Part 5: Sealing the deal on Buying Websites

Sealing the deal on Buying Websites

by nhussein · 0 comments

Congratulations – you’ve identified the sort of website you’d like to buy, you’ve eliminated the dross and evaded the scammers, and the website you’ve shortlisted checks out OK under the closer scrutiny of due diligence. Now all you have to do is hand over the money. Don’t you?

Hold it! Not so fast, buster. Here are one or two things that might cause you to walk away – even after all the time, effort and expense you’ve put into buying a website.

Potential deal-breakers and how to handle them

Even if the money’s burning a hole in your pocket, you shouldn’t hand over your money until you’re as sure as you can be that it’s the right thing to do. Part of this will depend on how the seller behaves, but you also have a part to play in trying to smooth the path to a successful negotiation.

Lack of information

You should be able to negotiate with a seller with the confidence that he’s acting in good faith – and that includes disclosing information that’s relevant to the sale.

Do everything you reasonably can to make your requests for information as clear and unambiguous as possible. If you think there’s something specific missing, then ask the seller whether he holds that specific information. If he doesn’t, he may at least be able to provide a reasonable explanation why not.

You may also consider testing the seller’s good faith by asking him a question that isn’t obviously answered in the information he’s supplied, but that you can answer from your own due diligence – and that he should be able to answer.

If after that you’re satisfied that he simply doesn’t have a very good handle on business, then you may still feel it’s OK to proceed with the negotiation. But if you feel he’s being evasive and deliberately withholding information, then you’re better off walking away.

Keep things professional

It’s a business negotiation, not a marriage. There’s no place for outbursts of emotion, and attempts to patronize, educate or establish positions of intellectual or moral superiority are unlikely to help things proceed smoothly to completion.

Carry out your due diligence questioning in a straightforward manner and keep your requests reasonable and polite. Likewise, when negotiating over price, frame your offer in reasonable terms, and be prepared to justify a lower valuation in a businesslike manner that doesn’t cause gratuitous offense. But if you meet with belligerent responses, you may be forced to conclude that you’re not going to be able to reach agreement.

Expect surprises – and mistakes

Businesspeople are human beings, not machines. If you’re negotiating the purchase of a complex website, it would be a miracle if there weren’t any discrepancies anywhere. So be prepared to find some surprises along the way – and, if they’re unpleasant surprises, to treat them as genuine mistakes and oversights unless and until you find evidence of anything more sinister.

Likewise, there may be some discrepancies in the information you’re given. By all means, question them. But bear in mind that a small business’s financial and other records may often be very haphazard, especially if the management have tried to keep them themselves rather than with the help of an accountant or bookkeeper.

Nevertheless, you should still do everything you can to verify all information from the seller using independent sources.

The sale itself

Now it’s time to finalize the terms of your agreement. There are certain things you should do to safeguard your money and make sure you get exactly what you believe you’re paying for.

Document your agreements

There are all sorts of issues involved in the transfer of a website, including which assets are included in the sale and which aren’t, who pays any fees that may be incurred in the process, and so on.

For the sake of ensuring that there are no last-minute misunderstandings that cause the whole deal to suddenly collapse, it’s best to keep an agreed written record of any understandings you’ve reached about individual points of the sale.

Ask for early transfer of substantial intellectual property

This may consist of one or more of several things: a significant chunk of the website’s content, a database dump, software scripts. Whatever form it takes, it’s a useful confidence-building measure that shows the seller accepts you as a bona fide buyer and shows you that the seller’s to be trusted.

Agree a method and terms of payment that you’re comfortable with

It’s quite common for very small website purchases to be handled very informally – eg seller sends website files to buyer, buyer sends seller payment through PayPal, seller transfers domain registration to buyer. The amount of trust required on either side isn’t high as the monetary value involved is so small.

Higher value sales may require something with better safeguards for both seller and buyer. It’s usual for an escrow service to be involved, whereby the money for the transaction is held by a third party until both the buyer and the seller confirm that the assets have been transferred. Any disputes over the transaction result in the process moving to dispute resolution.

Another safeguard that can be built into the process is for the payment to be released in tranches: this means that the website is initially transferred for a low fee, and further tranches become payable once the website meets certain performance targets.

Insist on a comprehensive written contract

By the time you’ve agreed all the points, you should be ready to have a legal document set out that both parties can sign to show their acceptance of the whole deal. This should include:

  • a complete inventory of assets to be transferred
  • the price, and the terms and method of payment
  • remedies in case of non-performance
  • arbitration/enforcement procedures

It may also include further safeguards for the buyer such as:

  • a non-compete agreement, whereby the seller agrees not to compete with the buyer’s business for a defined period of time, or possibly indefinitely
  • warranties, including the seller’s responsibilities in case the site’s assets don’t perform as warranted

How easy it will be in practice to enforce the contract is another matter, especially if  the seller’s thousands of miles away, but at least you have something to point to if an opportunity for enforcement arises.

After the sale – what next?

Whew! Your wallet may be quite a lot lighter, but you’ve made it through the whole process:

  • You’ve learned about the virtual real estate VRE market – what it is, how it works, how it compares to the bricks-and-mortar real estate market
  • You’ve heard of some of the many dangers of investing blind in VRE – and some of the benefits
  • You’ve decided on the sort of website that would suit you, based on your preferences and needs – and also on your own aptitudes and willingness to invest time, money and effort in it
  • You’ve examined  the various locations for finding suitable websites – auction marketplaces and forums; brokers; direct approaches – and identified possibilities
  • You’ve found a site that doesn’t raise too many red flags over obvious pitfalls – or sound too good to be true
  • You’ve used a due diligence process to dig beneath the information provided by the seller to verify his claims and establish the true value of the site
  • You’ve conducted a professional, businesslike negotiation to reach a reasonable agreement that both you and the seller are happy with
  • You’ve exchanged your money for the seller’s assets in a secure way

That’s quite a catalog of achievements, and you might think it’s time to kick back and bask in the glory. But the real hard work may be only just beginning…

Time to grow the business?

How you take the business forward from here is largely determined by your response to the kind of questions you asked yourself in Part 2.

Maybe your “new” website isn’t new at all. Perhaps it’s a mature business that’s doing well enough as it is, and bringing you in a steady income that puts the icing on the cake. As long as it’s maintaining its value and its performance, you’ll be happy. But don’t forget – it won’t do that by itself. You’ll still have to be willing to devote enough TLC to it to keep it fresh and keep up with the competition.

If you’ve bought your new website as a investment to improve and sell on quickly, then you’ll be looking for quick and obvious ways to revitalize it – whether through cosmetic changes, by fixing broken or user-unfriendly code, or by launching a marketing campaign to raise its profile and get it noticed. It’s quite possible that you’re content to leave untouched the workings of the business itself, or give it modest tweaks for a quick win.

If on the other hand you believe your new purchase has untapped potential, whether as a business or as an investment asset to be realized when you’ve raised its value high enough, then you may have ambitious plans to expand – perhaps by adding large amounts of fresh content, or by introducing a shopping cart and new product lines. Maybe your plans are for something completely new that the world’s never seen before.

It’s up to you!

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Managing Partner at VRETycoons

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