The Blog For Entrepreneurs

There are several sites where you can review the process and get used to how it works. One of the sites that I have bought and sold on is Flippa.com (it used to be all encompassed in Sitepoint.com).

The site has businesses listed on the front page and you don’t have to be registered to view them. Each seller gives information about the business such as revenue details, where it is coming from, costs to run the site etc. This will give you a pretty good idea of what to look for as you look over a few of these.

Selecting a Business

One of the mistakes I have seen with others who have bought businesses on the web is that they have looked solely at the amount of money a site is making and bought on that basis. The problem with some of the businesses for sale out there, both online and offline, is that they have grown from the dynamism of the owner, perhaps from his interests. Nobody who is selling a business will say “Yeah it is all down to me, without me it’s screwed”. So make sure you find out of this is the case. I would suggest buying businesses, at least initially, in a niche area that interests you, that way if there is significant amount or work required that you were not expecting, then at least you know something about the subject/niche.

This brings me neatly on to:

Due Diligence

This is key. This is one of things I do offline, sniffing around companies that my clients are looking to purchase. It is amazing what you can find out if you just dig deep enough. Don’t put up with snotty sellers who get all upset with you asking questions… it is your money… and I would suggest if someone gets too defensive, walk away. This piece of advice could save you a fortune.

Paying For the Business

Do not, under any circumstances, send cash. Just don’t do it, whatever the deal is, whatever the site is, do not send cash. Anyone asking for cash or giving excuses about not wanting Paypal, Escrow or bank transfer is almost certainly scamming you, so don’t so it… please.

The accepted ways (and my preferred method) is escrow. Through sites like Escrow.com you can deposit money into their account which is only then released to the seller if you are completely satisfied with what you have been delivered. There are charges but it is far better to pay a few dollars for piece of mind, rather than find someone has wandered off with your hard earned cash and not delivered, but do make sure you use one of the big escrow companies, there are some dodgy ones out there.

Get creative when buying too. I bought one site with some shares a client had, so it is not always cash that is required… think laterally.

Deals Outside Buying

Many sites go unsold on Flippa. They would hate me to say it but even on their front page they state that 35% of sites have been sold. Stating the obvious, sorry, this means that 65% of sites are unsold. Why not try and speak with the owner and see if you can do a deal adding your skills, marketing, SEO, or even a joint venture with some other sites you may have in the same niche?

In fact I will enter into the spirit of things with anyone who cares to join me in a JV. I have a site at www.hf-markets.com. I haven’t done anything on it since May. I set the site up to be an introducer with an online trading company called Moneycorp markets and promptly went about marketing the site. You are able to download the trading system and, if someone does and trades, I get a commission. I have made a about $2000 from the site but here is the problem; Most of the traffic and downloads (461 to date) are from US people. The only problem with this is that Moneycorp don’t trade US clients.

I got in touch with a few online trading companies in the US but none would conclude a deal because I am based outside the US. Now if someone wanted to join me, who is based in the US and is willing to split coms, there is a site we could do a deal on…. see where I am coming from on JV’s?

Start Small

The great news about buying online businesses as opposed to offline businesses is that you can start small and gain experience. There are many sites that have small amounts of revenue from adsense and, with a marketing push and some tidying up, could be small revenue earners. It is the experience you are looking for in that exercise.

What Should You Pay For A Web Site?

The general rule of thumb seems to be 10 times net monthly earnings, unless you are talking about a big business, then it is time to call in the lawyers. Sites earning between $100 – $5000 per month tend to go for that price. So for a site earning net revenue of $5000 per month you would be looking at $50,000 as a reasonable price.

Remember,however, there are numerous factors that affect the purchase price and these should be uncovered in your due diligence phase. Some of the things I have seen:

1. A link from a popular site owned by the seller was where all the traffic was coming from, he was not going to keep this link after the sale….. pass

2. The back-end of the platform was designed and built by a seller and he was not giving up the code and would not sign an agreement to not duplicate the site… pass.

3. One site had most of its revenue in the early days and was dwindling as others got into that niche. Although the average earnings looked great, the projected earnings (on the trend of the past twelve months) were poor for the asking price.

These are just some of the things you need to look out for when assessing a business online (and offline for that matter!).

The bottom line with buying web sites is that you need to protect yourself all the way along the line. Make sure you have escrow facilities and that you have due diligence completed fully. When it comes down to paperwork to be completed I would always suggest you have an agreement setting out the terms of the deal. Something like a buy/sell agreement should suffice. Some think this is over the top for small sites and I haven’t bothered with some purchases but anything over a few hundred dollars is worth having some sort of agreement.

It goes without saying that if you are spending significant money you should have a lawyer involved at some stage along the line just to protect your behind if things go wrong. Suing someone without an agreement is tough and expensive.

I wish you all the success in the world in your online buying endeavours and would love to hear your success stories (or even your cautionary tales) in the comments below.

Regards
David
@OneLifeNoFear