How can I tell if a web hosting business for sale is really profitable?

A small web hosting or reseller business usually presents well: customers pay on a schedule, and the money keeps arriving. The harder question is how much of that money is left after the business pays the people it depends on. Start with the monthly account revenue, then work backward through each cost the seller needs to keep the service running. Ask for the records that let you do that, not a summary.

Revenue against upstream costs

Ask for a list of accounts with the plan, the billing cycle and the start date, and tie its total to the deposits in the bank statements. Then lay the supplier invoices beside it: data-centre or server rental, software licences, backups and bandwidth. A reseller’s margin can narrow if a supplier changes its terms, so ask what the contracts say about notice and whether they carry over to a buyer.

Churn, refunds and discounts

Look at how many accounts left over the last few years and why. Refunds, chargebacks and heavy promotional pricing can sit quietly inside a revenue line. Ask how many customers are on introductory pricing that will rise, and whether any large accounts depend on one relationship with the owner.

Support load and deferred equipment

Ask who answers tickets, at what hours, and whether the owner does it for free. If you must hire that work, the profit changes. If the business owns servers, ask when they were bought and what replacing them would involve. Owners sometimes put off that spending before a sale, which flatters recent earnings.

• Account list tied to bank deposits.
• Supplier invoices and contract terms.
• Cancellation, refund and chargeback history.
• An honest account of owner time spent on support.

The same discipline applies to a web design studio, where project income is the test, and cleaning up financial records is worth a read if the books look thin.