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.

[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 !