The Process of Selling a Website
Buying or selling a website has certain risks. Because there are no physical assets, and because you will usually work with someone who isn’t local, and because the Internet is constantly changing, the landscape for online businesses is somewhat volatile. Add in the fact that this industry also has some less-than-honest individuals (to put it nicely) and you are left with an industry that has a higher-than-average risk factor.
But for those people who know how to manage the risks of this industry, the returns can be staggering.
So how can you participate in the business of buying and selling websites without exposing yourself to too much risk? The answer is usually found in following a process.
The Goals of Our Recommended Process
There are many different ways you can approach an acquisition of a website. But since 2007, we have have been refining our approach and process to create a process to accomplish the following goals:
- Transparency. It is crucial that anyone considering an acquisition have all the information they need to make a good, sound, and safe investment. Our recommended process is designed to do just that.
- Protection of information. We understand that you do not want your information randomly shared with unqualified prospects. Our recommended process helps restrict who receives your information and saves the most sensitive information to the person who will eventually acquire your website.
- Clearly defined milestones. For both buyers and sellers, it is important that the deal reaches a conclusion. This requires having clear and mutually agreed upon milestones.
Our Recommended Process for Buying and Selling a Website
The process we recommend to both buyers and sellers has been tested on hundreds of transactions since 2007. It has served thousands of buyers and sellers well since that time and accomplishes the goals listed above.
So while there are many different ways to buy or sell a website, we strongly recommend following these six steps.
Step 1 - Preparing Information on Your Website for Sale
What is it?
Before you approach potential buyers for your Internet business, you need to prepare information that you can present to these potential buyers.
This is, by far, the most important step when selling your online business.
In this step, you will gather together all relevant documents, statements, and reports and also assemble informative marketing materials that you can present to potential buyers. The information should help address buyer questions and concerns before they can ask those questions or have those concerns.
In addition, by having your information well-prepared, you will inform potential buyers that you are organized and ready for an easy transition with few surprises. This can have a positive effect on your value.
There are two primary goals in this step:
- To provide potential buyers with all the relevant information they need to a decision about buying your Internet-based business.
- To organize your data in such a way that the entire transaction is smooth, fast, and leaves little room for doubt.
- Gathering financial records. Too often, sellers do not collect enough financial records for buyers to make informed decisions. You should aim to collect a minimum of 36 months of profit and loss statements.
- Prepare due diligence materials. Buyers will want to verify you financial statements with bank statements, merchant statements, and tax returns. Have this information pulled and ready for inspection.
- Identify Key Performance Indicators (KPI’s). Every business has its own individual KPI’s. Begin to gather these indicators and reports. For example, if you have a membership based business, put together a report showing new signups and cancellations per month. Identify other metrics such as lifetime value, cost of acquisition, etc.
- Traffic, Conversions, and User Behavior. Every web based business should have some data on their traffic and conversions, as well as basic user behavior. Buyers will inspect this to look for areas of potential improvements.
- Examine the strengths and weaknesses of your business. Buyers are motivated by the idea of growth, but are also put-off by risk.
- Explain your operations. Buyers need to know whether they can operate your business in the same or similar manner. Put together documentation showing how you operate your business on a day-to-day basis and any employees or contractors who help you in this regard.
What to Expect
The two most tedious steps in selling your online business are preparing the business for sale and managing the due diligence process. In this current step, expect that you will spend a lot of time putting gathering together data to present to buyers.
Depending on how well-organized you are, this step should take less than a week to complete. However, if your finances are disorganized, or if you do not have records of KPIs, you may spend quite a bit of time on this step.
Step 2 - General Discovery of Your Website
What Is It
General discovery is the opportunity to learn about an online business for sale. The goal of general discovery is to answer a single question:
If the information I am seeing is correct, accurate, and complete, is this a business I would like to acquire?
The primary goal in this step is to give you the information you need to make a well-informed decision. To help you with this decision, you’ll have access to financial statements, Q&A’s with the seller, and other relevant reports. In addition, you may have one or multiple conversations directly with the seller to learn more about the business.
- Our client will represent several key facts about the business for sale which we will pass on to you, including:
- Financial Records
- Customer retention records
- Traffic Stats
- Industry data that is known
- Key benefits of the business
- Nature of vendor relationships
- Any information necessary to give you an understanding of how the business works.
- You work directly with the broker to ask questions and understand more about the business.
- Set up conference calls with the owner of the business to learn more.
What to Expect
The overall goal of this first step is to answer a simple question: do or do you not want to buy this business. To that end, you will be furnished with a business summary which presents key information about the web-based business for sale.
At this point, your primary concern should be to make a decision on the information as it is presented. You will have an opportunity to verify the information at a later stage, but since verification is a labor intensive task, it is better to determine first whether it is worth putting in that effort.
Although we provide buyers with a lot of detailed information about all of our listings, we fully expect you to have additional questions not covered in our materials.
Our goal is to provide you with whatever information you need in order to make an informed decision about that business (as long as it is being done in the spirit of general discovery).
Step 3 - The Letter of Intent
What Is It
A general framework declaring your desire and intent to acquire the business in question.
To establish between yourself and the seller an agreed upon price, an exclusive timeframe to perform due diligence and verification of information, and any requested terms for a final agreement.
- Quiet Light Brokerage is able to provide a standard letter of intent or you may provide one of your own
- An offered purchase price should be listed as well as a target closing date.
- Any special terms that you need should be included with the letter of intent.
- A refundable earnest deposit is normally required. The amount will vary from transaction to transaction.
- If the seller agrees to your letter of intent, you would enter into an exclusive time period in which Quiet Light Brokerage and the seller would work only with you.
What to Expect
A Letter of Intent (LOI) is an important step towards acquiring a business. To your benefit, an LOI opens up a period of time in which you and only you have access to the business in order to verify the financials and verify that the business was accurately and fully represented. In addition, the LOI acts as a general framework for a final purchase agreement by laying out the terms that the seller can expect to see should they agree to enter into a due diligence period.
Submitting a letter of intent is an important step to let the owner know what they can expect from you should everything verify during due diligence. Buyer’s should be certain that they are interested in acquiring the business for sale when they submit an LOI. Quiet Light Brokerage will not work with buyers who cancel an LOI or attempt to change the terms of an LOI for reasons other than misrepresentation or underrepresentation.
Step 4 - Due Diligence
What Is It
Due diligence and final discovery is your opportunity to verify that everything was represented accurately as well as the opportunity to ensure that significant information or details were not omitted in the representation of the business for sale.
To verify that the business is as it was represented in the general discovery step and to establish a good working relationship with the seller.
- Reviewing of 3rd party financial documents that verify revenue and expenses
- Receiving proof of incorporation and other corporate documents (if applicable)
- Making contact with key company contacts
- Exclusive access to any information necessary to verify the business health
- In most cases, you now have direct contact information for the selling party in order to exchange information more efficiently
What to Expect
Due diligence is arguably the most difficult and most important step of acquiring any online business. By the time you have reached due diligence, you should already be convinced that you want to acquire it based on what you have been shown. Due diligence gives you the opportunity to verify that what you have been shown is accurate and to verify that there have not been any significant omissions, intentional or unintentional, that would affect your decision to buy the business. Most buyers develop a due diligence checklist which allows both them and the seller to keep track of what information has been provided.
A good due diligence process will be exhaustive and allow you to enter into the closing with the knowledge and comfort that you know exactly what you are acquiring. To that end, due diligence should ask as many questions as needed to ensure that the business has been represented accurately and to ensure that significant details have not been omitted. At the same time, however, it is important to make sure that your due diligence does not ask questions that obviously do not apply to the business you are acquiring. For example, requesting manufacturing contracts for an Adsense site would be a question that is obviously inapplicable.
Often times due diligence can be very stressful for both the buyer and the seller, and you should enter into due diligence with the understanding that this process involves the handling of sensitive information. At the beginning of due diligence, there is usually little to no familiarity with the person you are working with, and both you and the seller are being asked to eventually part with a significant asset. Showing sensitivity to this makes a big difference in getting the information needed to verify any business.
Finally, while due diligence does grant you significant access to a business to verify its key components, there may be some items which the seller is not able to give direct access to given their sensitivity. Should this occur, the goal of Quiet Light Brokerage is always to find a way to satisfy your verification and discovery needs while protecting the interests of our clients. Our experience in selling hundreds of online businesses over the years has shown us that there are many ways to satisfy proper due diligence questions.
Step 5 - Transition Planning
What is It:
Negotiation of any final agreements as well as making plans for taking over the operations of the business.
To allow you to be operating the business as quickly as possible after the acquisition has been closed.
- Negotiating a final purchase agreement
- Negotiating any other final agreements (ex. promissory notes, bill of sale, consulting agreements, etc.)
- Planning transition with any vendors
- Setting up merchant accounts and bank accounts
- Arranging for the delivery of inventory (if applicable)
- Development of an asset list that needs to be transferred at the closing
What to Expect
Transition planning has two key components: 1) planning and putting in place necessary components to take over the business and 2) negotiating final agreements. In planning for the owner transition, you will work directly with the seller to make sure that all key components are covered. If you do not have a bank account or merchant accounts setup, this should be done as early as possible to avoid any delays in taking over the business.
Assuming that the letter of intent is closely followed, negotiating the final purchase agreement and additional agreements should be relatively easy. Quiet Light Brokerage does have boilerplate purchase agreements which we strongly recommend you use as they cover the key areas for most acquisitions. Absent of any significant misrepresentations or under-representations of the business, the LOI should be closely followed.
Step 6 - Closing the Sale
What is It
The moment in which you take over ownership of the business and the seller receives payment for their business
To transfer ownership of the business to you, and to provide the seller with payment for their business.
- Executing the agreed upon purchase agreements
- Transferring funds to the appropriate party
- Working with the seller to change ownership of key assets
What to Expect
In light of general discovery and due diligence, getting to the closing table is a fun and exhilarating moment. The work at this stage is mostly formalities and busy work as final agreements are executed and exchange, funds are transferred, and the process of transitioning ownership into your name is worked through. Once funds have been transferred and the final purchase agreement has been executed, you have completed the acquisition of the company!
Step 7 - Post Sale Training
What is It
Post closing training is the time in which the seller works directly with you to ‘show you the ropes’ of the day to day business.
To get full working knowledge of how to run the business in the manner that the previous owner ran it.
- Phone calls with the seller
- Email exchanges with the seller
What to Expect
Although you will have a good working knowledge at this point of how the business is run, there are always nuances and peculiarities that you will need to learn about. Training allows you to tap into the vast knowledge of the previous owner who will bring you through the unavoidable learning curve that comes with owning a new business. Most new owners find that they have full working knowledge of a business within 2 weeks of acquiring the business. At this stage, Quiet Light Brokerage is no longer an active participant, although we are always available to assist in any way needed.
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