variability of success from a unique food menu, thus simplifying the steps needed to succeed.
Vincent, the founder of Green Joe Coffee Truck, successfully built a coffee truck business on the side while working a demanding 70-80 hour week corporate job. Now, he makes over $100,000 from the coffee truck while only working part-time hours.
He shares his insight below on how you can start a coffee truck business, profitability and lifestyle. For details on starting a coffee truck, I highly encourage you to pick up his ebook to learn the detailed and proven approach based on his experience.
Now we are getting down to the meat! Last year we grossed just over 100k between all businesses. Now, with an employee and a few investments, it probably left me with about 60k. Not bad for part time hours!
You can start a coffee truck with different budgets:
– $5,000 – $10,000
-$10,000 – $20,000
-$20,000 and above
More over at Green Joe website!
Anywhere from 65%-75%. I buy locally so it affects my margins, but I’m happy knowing I help the community. Cheap isn’t always better. It’s been a year and a half since we’ve stepped foot in Walmart. We’ve manage to keep the vast majority of our business local. Coffee = Community. We choose to keep people over profits.
Each month is different. An okay month is 6k. A great month is 15k!
We spend maybe $100 a month on advertising. We do a lot of social media. We also do grassroots advertising. Good old cold calls and flyers. I use Google pay per click for the ebook.
There is! Which means it’s a thriving business!!! Competition is not always a bad thing. There is very little competition in disposable lighter repair services because it’s a service that no one needs. But everyone drinks coffee!
Experience always helps. But is it needed? I didn’t have any and here I am. I always say that as long as you know what a bad cup of coffee taste like, and you don’t serve it, you’ll be good to go.
The greatest asset I think a person can have is self assessment. Let the ego go. Look at yourself and see where you’re going wrong and learn. It’s not just about coffee. Its about customer service, treating your employees right, having a good tax strategy, closing catering deals. There’s a lot to learn, which means there will be a lot of mistakes. Try to take each one as an educational experience. Observe, Test, Re-observe. Like anything else in life, knowing is half the battle.
You have to go where the people are. I like to go to places where there is no parking, because no parking equates to foot traffic. So think about your city, where you have difficult time finding parking and I bet you’ll find a coffee shop thriving there. Coffee trucks are no different.
I do well at festivals, but they often have fees and I often have to hire for them. So, my overhead is higher. I workout at a crossfit gym and we have little fitness competitions. I’ve found I can do equal if not sometimes better at these competitions than at big festivals. The reason why: Low to no overhead, multiple drinks in one day per person and no coffee competition. So it really depends on the situation. You get the swing of it after a few months, how to make good decisions. Sometimes gigs are great. Sometimes they fall flat. That’s the nature of the business.
The greatest piece of advice I can give a Future Coffee Truck Owner is to get your mind right. Many times I see people self-defeat. They say to themselves, “I can’t because….”. There’s usually an array of excuse that come after; because I don’t have the time, I don’t have the money, I don’t have the experience…What ever your excuse may be, you have to remember, it is just that: An Excuse. The old saying holds true: If there is a will, then there is a way. For example, before my grand opening, I had no barista experience other than my home french press (which I still argue is the best experience you can have). I had my trailer stolen. The original truck I bought to pull the trailer seized its engine. I literally melted my first generator. Challenge after challenge, hurdle after hurdle I had to overcome each of these obstacles. The only thing that held me together was the belief that I could eventually walk on my own entrepreneur two feet. Fall after fall, crawl after crawl, I kept getting up. So, I say unto you Future Coffee Truck Owner, get your mind right. You can.
Go over to Green Joe Coffee Truck to read more about his experience! (And the link to his ebook if you’re interested:)
It’s Monday yet again. A blink and your weekend is gone. Your alarm screams at you to get up because your cubicle awaits. Each drag of your foot feels heavy and unnatural. Why can’t you wake up at 10am, make yourself a nice big breakfast, and power up your laptop to work on your own time? Believe it or not, you can live this life.
This is the luxurious life of freelancers. What makes it luxurious? They have what we all crave more of – freedom.
If you’ve ever dreamed of this life of a freelancer, you’re not alone. But you don’t have any technical skills to offer? This is not a get-rich-quick scheme by any means. It will take months, maybe years (depending on your level of commitment) to achieve this success. First you have to learn the skill, then you have to find clients on online freelance sites like Upwork or Fiverr.
Even though it may seem like a faraway dream, it is closer than you think. Let me show you how.
First, you may be thinking, “but all the freelancers I’ve met are struggling to pay the bills.” Do freelancers even make enough money to live a comfortable life?
The answer is: YES. Of course, as with any job, how much you make depends on: your skills, your reputation, and how you sell yourself. The beauty of freelance work is that you remove the bureaucracy of navigating up a corporate ladder, so your efforts can directly result in success. That means, if you continue to hone your skills and do great work, your clients will recommend you, you will build your reputation, and you can attract the work.
I gathered data on the top paid freelancers on Upwork. There were a number of developers who made well over $120,000. I also found a user interface graphic designer who made $260,000 in 2016! The result of my research showed that it is certainly possible to make enough money to sustain a comfortable lifestyle.
However, as you would expect, how much you can make as a freelancer varies by skillset. Let’s now look at a breakdown of income earned by skill.
I collected data on 50+ freelancers with skills in high demand and analyzed how much income they generated in 2016.
As expected, web developers had the highest average income earned in 2016 with over $120,000.
App developers (for iOS and Android) made close to $100,000.
User Interface (UI) / User Experience (UX) designers came in 3rd place with an average of $70,000.
App software testers for quality assurance (QA) made an average of $60,000.
Top paid graphic designers made a little over $50,000.
One thing in common with these top paid freelancers across all the skillsets is that they had comparably less number of jobs (aka orders) but made more money than the rest in their category. And the reason for that is because they were hired by companies or organizations that required the freelancer’s help with overseeing an entire project as opposed to a one-off logo or website building.
For example, one developer was hired to create the website and e-commerce platform for a retail company. Another example is a graphic designer was hired by a non-profit organization to oversee an entire branding campaign. And I also saw an app developer get hired by a real estate company to create a dynamic app for them and was retained even after the roll-out of the app to continuously make upgrades.
It’s no surprise that developers made the most money as a freelancer. But as mentioned, the primary driver was because it is more likely that their jobs come in the form of big projects that take a long time to complete.
If you’ve decided which skill you want to learn (maybe an hour a day while you’re working full-time at your corporate job until you are proficient enough in the skill to become a full-time freelancer), these are great intro courses on Udemy that can start you off for literally a fraction of the price as if you were to take a class in-person.
1. Web Design for Beginners: Real World Coding in HTML & CSS – 9 hours (4.7 stars, 1,300+ students)
2. The Complete Web Developer Bootcamp – Beginner to Expert – 21.5 hours (4.4 stars, 1,300+ students)
1. iOS 10 & Swift 3: From Beginner to Paid Professional – 71.5 hours (4.5 stars, 6,700+ students)
2. Android N: From Beginner to Paid Professional – 25.5 hours (4.4 stars, 1,100+ students)
1. UI Design in Photoshop – Start Designing Web & Mobile Apps – 11 hours (4.6 stars)
1. Beginners Adobe Photoshop CS5 Tutorial – 13.5 hours (4.9 stars)
2. Beginners Adobe Illustrator CS5 Tutorial – 10 hours (4.7 stars)
I will be taking some of the courses above in the future. Would love to hear from those who begin this journey and the progress you’ve made!
One last thing to leave you with. I want to reiterate a point I made earlier. The data I showed above is the average income earned by the top-earning freelancers on Upwork. If you are serious about becoming a freelancer and you want to start today by learning a skill that’s high in demand, you should leave this article equipped with the knowledge of what makes the top-paid freelancers stand out.
What I’ve observed is that it goes without saying, but your skills should speak for itself. As you hone your skills, follow these tips when you are selling yourself on Fiverr or Upwork:
I hope you found this article useful. Please subscribe for more articles like this and would greatly appreciate you sharing it with friends!
It seems like a far-fetched dream – getting paid for traveling? Watching travel shows on TV I often wondered how the heck those people got so lucky that they don’t have to sit under fluorescent light all day, 5 days a week. But thanks to the popularity of blogs, getting paid for traveling actually is an attainable dream.
Travel blogs started taking off years ago. Many veterans of travel blogging started in 2006-2008. So one might wonder if it’s too late to become a travel blogger since it’s a saturated space. But what I’ve found from my research is that there are plenty of travel bloggers who started in the last year or two. And in fact, thanks to varied social marketing platforms such as Pinterest, travel bloggers who are savvy with their social media strategies are able to herd visitors to their site no matter how late in the game they entered. The audience is ever-evolving, which means there will always be an audience.
Now, the question is: How much can you make as a travel blogger? Is travel blogging actually profitable enough to sustain a lifestyle? It’s a crazy thought to quit your job and rely on the cloud to bring in income while you are relaxing on the beach in Chile or wading through a forest in Cambodia. But to answer this question, I collected data from 7 travel bloggers who currently publish or have published income reports recently, and went to work analyzing the data.
It’s worth mentioning that the first thing I noticed while looking through multiple travel blogs is that there are 2 distinct types of travel bloggers: ones who live abroad (i.e. travel long-term) and ones who take trips (be it a week at a time or 2-3 weeks). This gives me great hope that anyone can start travel blogging part-time while they have a full-time day job and eventually can turn travel blogging into full-time if they wish.
Here’s what I found on how much you can make from travel blogging. First, let me lay out the foundation.
I went a little crazy and combed through each income report and then further categorized them to be able to compare the data set across all the travel bloggers. This is a snippet example of the research & analysis phase I conducted (just to show that there is substance behind the numbers I present in this article):
A little tidbit about each of the travel bloggers whose income reports I analyzed:
The risk with making travel blogging your livelihood is not at the start of the new lifestyle/business venture but in the midst of it. That is, the upfront cost is very minimal, as basically, you can have a website running for $100 and you’re off to the races.
Typically, depending on the size of the blog (i.e. how many visitors the site gets), the average monthly income generated by travel blogs is between $1,000 – $4,000. Once the blog has a sizeable visitor traffic, the travel bloggers can also receive sponsored trips whereby they can travel for free, which can typically be valued between $2,000 – $4,000. Hypothetically, if you hustle and are able to get a sponsored trip every month, you can be traveling for free and generate $2,000 a month from the blog.
Because business expense is so low, travel blogging can definitely be a profitable business venture or a way to live.
HOWEVER, travel blogging is NOT as passive as you might think. If you think “set it and forget it” mentality is going to work, then you can forget it altogether. From my research and analysis, I found that the passive portion of the income is quite low.
So then, which income stream does pays the most for a travel blog?
I categorized the income data collected on the aforementioned travel blogs into the following:
More on each income source as follows:
1. Affiliate Income
Interestingly, what I found was that income earned through passive means is unfortunately not very high in most cases.
Affiliate income averaged around 9-10% of total income, earning on average $10 for every 1,000 visitors. Which means that if you were consistently getting 50,000 visitors every month, affiliate income would draw in $500 a month.
One exception is wheressharon. Affiliate income made up ~60% of total income and for every 1,000 visitors, she earned 6.0x the amount compared to other travel blogs. Her biggest source of affiliate income came in the form of commissions. What she does well is she has commission/affiliate based sources that focus on bigger ticket items when traveling. For example, her commissions are from Hotelscombined.com, Booking.com, Agoda.com, and Airbnb.com.
2. Advertising Income
Advertising is also not very high for most travel blogs. The standard run-of-the-mill advertising sources of income that overlap across most of the travel blogs are:
3. Freelance Income
Freelance is interesting but tricky because of the hustling involved but also the limitless amount of money you can make from it. The typical freelance work I’ve seen employed by travel bloggers are:
In certain months, you can make as little as ~$300 and then jump to $2,300 the next month when you get a bunch of work (as in the case of FOG).
4. Product Income
Income from products can have a double benefit – you not only leverage your travel blog’s audience to sell your products, you can also use it as a lead magnet to attract visitors to your website. It is the most interesting source of income to me, because you can be as creative as you want in creating a product that aligns with your travel blog. Ebooks are the most prominent for travel blogs. Online courses can be found as well. Trip planning services are also hugely popular as a product offered on travel blogs.
One of the most unique products I’ve seen is NN’s customized physical map of Kigali, Rwanda. It has illustrations and tips, and one of the more successful months brought in $5,337 just from sales of the map!
Another product where it pays off being in a niche space is FOG’s recipe collaborations. Their travel blog niche is camping. So, they often engage with other sites or magazines to come up with camping food recipes, which I think is so creative and effective in leveraging your skillset.
5. Sponsored Income
If you’re lucky or if you’re an authority in your field, companies will approach you to be a sponsor of your travel blog. But most often than not, you have to be the one hustling to get sponsorship. You do need to have built a sizeable web traffic to your travel blog to secure sponsorships. But, I was pleased to see that you don’t need that much traffic to start rolling in the dough.
How many visitors do you need to get sponsors’ attention? Here’s a snapshot (explanation below):
Key takeaways (each corresponding letter in the snapshot explained as follows):
A. TWG has less than 7,000 monthly unique visitors and still secured sponsorship of an average $260 a month. WLST had 14,500 monthly unique visitors and secured $660 on average.
B. Although FOG doesn’t report the number of visitors to their site, they’ve only been around for a year and a half, they started around the same time as WLST, so more likely than not, their unique visitors are between 7,000 – 15,000, and they were able to secure ~$300 on average in sponsorship income.
C. With 14,500 unique visitors, WLST got $1,000 – $2,500 worth of free sponsored trips.
D. WS got $4,000 worth of free sponsored trips when they had 35,000 visitors.
So, we could summarize that by saying sponsors will partner with travel blogs that have as low as 7,000 monthly unique visitors. And you could potentially make $4,000 in value from sponsors when you have 30,000 monthly unique visitors.
Oh, and a worthy mention is that for the travel blogs that reported both unique visitors and pageviews, the relationship between these two site statistics were very similar. It was 1.5x pageview for ever 1.0 unique visitor.
Thank you for staying with me up to now. Hope it was worth it. (And if it was, then please subscribe for more posts like this breaking down how much you can make as an entrepreneur!)
You’ve seen from real examples of travel blogs that you can make a living as a travel blogger. It is possible to quit your day job that you feel stuck in and get paid to travel. It takes work as with anything else, but as illustrated above, there are many ways to get creative in earning income and to me, that’s the appeal of becoming a full-time travel blogger – there is no limit as to how much you can make. It really depends on how much traffic you get on your website and how much you hustle to get sponsored income or make products to sell to your audience.
We’ve seen that you can make a sizeable income just from 7,000 monthly visitors to your website.
Now, the realistic picture. How long does it take to get 7,000 visitors, 15k, 60k,…
As in our example travel blogs, WLST and FOG are making $2,000 – $4,000 a month (including non-cash value) in just a year and a half since launch.
But it must be noted that WLST spent an average of almost 50% of income in advertising/marketing expense to promote the blog. On one hand, this might come as a shock. That is a huge chunk of the income that you won’t see. On the flip side, it is evidence that advertising/social marketing is an effective tool to grow your audience to the level where you can make a significant amount of money on your travel blog.
Now that you’ve read how much you can make from travel blogging, are you ready to take the plunge? Or do you feel that it is not enough money for you?
Well, if you’re more convinced than ever that you want to finally quit and live a nomadic life as a travel blogger, these are strategies that you can employ to grow your travel blog as fast as possible once you have it up and running.
These are strategies that successful travel bloggers (i.e. where the data came from) use everyday to grow their web traffic. Most of them are not secret. But it is good to mention even the obvious, simple tips that are adopted by the incumbent travel bloggers. These strategies are:
Thank you for getting this far! It was a long post but I hope it was worth it. If you are already a travel blogger, I would love to hear your thoughts about how the above applies to you. And if you aren’t a travel blogger but are a 9-5 employee feeling stuck, I hope you found this analysis helpful in making a decision in one way or another in regards to travel blogging. Would love to hear your thoughts as well.
You pay hundreds of dollars to stay in an Airbnb when you travel. Why can’t you also list on Airbnb and make passive income while you work full-time?
Well, if you already have a spare bedroom, there’s really no risk in listing it on Airbnb. And if you are thinking of buying an income property, at the end of the day, you will end up with equity in the property, so there isn’t really a risk in listing on Airbnb either.
But what if you have neither a spare bedroom nor the money to buy an income property, yet you still want to make passive income from short term rentals on Airbnb?
There is one way to make money on Airbnb without a spare room or income property.
You can lease an apartment, pay monthly rent to the landlord, and instead of living in it, you list the apartment on Airbnb.
But is it worth it? Does the income you earn from listing the apartment on Airbnb outweigh the monthly rent you pay to the landlord?
You’ll be surprised at the result of my research and analysis.
The first thing you should know is that even though you are not buying a property to start Airbnb, there is still a considerable upfront cost.
First, when you lease an apartment for the purpose of listing on Airbnb, there is security deposit (even if you get all of it back at the end of the lease, you need it upfront) and moving costs. Together, that’ll be around $1,500 for a 1-bedroom apartment in a metropolitan city.
Then, you have to factor in losing the first 2 weeks of rent, because you have to set up the apartment first after your lease starts before you can list it on Airbnb. Let’s say the rent is $2,000 for a 1-bedroom apartment in Los Angeles. That’s another $1,000 in upfront cost.
Finally, the cost of setup: furniture, kitchen tools, decoration, cleaning supplies, etc. will cost between $4,000 – $5,000. For example, a typical list (if you buy at Ikea rather than Pottery Barn) is:
All in, the total upfront cost will be ~$8,000.
The cost of setup may deter you from starting an Airbnb. But the good news is that the price per night can be three times the monthly rent. That means there is potential to make 100% return on your monthly investment?
My analysis of ~250 data points (by varying cities/neighborhoods in Greater LA) shows that on average, the Airbnb price per night is twice that of the monthly rent per day (i.e. monthly rent / 30 days):
*Notice that West Hollywood has an Airbnb price that is almost three times the daily cost of renting the apartment. We will come back to this later.
Twice is good but not good enough. It doesn’t mean you could make twice your investment from listing on Airbnb. The biggest factor is Airbnb occupancy rate.
As expected, the occupancy rate affects the income you can earn on Airbnb. Especially in the 10 neighborhoods within Greater Los Angeles that I analyzed, there is a lot of competition.
And even though neighborhoods like West Hollywood has a long-term apartment rental vacancy rate of 2%-3% (i.e. occupancy rate of 97%-98%), the Airbnb occupancy rate is only 65%, which is comparably lower. Or in Santa Monica where tourists flock to for vacation, the Airbnb occupancy rate is only 61%.
On average, the neighborhoods had an occupancy rate of 55%.
You can look up the occupancy rate of your neighborhood on insideairbnb.com.
Putting together the ~250 data points in 10 neighborhoods in LA, the result is that the income earned on Airbnb is only marginally higher than the cost of monthly rent if you were to lease the apartment to start an Airbnb business.
The summary of the analysis below takes into account the pricing and the occupancy rate above as well as a 10% operating cost for Airbnb, which factors in a high turnover (cleaning fees and supplies, utilities, internet, etc).
The income you can earn from Airbnb is only 1.1x higher than the cost of monthly rent. If you take into account the cost of setup, you will just break even. That means your return on investment will most likely be 0% – 5% per year. And that is only if your occupancy rate keeps up with the average in your neighborhood.
If you consider the risk of getting busted by your landlord for subletting your apartment on Airbnb when you’re not allowed to, I’d say, it’s not worth it. (If any of the readers have had success with this approach, please comment! I would love to hear your side of the story on how to make it successful.)
As you can see in the result of my analysis above, West Hollywood beat the odds compared to the other 9 neighborhoods in LA. What is unique about WeHo that you can earn 1.6x income on Airbnb compared to the cost of renting the apartment?
If the neighborhood you are considering has these unique features that West Hollywood has, then you could potentially have a very profitable Airbnb business (i.e. short term rentals):
If the neighborhood you are thinking of launching an Airbnb business doesn’t have the unique features above, it may be difficult to be profitable if you lease an apartment to do it.
Inventure Foods (NASDAQ:SNAK)
Inventure Foods is not a name you’d recognize at Costco while picking up some frozen berries or at Safeway getting some potato chips for game night. But their portfolio contains brands that you’d probably recognize: Boulder Canyon potato chips, Jamba frozen fruits, TGI Friday’s snacks, Burger King snack packs. They are not the most recognizable brands but they certainly command shelf space at big grocery chains and restaurants.
The Company (then operating as Poore Brothers) became public in 1996, and began reaching astronomical success gradually starting 2008. Without so much as a blink, the Company weathered the financial crisis in 2008 and started gaining momentum at the start of 2009, continuing its upward trajectory until the end of 2014.
First, what you should know about the Company.
Inventure Foods manufactures and markets both “healthy” and “indulgent” snacks under its own brands or licensed brands:
Over the last two decades, the Company has built national retail distribution channels across leading grocery, natural food store, super stores, convenience and foodservice channels:
Aligned With Health Food Trend (e.g. The Kale Craze)
Inventure Foods’ portfolio of branded products includes health foods, which they have been pushing to the forefront as the food industry trended toward healthy foods.
Since the turn of the millennium, the food industry has seen a higher growth rate of health and wellness foods than non-health and wellness foods (i.e. in the graph below, green line is higher than the grey line every year):
All it takes is Sales Growth and Margin Stability
From 2008 to the end of 2014, Inventure Foods’ stock price experienced a ~600% growth (stock chart below). During this period, the Company reported an overall growth in sales (blue bar graph) and stable profitability margins (gross profit indicated by green line; EBITDA margin by grey line).
Just as the Company was gaining unstoppable momentum, at the turn of 2015, the market proved that a growth in sales doesn’t mean much if the bottom line is not profitable. In Q1 2015, the Company’s cost of goods sold spiked, hurting both the gross profit margin and eventually the bottom line. As a result, Inventure Foods’ stock dipped even though the Company hit record sales. The stock continued to decline throughout 2015 as the margins never recovered to past levels.
2 questions emerge from this observation:
To answer the question of what they did right between 2008 – 2014 to command such a notable increase in their valuation during this period as well as what went wrong in 2015, below outlines key events and strategies implemented by Management:
2011 – 2012 –
2013 – 2014 –
As I dug deeper into Inventure Foods, a pattern of success factors emerged.
So far, similarities between Inventure Foods’ success and Crown Crafts’ (kids’ bedding company in my last post) success are striking. The 2 notable similarities are (1) in their respective industries, they both licensed with brands that were popular in their industry at the time; and (2) they constantly used feedback loop to update their portfolio of products. They discontinued products or divisions that were no longer forecasted to have potential growth and they designed, innovated and introduced new products that they found out to have potential in by assessing which existing products were contributing to their growth.
Crown Crafts (NASDAQ:CRWS) is the perfect example of how to turn around a company reporting losses every year into a company that not only survived the financial crisis but grew over 1300% in 10 years. The orange and red lines are the S&P small cap index and the Russell microcap index, respectively.
Before we get into the factors that drove the Company to succeed, a little overview of what the Company does.
Crown Crafts designs, licenses, manufactures and markets infant and toddler products – mostly in bedding, blankets and bibs and a smaller percentage of sales in plastic-related products.
Crown Crafts has an impressive distribution network of retailers:
Baby care market has increased overall since 2011.
However, it is a very competitive market. Crown Crafts has had to be strategic and disciplined. And that’s exactly what they’ve done.
How Did They Grow 1300%? Key Success Factors:
Upon a detailed analysis of Crown Crafts’ path reveals key success factors that contributed to the Company’s 1300% growth in 10 years. A more detailed analysis is below – with notes that point out significant events that caused the stock to reflect the value of the Company.
A lot happened in 2001. The Company IPO’ed, a new CEO was in charge, and they refinanced the debt from $106 million to $47 million. Management team vowed to turn the Company around. They started by selling off their unprofitable business in adult bedding products. This hurt their top line sales, but their focus was to cut costs and protect their profitability.
The next 5 years proved to be a difficult time, but throughout it all, the Management team continued to pay down debt every year and put in place a continuous feedback loop to determine which product divisions were working and which product divisions were not, i.e. they were ready to take appropriate risk measures in order to keep reinventing the Company.
2006 was a pivotal year. Crown Crafts refinanced their debt again, reducing the debt outstanding by more than 70% and just as importantly, extinguishing exercisable warrants that were attached to the debt, reducing the fully diluted shares by more than 70%. Overnight, the Company’s shareholders rewarded the Crown Crafts by more than 200% and the Company started gaining momentum. Crown Crafts’ CEO, Chestnut, also had a strategy to grow the company – to make meaningful acquisitions.
Since 2006, the Company continued to be profitable and it is evident that the Management team stayed disciplined. (Read through the detailed analysis of success key success factors below.)
To sum up the analysis, the key success factors that contributed to the Company’s success in the last 10 years (and continue to do so) are:
Detailed Company Analysis of Success Factors (and Failures)
Letter on the stock chart indicates key events discussed below in detail.
A. July 2006
B. November 2006
C. December 2006
D. February 2007
E. July 2008 – November 2008
F. June 2009
G. July 2009 – December 2009
H. February 2010
I. May 2010 – December 2010
July 2010 – December 2010
J. July/August 2011
Company’s value took a hit in 2011 as their gross profit remained in question due to rising costs for raw materials, labor, transportation, and currency translation. Along with decreased profitability and a losing “proxy”, throughout the year, there weren’t positive impacts that fueled the momentum they experience in 2010:
K. February 2012
L. March 2012
2012 – 2013
M. June 2013
N. June/July 2014
O. June 2015
P. February 2016
Q. November 2016