Selling £six figure website

[nomis5]

I'm in the final stages of agreeing to sell one of my websites for a six figure £ amount. I need any advice you can give me about the sales procedure. I don't need advice as to if I should sell it - the price is right and I want to sell.

I'm in the UK, the buyer is an Israeli and his company already owns several popular sites.

We are going to use a well-established escrow company to transfer money and ownership. But aside from that I have no idea what pitfalls await me in the final stages. Could anyone use a purchase like this to damage me? I have two other popular websites and several smaller ones.

I haven't seen any contract yet, I am meeting the guy on Thursday in London. He most certainly has experience of buying / selling websites in the past. I have no experience.

Any ideas or warnings will be most gratefully received.

Worried from Warwick.

[maximillianos]

I was recently offered 12 months revenue plus $10,000 for a site, which would have taken it very close to 6-figures and it was a no-brainer - I much prefer to keep it and the revenue for the next year and beyond.

That has always been my problem. I've had two serious buyers inquire about my biggest site. Both came to the conclusion that my site was a great earner, and a great business for my family, but not something they could buy from me since it was worth more for me to keep it than they could offer. And I kind of agree. Even if they offered me 36-48 months revenue, I'd still be on the fence since my site has been growing year after year for 10 years now.

If I sell for 3 years revenue, where does that leave me in 3 years? Perhaps a dwindling back account and no website...

Unless there is a huge potential (and huge mark-up on the offer), many big sites are unsellable when they are the bread and butter of a family... Unless of course you are ready to retire! But then again, why not just let your site(s) be your retirement income... =)

[Edwin]

These days, when the return on "cash in the bank" is often 1% or less, selling a site for 3-4x annual revenues is effectively handing the buyer a 25%-33% ROI.

Obviously, the web is a highly volatile environment, but for large well-established sites with years of earnings history and a strong pattern of traffic from well-diversified sources, I would have thought the multiples should be a lot higher to justify selling since even if you take taxes out of the equation, a site earning for example $25,000 a year would sell for $100,000 at the top end of the above range, but that $100,000 in the bank is going to bring in less than $1,000 a year!

Of course, if you use the funds to pay off debt, your own ROI could be a lot higher. For example, paying off a 7% mortgage brings you an effective 7% return on the money and greater security (but you're still far short of the 25% keeping the site would have brought)

[maximillianos]

Good analogy Edwin... Even with reasonable returns of 5%, it is hard to justify selling a solid earning site. The site itself is an incredible investment that keeps doubling your money each year with no principle (for some sites this is the case).

My "problem" is I quit my day job years ago, so I'm semi-retired to the point where I simply maintain my site(s) and don't have a real job, so I burn through most of my site's earnings to cover living expenses for my family. This makes it a higher risk investment to me since I have more to lose if things go south. But if I had a day job, it would simply be money in the bank each year, doubling and tripling.

Hmmm.. Kind of makes me want to go out and get a day job again! NOT! ;-)

[Edwin]

My "problem" is I quit my day job years ago, so I'm semi-retired to the point where I simply maintain my site(s) and don't have a real job, so I burn through most of my site's earnings to cover living expenses for my family. This makes it a higher risk investment to me since I have more to lose if things go south. But if I had a day job, it would simply be money in the bank each year, doubling and tripling.

One solution might be to expand your site network so that you've got plenty of money in the bank at the end of the year, even after living expenses. If they're the kind of sites that "run themselves" (the best kind!) then once built and promoted, they're like an ATM stuck on "dispense money" :)

[oddsod]

The market decides the rate.

It doesn't matter what the owner thinks is fair. If he wants to sell he has to accept what the market is willing to pay whether that's 24x (months), 36x or 2x.

Anyone thinking that market prices are too low should be out there taking out mortgages at 7% and buying sites to get 30% returns. There are a lot of sites selling every single day. And I'm not talking just the junk at Flippa.

I run a forum discussing issues surrounding the buying and selling of sites. Everyday I hear at least one moan about prices being too low. There is no such thing as too low or too high. There's only what the market sets.

[Jane_Doe]

Even if they offered me 36-48 months revenue, I'd still be on the fence since my site has been growing year after year for 10 years now.

I've never sold a site for the same reason. I just buy more when I can find good deals.

[maximillianos]

One solution might be to expand your site network so that you've got plenty of money in the bank at the end of the year, even after living expenses. If they're the kind of sites that "run themselves" (the best kind!) then once built and promoted, they're like an ATM stuck on "dispense money" :)

Definitely working on it! But it is getting harder and harder to produce good earners in this saturated landscape.

I've got a few sites that are climbing up the ladder, but they have a long way to go to even things out. =)

[anand84]

The topic's really making me awe..I hope there comes a day when I get the "privilege" to do something similar..

[Jane_Doe]

There is no such thing as too low or too high. There's only what the market sets.

There's is no such thing as too low or too high if you are auctioning off your sites. But in deciding whether to keep or sell a site there is definitely too low of a price.

Why sell a popular site with growing traffic that has been paying your mortgage and then some for 10 years for one year's earnings or even three years earnings?

In hindsight, I was right to pass up all of the offers I received for my different sites over the years. There has never been an instance where I would have made more money had I sold the site.

[nomis5]

Not sure, dithering back again. Please pick lots of holes in this sequence of events! I've taken on board your comments and think I can protect myself as described below. First, I've decided that the code of the website is not that valuable on its own. What is valuable is the code plus the domain name, or even the domain name on its own.

Here's what my partner has come up with.

I give the buyer a copy of the code two days before he receives the domain name. He examines the code for two days and lets me know if it's OK. If he says no then sure, he has the code but that will always be the case whatever option is used.

Then I transfer the domain to him and give him ftp access.

Then he does the following in 24 hours:

1. Verify the domain name has been transferred
2. Verify that the code on the server is the same as I supplied two days earlier
3. He tells the lawyers to transfer the funds

If anything outside that happens I cancel the deal and secure the domain name and the ftp access back to me?

[maximillianos]

Just be wary that once the domain name transfer is initiated, you cannot stop it, reverse it or cancel it.

I got hosed by this last year when selling a domain name. I received payment (via Paypal), the funds were in my account and the transaction was marked "complete"... I then initiated the transfer of the domain. The next day I get an email from Paypal, they have decided I'm the recipient of a random audit. I tried to cancel the domain transfer. I was told sorry too late from GoDaddy. After a week, Paypal takes the funds back out of my account and return the money to the buyer. No reason or explanation other than they thought the transaction was suspicious due to the fact that the BUYER had not used their paypal account in a few years. Yeah, you can guess how livid I was. Then, to top it off, I called Paypal to complain and figure out what was going on after talking to the buyer (who was confused and wanted to resend me the money... fortunately). I told them to call the buyer to confirm, they said they don't make phone calls... they are an internet company and only deal with email. (the buyer was not receiving the emails from Paypal - her ISP was filtering them as spam).

Long story short, I had to get the buyer to send me a snail mail check, since Paypal said they could not guarantee the payment would get approved to me if she sent it a second time. (what?)

I "was" a long standing Paypal customer.

Be wary of 3rd parties involved in the transaction. Some things are out of your control the minute you click "ok".

[buckworks]

I would not have sold the site I referenced earlier in the thread for only three years earnings. I held out for significantly more than that ... and got it.

As several have pointed out, a productive, well-established website has value just to keep it, and that puts one in a strong position to negotiate.

There are risks and rewards to balance on both the buyer's and the seller's side.

Here's one that hasn't been mentioned yet: if you just kept the site, but something happened to you, what would happen to the site? Would your heirs know how to keep the site going and sustain the income? If the answer is no, or with great difficulty, that might make a purchase offer seem more attractive. If you have no heirs you might not care about that.

[oddsod]

If he says no then sure, he has the code but that will always be the case whatever option is used.

Not so. With a properly constructed contract, he gets the code only after he's made a non-refundable full payment to your lawyer.

He tells the lawyers to transfer the funds

If you are using a legal firm for escrow ...why the split transaction and release the code early?

And, as maximillianos says, once it's gone, it's gone.

[buckworks]

3. He tells the lawyers to transfer the funds

You need a step in there where the buyer first transfers the purchase price to your lawyer to be held in trust.

DO NOT transfer the domain name unless the agreed amount is in your lawyer's possession, in a form that cannot be reversed by the buyer.

The funds will only be paid to you when the buyer has possession of the domain, but they need to be in your lawyer's hands before you transfer the domain.

[webfox007]

I have acquired quite a few internet businesses, one being 7 figures and there are all sorts of rabbit holes one can fall into. I will say, DON'T use an escrow service. On one of my smaller 6 figure deals, i used the largest escrow company in the US and even though my escrow instructions were very detailed in terms of when the cash was to be paid out, my escrow officer, had her quarterly bonus coming up and "prematurely" closed escrow (paid the seller) and 10 days later i find out about it.....after i called her and said the seller is in breach and i want my money returned. Well, their attorneys got involved and told me in so many words, "sue us" but, expect to pay a lot since they had an army of attorneys. At the end of the day she got fired but, i got screwed out of a lot of money and got a piece of crap business. So, use the attorneys trust account as the escrow service and a good attorney will administer tight closing instructions. Good Luck! I have a lot more stories on this process but, it would require novels.

[Lance912]

With any website buy/sell, the outcome is tied to the other party. If the other party is honest, it'll go smooth. If the other party is dishonest, it's not going to go well. You can do some stuff to protect yourself, but at the end of the day, it's going to be a headache.

[Whitey]

I didn't mean to encourage you to call the deal off.

Maybe, you need to think why your buyer considers your sites good. If you can improve the value of your sites by what you anticipate they can do , maybe you can raise the sell price.

But also ask yourself [ as others have said here ] what the value of the income is versus selling currently. 5 - 10 times average income over , say a 3 year annual average , would seem a good figure. So the key question I'm asking is , are you underselling your site value ?

[eltercerhombre]

I may say I haven't read every post here, sorry.

But if you're selling in GBP then you're probably in the UK. I may be wrong, but I believe EU laws doesn't allow to pass you personal data to the USA without informing and getting consent from every individual user. At least that's the way in Spain.

So, if you also sell the user database, check with a lawyer.

[Edwin]

Also, the higher the multiple, the more that any increase in revenue will boost the final value of the deal.

Should be obvious, but it's still educational to look at some sample figures.

A $25,000 a year site sold at 4x revenue would net $100,000
The same site sold at 6x revenue... $150,000
The same site sold at 8x revenue... $200,000

But then you work hard and double the annual revenue from the site. That extra $25,000 a year could be worth $100,000 or $200,000 in your pocket at sales time depending on where the multiple lies!

[oddsod]

If you can improve the value of your sites by what you anticipate they can do , maybe you can raise the sell price.

Unfortunately, that's one of the biggest nuisances around. Buyers simply hate people pumping up the value of their offering based on "potential". Anyone can claim any potential ... and most usually do. Buyers dismiss almost all of it. The value of your site doesn't increase by you changing your anticipation of what it'll make. It increases in value if there's some verfiable change in market conditions or business prospects that the buyer recognises as having the ability to increase profit (and only to the extent the buyer sees profit increasing).

the higher the multiple, the more that any increase in revenue will boost the final value of the deal.

Absolutely. One caveat. Historical revenue serves no purpose except where it provides a guide to the future. And it's not revenue (turnover) buyers are mainly concerned about. Future profit is what they are after and their estimation of future profit is what they base their valuation on.

[SEOtop10]

Excellent points. Thanks for the generous tips.

However it would be great if some points from the buyer's perspective are also covered. Like - is it a good idea to buy sites at 4x or more of annual revenues? What checks would you apply to make sure that the revenue is sustainable/growable?

Arun

[oddsod]

is it a good idea to buy sites at 4x or more of annual revenues?

Yes. And no. It depends on the site. Buyers don't always do this calculation but ultimately the price they are willing to pay is based on the current value they attribute to future income (discounted for when in the future they're going to get it). There are accounting terms such as discounted cash flow and NPV for anyone interested and they'll go into further detail on how interest rates influence the calculation etc.

However, one big factor dampens the valuation of internet businesses: risk. Whatever the rate of return required and the expected future cash flows, in the end all of that has to be adjusted by the risk involved. We're not talking AAA government bonds here. Sellers don't like to accept this but because things change so much faster online the risk for internet businesses is generally much higher than it is for mom and pop cafes that have been going for the last 30 years.

I've seen websites perceived as low risk going for 48x and 60x.

(Convention with multiples: it's monthly not annual profits - another reflection of the higher risk they represent vis-a-vis B&Ms which are usually valued as a multiple of their annual earnings)

[edited by: oddsod at 1:00 pm (utc) on Mar 12, 2010]

[nomis5]

OK,I got that wrong a bit. Here's the updated list.

I give the buyer a copy of the code two days before he receives the domain name. He examines the code for two days and lets me know if it's OK. If he says no then sure, he has the code but that will always be the case whatever option is used.

He then transfers the full price to my lawyers account.

The lawyers clear the amount into their account.

Then I transfer the domain to him and give him ftp access.

Then he does the following in 24 hours:

1. Verify the domain name has been transferred
2. Verify that the code on the server is the same as I supplied two days earlier
3. He / I tells the lawyers to transfer the funds to me.

If anything outside that happens I cancel the deal and secure the domain name and the ftp access back to me?

Not so. With a properly constructed contract, he gets the code only after he's made a non-refundable full payment to your lawyer.

I thought it was "normal" for the site buyer to have sight of the code for a day or two. If he was happy then the deal goes ahead, if not he can cancel?

It is that belief that is the reason for me releasing the code to him earlier. On the basis that he is going to get the code before paying anyway, why not release the code to him early? he then checks it and agrees and the sale process goes ahead. It has the benefit that all he has to do during the next 24 hours is compare the code I originally gave him with the code on the server. If the two match, he can't wriggle out of the deal. That would be one of the conditions.

I am more worried about having the domain name stolen. The less time he has both the domain and the code the better.

TinkyWinky wrote

Personally as someone who has used escrow/com previously, set the time to view to 1 day - otherwise they can reverse the deal once having changed DNS and trialled your traffic....and taken your code.

We got stung by that one on a 3 day view - luckily all turned out ok in the end.

Irrespective of who I use, I want to keep the time to the minimum that he has control of the domain. I'm now not really concerned about the code.

But if you're selling in GBP then you're probably in the UK. I may be wrong, but I believe EU laws doesn't allow to pass you personal data to the USA without informing and getting consent from every individual user. At least that's the way in Spain.

Wow, that's a complex one. The situation is that I'm too scared to have a database on my site so I use Bravenet. They do all the double opt-in stuff etc and they look after the data for me. Yes I'm in the UK but Bravenet are US based so I might even be breaking the law now. Any more comments on that aspect? Could send out a newsletter letting the subscriber know what is happening and ask them to opt out if they are not happy?

Currently I have changed my mind for the third time and am going ahead with deal. The £7k difference has been closed, I dropped £1k he did the rest. It's taken nearly two weeks to get to an agreed price but I feel it does indicate that this is genuine bargaining not someone offering to pay a shed load of money just to get my domain and code for free.

The discussions about the price are correct for this thread but I decided a long time ago what price I wanted and if all goes OK I will take it. It's a very personal thing and everyone has their own ambitions and circumstances. If the deal falls through I will never sell again, I'm too old to stand the wavering and bargaining and all the stuff that goes with this sort of deal.

I'm meeting the buyer next week in his relative's home in London. I'm so wound up I've asked my partner to come with me and I never, ever do that normally in business!

[webfox007]

Nomis5, it seems to me that you are not desperate to sell the business so, if i was you i would keep it. But, if you do plan on selling it then the buyer is at risk that you are being truthful that your code is well written, works, fully debugged and fully documented. Forget the idea that the buyer can look at your code before closing (date funds transfer). It's the buyers risk that when he takes possession of the code at closing his recourse is to come after you via the contracts breach of reps and warranties.

You are not required to take the risks, put that burden on the buyer.

If you, the seller, are to take the risks such as a 2 day free look and see then i would suggest putting 40% of the purchase price as non returnable to the buyer if he decides after his look and see he wants to back out of the deal. So, you are compensated for the buyer putting your transaction and your code at risk. If he doesn't like the terms then maybe you just flushed out a rat. The process of buying and selling is all about "the process" during the process both sides can try to size up the other side to see if they are good people or bad people. The longer the process the better.

You never did mention if this was an "asset" or "stock" purchase. I can only assume an asset purchase. There are different issues depending on the type of transaction.

[Jon_King]

>>I had one guy who wanted to see my "operational manual" for how one of my web sites works. It turned out that he wasn't actually interested in completing the transaction, just getting inside my code and procedures in order to copy what I do.


A misleading buyer overture. Many do not realize this potent tactic used by many execs for probing the competition.

The open-the-books or show-me-the-code can end up damaging you with almost no recourse as the misuse of garnered information is difficult if not impossible to prove. Be careful who sees your proprietary information.

[oddsod]

Then I transfer the domain to him and give him ftp access.

Then he does the following in 24 hours:

Be aware that you can't guarantee the domain transfer will happen instantaneously. Across different registrars it has on occasion taken weeks! Simpler and quicker if you're both at a registrar that allows a free "push".

[artefaqs]

I think we're all overthinking this. It's possible to complete this transaction the old-fashioned way.

- The transaction is a large amount. Certainly worth the cost of a plane ticket for either party.
- The buyer has already stated that he's willing to fly to London to complete the transaction.

Why not just meet him at the airport and do the business there -- in cash?

- Buyer arrives at the airport with the agreed-upon price in cash in a briefcase.
- Seller arrives at the airport with a laptop with the web site on it. And maybe a lawyer or a personal banker.
- Buyer and seller sit down in a public area (or a private suite, depending on how comfortable you are with each other) to conduct business.
- Buyer examines the web site source on the seller's computer (tether the computer to the table with one of those Kingston locks) while the seller and his lawyer inspect the briefcase to make sure the money is not counterfeit (briefcase can be similarly tethered to the buyer or the table).
- If the buyer is satisfied with what he sees on the screen, he is allowed to burn a copy of the data onto a disc right there (or alternately, let him keep the laptop), and the seller keeps the briefcase full of cash.

It sounds all cloak-and-dagger these days, but this is how my father did business all the time. There are a lot of industries (restaurants, jewelry, auto sales) where it is the norm to deal in large cash payments like this, and face-to-face meetings in public places are often the best way to make payments that everyone can be comfortable with.

I don't know about the UK, but in the United States it is perfectly legal to fly domestically and internationally with briefcases full of money. It's done by businesses all the time. But you must remember to declare the currency on your customs form.

[Jane_Doe]

There are a lot of industries (restaurants, jewelry, auto sales) where it is the norm to deal in large cash payments like this, and face-to-face meetings in public places are often the best way to make payments that everyone can be comfortable with.

In movies this scenario never really turns out well.

[artefaqs]

Fortunately, none of us live in a Will Smith movie. We live in the real world where this sort of thing is done every day.

[OddDog]

- The transaction is a large amount. Certainly worth the cost of a plane ticket for either party.

i was starting to get a little jumpy until i read that one ... thanks ...

this is what i have done a 5 figure sale. close to 6.

The purchaser paid for an airplane ticket up front. This was deducted from sale price.

I sat in the bank managers office, saw the bank garenteed check, pushed the domain name, and walked straight to an international branch of my bank and cashed the check in.

All done in time for me to get home for dinner. The flight was from spain to england and back.

Seems simple enough to me. Plus making them pay the tickets up front makes the really clarify buying intent.


Oh and another thing, forget about the suitcases and cash idea, there are important limitations to the cash you are allowed to travel with international. Ask the Swiss !