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Ask HN: just sold software app for $60k, now what?

14 points by temp011235 ↗ HN
Long time HNer, this is a temp account.

I just sold a piece of software for ~$60k and am wondering what to do next and how best to use the proceeds?

I've setup an LLC to house this project (and any others) and setup a small business account (cash in in there now). What's next? Advisement on tax obligations and any other IRSy stuff is much appreciated.

As for the proceeds: I was planning on rolling much of it back into other project's development and perhaps upgrading some of my trade tools (computer / software). Are there other things to focus on or think about?

Thanks.

25 comments

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Edmond
What did you sell...????
temp011235
Talent management system that is highly customized. Client had very specific spec requirements that were not being fulfilled by other vendors and wanted a replacement.
eof
Celebrate, save a bunch of it and work on the next thing.

Anything you buy in terms of trade-tools can be written off against that income.

stevefarnworth
I'm from the UK, so I don't really know how much the cost of living is in the States, but it seems like an amount to save some, upgrade your tools (I'll assume they're a tax write-off, and new equipment should always perform better than old), and live off whilst developing new things.

It'll essentially give you a ramp to create new things with enough time to really get to grips with them.

I wont ask a personal question about what project it is you've sold (congrats though), but how long did it take to create, and do you think you can do something similar (+ get an exit) in a similar timeframe?

temp011235
personal questions are fine: it took approximately 2-3 months to build, plus another 2ish months of client-driven iteration to drive it that last 20%. It is a talent management system that has a lot of very specific metrics that are being tracked by the client, so while it is highly customized to the purchasers specifications, the underlying framework could be ported for a similar exit. Definitely will think of that path a bit more!
stevefarnworth
Be careful of reusing code if you've exited though.

But taking a concept with which you're familiar and building it out for a new purpose should be a good short-term approach if you're able to pull it off. You've got $60k, which is a good sum which gives you a nice chunk of time making it easier to earn the next $60k, which makes it easier to earn the next $120k.

So you earned a good years salary, in under half a year, with knowledge to apply in new projects.

Is there another business opportunity in your client's industry, or another industry with which to apply similar toolsets you just created? You have the luxury of a bit of time to make a decision.

temp011235
I actually maintain all rights to the core code ... as part of the agreement I'm hosting the application for the client, so they are technically subscribing to the application (first year is, of course, paid for, next year a small amount of money will exchange hands)

I'm inspecting now for other opportunities within the industry. This was fairly customized for a very specific need, so it still remains to be seen ... I also do not want to distract myself from my current startup, but I'll take the opportunity if it arises and I can manage it!

jawngee
Vegas baby!
temp011235
... so throw it into a SPY index fund and let it ride? :) Thanks for the humorous response!
bradly
I'm curious why you setup a temp account to post this? Is it because you are using hard numbers, or is the a NDA on the sale terms, or something else?
temp011235
I didn't want it to come off as bragging
petervandijck
Don't worry about that, it's not bragging.
temp011235
Ok good, I didn't want it to come off as such. I'll likely post something off of my regular account about my experience bidding for and developing the project; I just wanted to split out the monetary questions I had.
bradly
That is understandable, but you should be proud of what you accomplished. I am sure you worked hard to build your app, so don't be afraid to take credit for it.
petervandijck
- 1/3 put away for likely taxes (20K).

- 1/3 save for pension (20K).

- 1/6 for investing in tools/projects (10K).

- 1/6: spend on an experience you enjoy now (10K, so a trip, something crazy luxurious, whatever). And invite someone to experience it with you.

temp011235
Excellent, thank you! I'm researching into if those taxes need to be paid now (quarterly) or if I can wait until regular tax day next year. Either way, putting 1/3 aside and knowing not to touch it is important, b/c it will be going to DC either way.
anigbrowl
Congratulations! Offhand, I'd say leave $50k where it is or stick it in a CD, save $5 in your personal account, spend $3k on something nice for you and/or your loved one, and write a check for the other $2k...then look for an accountant you're willing to make it over to.

The news suggests there may be a 100% tax credit for business equipment purchases shortly, so if you have dreamed of doing something on a larger scale this might be the right time to leverage your gain. Bring a wishlist of a few things you'd like to meetings with an accountant, including some sensible and some wild ideas. Likely s/he will point out options neither of us would ever think of on our own.

temp011235
Finding an accountant is a great suggestion. I was looking into that but am quickly realizing it is time to get a professional in that area that can advise on how to use the capital in the most cost/tax-optimized manner!
achompas
I know you said "may," but there's little chance this tax credit passes before year's end (if at all). Just a heads-up to you and the OP.

If the law DOES pass...well, egg on my face and I totally agree with you. :)

carlrice
My first instinct (after taxes) would be to take a year off and build something worth 10x that. Then do it again.
9ec4c12949a4f3
Save it. Money can be a powerful means to make more money, but clearly you didn't need 60k to make another 60k so there's more to it than just that. Where do YOU want to be next? What's your next product or market? What's your timeline?

If you have a reason to spend that money, and it better be a damn good one, , then spend it. None of this "to be a success I need a really bitchin desktop with 18 monitors and a new Joop Suit."

temp011235
I'm working at a startup right now and plan to use most of the proceeds from the other project to float myself along as needed. My company is in the middle of a capital raise that is going fairly well, albeit not for a lot of capital ... best case, these proceeds will be there for a rainy day, worst case it helps us close the round.

I definitely follow your mindset: I really don't purchase a lot of stuff and when I do I need to have a lot of justification for it.

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code_duck
GO BUY A LAMBO

oh wait, you might not be an immature jerkoff. Um... not much to do other than revel in your current state of financial security, and look for your next opportunity.

vessenes
An accountant could certainly help mitigate the taxes here, and it would be worth talking to a reasonably good one about this. There are a few strategies to explore, less since you've already been paid.

As a quick sidenote, if you file taxes on an accrual basis, and you have some sort of warranty period for the software, you can accrue out the revenue equally over the warranty period, so 12 month warranty on software would equal $5k / month in taxable income, much of which would be next year, that would be nice. These sorts of moves are exactly why you'd talk to an accountant in the first place.

The most tax efficient (well, the simplest tax efficient) way to do this in the future would be to sell stock in a corporation that owned the assets. If the company is over a year old, you can get long term capital gains tax rates (15% federal in the US) on sale of stock. That can add up to nice savings quickly.

I don't know if you could keep a few of the companies around and dormant then assign IP and sell stock quickly if you wanted to, but if so, and you're going to make a habit of doing this, that might be a worthwhile strategy. Or, it might be too much headache for a small savings, you'll have to sort it out for yourself with some good advice from a CPA.

Definitely lock some of it away to invest for the long term. Depending on where you are in your life, that could mean anything from buying a (really) cheap rental unit to dollar cost averaging into the NASDAQ to reading Graham and Dodd and working to become a value investor, to.. well you get the idea.

As a practical business matter, I would suggest you try and sell that company a $1-3k a month service contract, probably hour limited with say a 24 month period, autorenewing unless canceled four months in advance. That would offset their risk nicely and would give you some nice stability, offsetting your own.

Finally, I agree with the 'do something fun' advice; I always liked travel myself.

Congrats!