Buy It or Build It – 2 Year Old Ecommerce Site

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Website: *****beauty.com
Platform:  Wordpress
Type:  Ecommerce
Sales Format:  Reserve Auction (reserve  unknown)

When  buying a business,  you are in effect purchasing the future cash flow. Keep in mind this is ONLY an analysis of the cash flow and DOES NOT take into consideration inventory, social and search engine presence, content or anything else of value the website may have intrinsically.

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Net Present Value Analysis

Financials

Max Purchase: $13000 (including 3K in inventory – wholesale value)
Risk Adj:  (the chances of the investment going belly up as a percentage)  10%
Discount Rate:  (cost of capital)  10%
Risk Adj Discount Rate:  20%

Cash Flows

Year 1

Revenue:  $28000
Expenses: $21000

Year 2

Revenue: $30000
Expenses: $23000

Year 3

Revenue:  $32000
Expenses: $25000

Financial Summary

Year 1: $+28,000 / $-21,000
Year 1 Cash Flow: $7,000; Discounted: $5,833.33
Year 2: $+30,000 / $-23,000
Year 2 Cash Flow: $7,000; Discounted: $4,861.11
Year 3: $+32,000 / $-25,000
Year 3 Cash Flow: $7,000; Discounted: $4,050.92
Present Value of Future Cash Flow = $35,000.00
– Total Investment of $10,000
NPV: +$25,000 (Net Present Value)
IRR: 69.88%  (Internal Rate of Return)
Keep in mind the internal rate of return on an investment or project is the “annualized effective compounded return rate” or rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.
Again,  this calculation is based STRICTY on the cash flow.   Some things that makes this attractive to me other than the cash flow:
Average of 2K uniques per month
Healthy Organic Search Results
Primarily US and Canada traffic
All major social accounts included
3K Inventory Included
They use Like2Have.it for Instagram traffic.
My Questions and Concerns:
How engaged are the social media followers?   They can easily be bogus.
Confirm wholesale value of inventory – is it REALLY wholesale?
How much time is spent by the freelancers on weekly activities to maintain the site?
Profit margins seem to be low – why?
So… Buy or Build it?
I would BUY it @ the maximum price of 13K (including inventory) then borrow money from Intelend  to carefully purchase other ecommerce related assets.

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