As website business brokers specialists, we get contacted daily by potential clients with internet busines opportunities they want us to sell for them. Over the years, we have streamlined our process of evaluating online businesses that we feel have the qualities of a great buy side opportunity. With the precarious economy making headlines, we are getting more seller inquiries every week as many of these business owners are weighing the uncertainties of the future with the future of their business prosperity.
From this circumstance, we seem to be getting two types of sellers: panic sellers or cautious sellers. The former are in a state of reaction to the current economic calamity we are facing and the latter are testing the water in terms of timing - do I sell now prior to the lucrative holiday season or wait and see if the government bailout revives the economy and keeps us moving upward.
Panic sellers often approach us with weaker fundamentals such as shorter business history, declining revenues, profits and traffic, etc. Cautious sellers are typically doing their research - their companies are more stable, have longer history, are still doing well despite the news and generally have attractive businesses to buy. The issue for cautious sellers is more a question of timing - do I sell now or should I grow this further and hold on until the economy swings back to the upside so I can cash out for more money.
As internet business brokers concentrating solely on website business opportunities, we have to scrutinize these seller opportunities more carefully than ever with as much up to date data as possible - to the day in fact - to discern how the business is currently coping. When sellers have to make elaborate explanations about the issues, troubles or potential of the business, this usually is a sign that the website business will be difficult to sell in light of other opportunities available and the prevailing marketplace. Basically, a solid business opportunity should sell itself without much finesse! The financial statments will depict the stability and growth, profit margins and cash flow. The model will be self explanatory and the niche and potential will be obvious to any interested prospect.
We likely turn away 75-80% of the seller inquiries because they don't meet the basic criteria of a website business that will pass the scrutiny and confidence indicators that buyers in the market now are seeking. If a business has a longer history - 2-3 years minimum, has consistant revenue and profit growth that is continuing to present, good natural search engine positioning, a strong domain name, a healthy database of customers/members, stable and or growing traffic and page views, a large and viable market size, a product or service that will thrive in any economic condition and especially in a downward one, then this is the kind of internet business that will be attractive to active buyers. Investors are shifting their money from real estate, stock market, etc into proven cash flow businesses where they can essentially realize a 25-35% return on their money.
If your online company meets these criteria, and does not need a long explanation, then it is ripe for acquisition and will be snapped up quickly by saavy internet investors.
David Fairley
President, www.WebsiteProperties.com
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With the news story of the week once again shifting from political pundits discussing "lipstick on a pig" as a reality show diversion to influence silly voters to the cold hard facts that our economy is in worse shape than otherwise expected, voters as well as buyers and sellers of businesses are getting a rude awakening if they were not paying attention.
We try to explain to our selling clients that part of their selling strategy, including finding that magic listing number that is fair for both parties, should be looking at the overall market condition and assessing the risks as well as the rewards of their website business model. Any prudent buyer will be considering all the elements of the market niche, current sales trends and future exposure in a weakening economy. If these are adressed up front, the opportunity will tend to have greater resilience to the swings on wall street and the ensuing 'fear and loathing' it produces to the masses in the subsequent main stream media frenzy about the latest bankruptcy.
In todays marketplace we are seing more sellers listing while the buyers are tending to be much more cautious and choosey. Any internet business is going to be ultimately compared to other internet opportunities in terms of stability, current revenue and profit trends, current and historic traffic, the market niche the business is in, and the revenue model of the business. All businesses will be under greater scrutiny to assess their future market resilience.
As in any economic down turn cycle, there are going to be business opportunities that will thrive, remain stable and some that will be more affected. An ecommerce site selling necessities, or like a couple of our clients, products that are in high demand like alternative energy supplies, are seeing good growth, whereas a luxury goods retailer may be seeing sales trending south as consumers tighten up on their discretionary spending and start saving more.
So, these types of market conditions tend to favor the buyers because they have more choice and will ultimately cherry pick the best businesses that are showing growth, both revenue and profit-wise, despite the economy, have a predictable business model and longer history, loyal customers, strong fundamentals including good natural search engine rankings, unique and diverse product mix that is higher on the needs list for consumers, good domain name, etc.
For sellers with great businesses, these market conditions actually favor your successful exit, as your website business will stack up much better against more mediocre internet businesses that are not as strong and resilient to this economic 'meltdown' as has so eloquently been touted by the mainstream media. To the shrewd investor/buyer this can often be one of the best times to snap up great online businesses at a great value.
The cream will always rise to the top in any market but especially in tough economic times - but that means the best buyers and sellers will consumate great deals from the masses of slock that is being pitched online. At Websiteproperties.com we endeavor to represent only what we consider to be the best internet businesses available at fair market prices that insure both buyers and sellers come out winners in any economy.
President , Websiteproperties.com
A common problem encountered by sellers when listing their website business for sale is that they have multiple online businesses they operate under one ‘roof’ so to speak. The sellers often only keep one set of books for all the businesses and typically one bank account where funds are deposited.
The trouble starts when the owner wants to sell off one of their assets and has to separate the business revenues and expenses that are associated with this one component of their entire internet business ‘empire’! Most sellers end up not including basic expenses in the profit and loss statements that need to be present or that will be expensed by a new owner. The seller needs to prorate all operating expenses related to all his online businesses and spread these across in proportion to the sales volume of the specific site. It is better to err on the low side and be conservative with the expenses assigned to the site, since a new owner will have to deal with the full expense of this overhead for the one business if they buy it..
The other problem typically associated with these scenarios is the tax return - if requested for due diligence or for SBA financing. With a situation where there are multiple website businesses operated under one business name and ultimately one tax return, it becomes tricky to extract the the financial data from this and corroborate it with the individual business P&L .
Some sellers keep clean books that separate the business revenues and expenses, so this is not an issue for them, but for the vast majority of sellers with this set up it can become problematic in determining the accuracy of the books during due diligence.
My advice in the latter case is for a seller to create separate books for every individual business and prorate all expenses based on the % of gross revenues each site brings in relative to the total.
This will provide a more acurate and reasonable valuation of the individual site relative to the whole and avoid complications and doubt that will arise in the due diligence process. It also leads to a quicker cleaner close and a position of strength in the selling price when negotiatiating offers.
The other option of course is to sell the entire ‘armada’ of websites as a package, so all revenues and expenses are included and match up with the tax returns easily.
President, 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 their business. The fears surrounding communicating to the employees that the plan to sell the 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.
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.
What constitutes ultra premium names are :
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’.
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.
The opinions expressed herein are meant to prvide information based on the personal experience of each broker posting to this blog.