Posts tagged "website for sale"

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
• Bank 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
• Keyword search engine rankings
• Trademark/Copyright records
• Unique website content proof – www.copyscape.com – checks for duplicate content Issues.
• 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).

David Fairley

President,

www.websiteproperties.com  

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.

David Fairley

President,

Websiteproperties.com

With the summer rapidly coming to a close, people will start getting back into their business groove again as we head into fall and towards the 4th quarter bonanza.

For buyers, acquiring a new website business for sale at this time of year, particularly e-commerce internet businesses, can be highly advantageous. Christmas sales and the 4th quarter can amount to 40% of the years total gross revenues. Therefore the ROI(return on investment) for the business really explodes because the cash flow is really ramped up during the holidays. This can really be a big boost for new owners and allow for earlier debt retirement, greater cashflow to expand into new product categories or marketing avenues, etc.

On the reverse side, sellers listing their business opportunities at this time of year will typically get more interest because of the same compelling reasons. Transfering a website business prior to the 4th quarter means there is enough time to train and support the buyer so they can manage the surge at Christmas. In addition, it removes the stress of the seller having to redeploy their resources - money, time and energy - for the heavy and sometimes stressful holiday season. This period will be exciting for a new owner because of the sales volume and cash flow, but often can be dreaded by a seller who is burnt out or wanting to relax for a change during this period!

Another timing issue on the seller's side deals with sales and traffic trends. The best time to sell an internet business is when it is stable and growing at a reasonable rate year over year. This makes for an attractive opportunity for buyers because it will mean a quicker ROI as well. In addition, it shows strength in the long term for the business opportunity. For some sellers with sites having explosive growth it can mean asking a much higher multiple on the net cash flow/profits of the business to incorporate the upside increases. In some cases it may make sense to hold on tight during this surge until the trend is less dramatic - say going from 100% growth to 30% year over year as an example.

For a buyer, a website business with respectable or exciting growth of revenues, profit and traffic is going to be much more compelling than a business with flat or slow growth of course. Again, it comes down to expected ROI on their investment. In addition, most buyers want to buy a business they can grow and sell later for much more money while reaping the rewards of the growth.

The concern is to not hold too long and risk having the trend reverse - so that revenues and profits start going down from the previous period year over year. This creates doubt and fear in buyers and they will be less inclined to make an offer or one that is at a lower multiple to factor in the perceived risk.

Finally, mental and emotional timing is critical for a seller. As soon as the passion of running your business starts to wane, you either change your perspective and get re-fired up or you need to make a move to list sooner than later because most of the time the business begins to suffer and atrophy as a direct result of your lack of interest.

 Timing will make all the difference in accomplishing your goals and realizing your best deal - both for website buyers and sellers.

 David Fairley

President,

Websiteproperties.com

The last 6 weeks have been quite a shock to most Americans and people around the world. The economic upheavals have been monumental and without precedent. In our business as website business brokers, we have seen multiple deals fall apart or not move forward as a result of the uncertainty and fear in the marketplace. Of course, in any economic swing there will be people and businesses that reap massive profits and actually thrive. However, the vast majority of people and businesses feel the effects both financially and emotionally as a result of the meltdown on Wall St and now Main Street.

In this climate, there are definitely more sellers than active buyers in the internet business sales and acquisition field. The point is - is that there are buyers! These buyers are being extremely selective and cautious and are literally cherry picking the most attractive website business opportunities available providing the price is right. Sellers with online business opportunities that are stable or still growing despite the economic malaise because of the niche they are in, stand the best probability of consummating a deal in this period. The other sellers that will succeed in closing deals will be those that are more aggressive with their selling prices.

Just like in real estate, the seller that drops his price lower than the rest of the market gets more attention and sells quicker. If you hold out too long for a premium price or average price in volatile markets, you can find that you wind up selling for much less in the long term if things get even rougher.

A year ago, the average multiple on an average website business with solid fundamentals was 3-3.5 times the net trailing 12 month profit. In this global financial crisis, average sites are tending to be moving if they are priced between 2.0 -  2.5 times the trailing 12 months all cash at close. The selling price may be higher if more owner financing is involved, which, with the current credit crunch, has become more prevalent. The risks of a further down turn are tangible, so buyers are factoring this in when making offers. As I mentioned earlier, there will be lots of good deals to pick up for buyers with good capital reserves but buyers needing financing are just not able to secure the funds to get a deal done currently. The best opportunities will still get a better multiple on their business because they are able to thrive in this environment, but the pressure from the market means that it is a buyers marketplace and sellers will need to adjust their price expectations if they want to get acquired. The other choice is simply to ride this out and hope there is a quick turnaround later in 2009.

 David Fairley

President,

www.websiteproperties.com

I recently received the survey results from a major online multiple listing service for businesses for sale. The survey conducted included over 1700 business brokers in the US.

The report clearly established some trends I have been reiterating in my blog lately. In particular, the trend towards more owner financing in the deal structure. Because of the economic downturn and credit crisis, traditional bank and SBA financing has been much more difficult to acquire for buyers. Especially when there are no "real" assets involved like real estate or capital equipment. Banks still seem to have a bigger aversion towards 'virtual' real estate or internet businesses even though the financial statements are solid and show stability!

Consequently, buyers who are willing to make fair market offers that a seller is likely to accept are requesting owner financing of 20% - 50% depending on the deal. In the case where cash flows are strong and growing the percentage is less and higher when the sales trend is flat or in decline. This allows a reasonable and fair market price to be accepted, as well as keeps some 'skin in the game' as it were, for the seller - an often important element for buyers who consider this an act of confidence in the business's future.

The seller benefit is getting closer to their asking price and actually earning interest on their money in an investment they are familiar with and have more control over. A big issue for sellers is where they will invest their funds upon selling their business? With the uncertainty and volatility in the stock and bond markets and real estate and the ultra low interest rates for bank savings, there are not too many good options to invest larger sums of money at the close. So, doing some owner financing at a fair rate - say 8%-10% - can be an excellent long term strategy for a seller to contemplate.

Another aspect the survey unveiled was the time frame it is taking, on average, to sell a website business has increased by 3 months to an average of 12 months. This is the time from attracting a buyer to completing the close. Now, the vast majority of these deals are traditional brick and mortar which tend to take longer to close, however, we have experienced a similar trend from our previous average of 4-6 months , now stretching to 7-9 months. Of course a lot of this has to do with the attractiveness of the business opportunity as well as the price and flexibility of the seller.

We recently sold an ecommerce website that was listed and closed within 2 1/2 weeks - the niche, the price and the terms were all attractive and an ideal buyer was there to acquire it! The seller was also very organized, had clean books and detailed information available, and was very flexible and reasonable with regards to the fair market price.

So, despite the economic doldrums we find ourselves in, there are still internet businesses being bought and sold regularly. The keys are to maintain flexibility in the deal structure, be organized and prepared for intense scrutiny, and find a balanced selling price that is fair and acceptable for both parties.

 David Fairley

President,

www.websiteproperties.com