When it comes time to sell your online business venture it is very important to prepare your business presentation and get your documentation organized. Even though a business appears to be attractive in its presentation, many deals will stall and fail to close because of a lack of clear historic documentation of the business financials and stats.
Due diligence is the act of scrutinizing the details of an online business for sale as offered to verify and corroborate all claims made in the listing. Many buyers fail to provide adequate data that convinces a potential buyer to sign a formal purchase agreement and close a deal.
Once a buyer submits a written offer – called a Letter of Intent (LOI) – and it is accepted in principle by the seller, there is a due diligence period where the buyer is provided with detailed financial information and business statistics that prove the claims of the offer.
These should include most of the following elements:
Merchant credit card statements
Third Party payments – ie Amazon, clickbank, Google adsense , or other affiliate revenues and subsequent reports
Tax returns – if available
Site traffic stats – off the server or Google analytics including unique visitors, pageviews, referrals country of origin etc, Alexa ranking, etc
Costs of goods sold expense reports – invoices and wholesale pricing proof
Inventory accuracy and physical count
Online advertising expense reports – ie google adwords and Yahoo, MSN etc Pay Per Click (PPC) campaigns.
Legal leans or pending or past law suits clearance
Employee verification – payroll expenses and payroll tax to confirm employees and Expense.
Site optimization issues – linking methods – verifying if there are any paid links, or ‘spammy’ techniques for getting lots of links that may cause issues in the future.
Background check on seller - check WHOIS ownership of URL etc.
Customer database, email/newsletter subscribers list, Vendor list and vendor contracts/agreements are extremely sensitive information and will only be given upon signing of a definitive binding purchase agreement. Of course the agreement stipulates the corroboration of this data for the deal to close, so the buyer should not be concerned about the specifics as the deal will be terminated if this data proves false or misleading.
There are likely to be other items to check off the list depending on the business model, but this should be the bulk of the due diligence items to prepare in advance. If a seller has these in order, it will not only expedite the due diligence period leading to a quicker closing, but it will also provide a level of trust and comfort for the buyer that will compel them to complete the website for sale transaction as agreed upon in the LOI (non binding).
The domain name marketplace is still such a wild west subjective market it is not easy to always discern what makes a domain name valuable – or what is known formally in the industry as “premium”!
Having represented many domain name owners in selling their assets – either as established websites or parked domains – I have gotten pretty savvy at establishing value according to market comps as well as sheer branding power, recognition, and generic type-in potential.
It is also interesting to note people’s perception of what constitutes a premium name to begin with. I have basically created a process of elimination that defines what is not, in my humble opinion, a premium domain name:
hyphenated domain names
most names ending in suffixes other than dotcom, dotnet, dotorg or dotca or dotco.uk etc
What constitutes ultra premium names are :
Primarily Dotcom suffixes
Generic words – one or two max with no hyphens – acting.com
Words describing a specific product or service – ie strollers.com
Words with high brand identity – like Amazon.com
Popular adverbs or verbs and nouns – ie sex.com , parties.com
Other factors to consider when appraising a domain name are of course if there is an established site built for the name, how much traffic it receives, revenues it earns, members or subscribers it has, SEO , etc. These elements, more often than not will influence the selling price of a domain name than the actual name. In actual fact, once a site is earning money the focus is often placed more on the current earnings than on the domain itself when tabulating the value. It is almost a catch 22 when revenues are marginal verses when there is no history at all and just ‘potential’.
Another determining issue of the ultimate perception of value will come from how and where the domain name is marketed and offered for sale.
There are many domain names offered up in auction format via Sedo, Moniker, T.R.A.F.F.I.C. conventions/auctions, Namedrive, etc. These have been pretty successful for many domain name sellers. However, the vast majority of buyers at these are ‘domainers’ who have a speculation model they work from for the most part – like some real estate investors.
An alternate path of selling is to target sophisticated business buyers who have a more developmental approach when acquiring domain names – buy the name to develop out into a major site or portal. These tend to be longer term buyers who want to create a substantially bigger cash flow and exit at a much bigger future multiple – think business.com – purchased domain in 1999 for $7 million and reportedly listed the site for sale at $400 million in late 2007 . The owners developed the site into a massive and highly trafficked very profitable portal. The price they paid does not look so inflated, afterall!
The best case scenario is typically to develop the domain name into a useful website and get it indexed and ranked in the search engines – often the generic name comes up to the top of the search results because of the exact name equated to the search – like divorces.com for example. This will ultimately create far greater value for the domain name from more exposure, traffic and revenue.
Surfers are clicking less on the squatter domain name sites with PPC links these days so the value of undeveloped websites has been deteriorating steadily for the past 12 -18 months. Domain name owners are starting to turn their domain names into real websites because of this – which is good for everyone overall.
Thank you for visiting this section of our site designed to bring you great information that could assist you in your pursuit of finding an internet business opportunity. Our mission is to educate the prospective buyer/seller, while providing great established businesses to choose from. Look for piercing insights from our experienced staff of website business brokers as to the market trends, preparing your website business for sale, what to look for in your next internet business opportunity and much, much more. Make sure to visit regularly to stay current with what these experts in the field of website business brokering are talking about. It could help you in your process.
A big concern that usually crops up for our clients is how to handle their employees in lieu of their decision to sell a website business. The fears surrounding communicating to the employees that the plan to sell the internet business are moving forward are not unfounded. The uncertainty of how employees will react initially and how they will perform during the process can be worrisome to some employers. The last thing they want and need is employees that cause problems for the company, in the midst of negotiations, because they are unhappy with the prospect of losing their job security.
We usually suggest the following advice to our clients depending on the circumstances. Until there is an offer that is tabled and accepted, there is no reason for the news to be broken to the employees. The main advantage of retaining an Internet business broker is that the prospective buyers contact the broker and not the seller, so there are not going to be phone calls from suitors that get mis-directed to the employees. That is the worst case scenario which can create fear and animosity and ensuing poor on the job performance. Depending on the relationships and the type of employee(s) they have - this will define how open an employer can be from the getgo. But for the most part, it is wiser to create a business as usual enviroment until a deal looks like it will be signed or is signed and will close on a specific date. That usually gives the seller at least a couple weeks, but normally closer to a month, to break the news of the termination of the job.
The other important factor is job severence. We usually advise or clients, at their personal discretion, to offer a severence package that rewards their employees according to the length of employement, loyalty and overall importance to the success of the business. Depending on the size of the sale, I believe a 6 week to 3 month salary bonus is appropriate compensation for valuable employees. In addition, offering good references and suggestions or leads to other opportunities will be appreciated.
While most employees will generally be happy overtly for their employers - providing they have been treated well during their tenure - there will be some anxiety that undoubtly arises from the unknown of their next step. Most of this can be alleviated by the compensation package and strong references. In some cases, this may be the impetus for an employee to go out on their own and start their own website business and emulate what their employer accomplished.
When I sold my first company, Hammocks.com , I was open about my intention of selling the business prior to taking this step. In addition, I used the carrot of severence bonuses - 2% of the sale in this case- to keep them in-line with the goal. Finally, I offered a great idea for another business niche and support to launch it - www.piggybankworld.com - that allowed my two employees an exciting and evolved future as well. My mentality was that they had helped me achieve my success and goal of selling, so I wanted to reward them too for their hard work and loyalty.
In conclusion, being honest and respectful is a good policy with employees (and in life!) Once the deal looks like it will close or is securely set to close, then take the employees to dinner and break the news(if you haven't already) to them over a great meal and some wine. Their fears will be allayed and their sense of worth will be obvious when you describe their severence package.
There is a lot of websites popping up recently promoting the fabulous virtues of flipping websites for a living and making BIG money. Many offer extensive courses and consulting on the do's and don'ts of this business model. There are certainly plenty of self proclaimed experts and gurus who are now exploiting this niche by selling off their e-products and personal coaching on how to capitalize on unwitting, naive, or unmotivated sellers. The premise is to find websites that have certain fundamentals like age, search engine positioning, and original content that have been under optimized and under monetized and convince the owner to sell at a lower multiple - say 10 - 15 months net profits. Once accomplished, the new owner, flipper, redeploys the site with better on page optimization(keyword enrichment in tags and copy as well as good internal linking/navigation) which can be accomplished pretty quickly and getting more back links using keyword anchor text in the links to make them more effective. Concurrently, new monetization elements such as pay per click(PPC) code like adsense, banner ad networks, paid links, affiliate program links, etc are placed on the site or reformatted to more strategic positions on the pages for better conversion. The end game is to improve monthly profitability and traffic so the site can be sold for more money - and typically at a higher multiple!
The strategy can work very well for entrepreneurs who take the right approach and do their homework. I have personally bought and sold over a dozen websites in the past, selling them for 10 -20 times what I purchased them for because I had developed the websites into thriving profitable businesses with solid fundamentals and cash flow. That is the point - to create better website opportunities for a future owner that is more solid fundamentally and more viable long term with lots of upside in profits. Buying an existing business that has a good foundation saves a lot of time over creating a site from scratch - so it can speed up the process of becoming very profitable and has more history of stability and growth which buyers will appreciate and value.
Most of the website flipper gurus seem to focus on the lower end market for websites for sale making a few hundred or few thousand dollars. Personally, for a more seasoned investor/ buyer, I think it is a much more interesting and potentially lucrative focusing on existing website businesses that are already producing healthy monthly profits and are worth more than $50K. The reasoning is that the right kind of business that is throwing off this level of revenue can literally explode to 4-5 times that amount with some basic strategies implemented once purchased. You generally get what you pay for and so buying an internet business with better current revenues can be much more of a lucrative venture with less risk than buying less robust cheaper sites and trying to manage many small sites to flip for modest profits
The biggest areas of improvement to a website are optimization of the meta tags, and page copy to improve SEO rapidly. Many times a site can leap in position overnight just by improving the Title and description tags to target better or more keywords and phrases. Improving and honing the body content so every page of the site is unique will go a long way to improving SEO. Internal linking with keywords - using the main keyword phrases in the sites navigation - will make a big difference as well - providing more link relevancy as long as every page of the site has unique content. After the websites "on page" optimization has been implemented, the back links the site has pointing to it from other sites will radically bump the site's natural positioning over time - sooner than later with established older sites. The key here to is to get links from sites/pages that have good PR, are relevant in nature to your site and use keyword anchors in the link. Some experts argue that it makes no difference if the site is not relevant - this can be argued currently - however it is in Google's and other search engine engineers best interest to continue to refine their algorithms to achieve better results for users - results that are relevant and not manipultaed by massive inbound linking strategies. I think it is better to to concentrate on quality more than quantity personally and expect this to pay off in the future.
Getting more traffic inevitably equates to more revenues for a site, however it does not guarantee it. Herein lies the next opportunity for a website flipper. Once the sites optimization is underway, the other areas to consider renovating are the sites layout and graphics.. Many of the best opportunities can be improved simply by giving a site an updated web 2.0 makeover. Visitors to your site will leave in a nanosecond if the site doesn't appeal to them quickly - ugly colors and graphics, busy wordy layout , poor quality digital images, etc. By giving the website a facelift - which doesn't necessitate spending a great deal of money - can improve the stickiness and appeal of the site and lead to much higher page impressions and conversion of the monetizing elements embedded throughout the website.
If the site is a content based model offering information, the areas to grow revenues will likely be with PPC links, testing different layouts and positions on the page, affiliate programs related to the subject matter - check out www.clickbank.com for thousands of e products to offer , paid one way links , banner ads , and even webpage advertorials.
For e-commerce websites, spiking sales revenue and profits can be ramped up by adding new products and product categories that get further optimized, implementing a targetet extensive PPC campaign with good copy and hundreds of tertiary keyword phrases for the individual products and categories, integrating an affiliate program and recruiting strong affiliates, promoting to existing customers who have purchased in the past - offering loyalty programs and incentives to return and buy more, and adding a toll free number for ease of contact (make it easier for customers to order and be comfortable they are dealing with a legitimate retailer).
Some websites and business models will be easier than others to optimize and monetize so be sure to measure all the attributes of the website itself, the niche, the model - ie e-commerce, social networking, forum, blog, PPC, etc - and see how much work will be involved post closing. This will determine the viability of the purchase - buying an e-commerce site may not be appealing to some buyers unless it is a drop ship model because of the need to inventory product, process and ship orders and answer the phones - all of which may necessitate hiring employees. This may be ideal for a website owner that is expanding and has some infrastructure in place to manage the new acquisition until it is ready to sell again.
It is important to be clear as well on the timeframe of the investment. The longer you are willing to hold and build the sites revenues, the better the new history and the larger the multiple you can expect on the net profits. If you want to maximize your profit on the flip, it will be better to hold for at least 6 months before listing again to establish the trend. Remember, buying cheap sites is not guaranteeing a larger profit on the other side - look for solid sites as mentioned above that you can sink your teeth into for a longer period of time and you will enjoy much higher returns and profits when you sell your website business.