Advice on How to Sell Your Websites

Advice on How to Sell Your Websites

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Advice on How to Sell Your Websites

Reprinted with permission of VotanWeb.com

If you are serious about selling your website then you will need to spruce up your financial statements, budgets, and business plans. Running your website as if you were preparing to sell it will improve your management practices and increase the value of your website. If you receive an offer that you can't refuse, being prepared will put you in a great position to close a deal quickly.

In researching my book, “How to Sell Your Website for Top Dollar”, I interviewed over 200 entrepreneurs who had sold their websites. Some issues came up repeatedly that have little to do with the mechanics of getting your website ready to sell but that instead require you to do some soul-searching. What do you want for yourself--in the future? How much of your self-esteem is tied up with owning and running your website? What will you do next? Thinking through the implications of a sale for you and your family will go a long way toward helping you select the sort of buyer you'd be most comfortable with.

There are two basic types of buyers, financial and strategic. Financial buyers make up an enormous segment of the market. They look for websites they can buy using debt financing for 50% to 75% of the price, and that have sufficient cash flow to service that debt. With few exceptions they value a website by using a multiple of four to six times earnings before interest and taxes (after making adjustments for expenses that would change for a new owner). There are disadvantages to selling to a financial buyer: there are no synergies--such as partnerships with complementary websites. There will certainly be pressures to increase the cash flow because of the added debt. Financial buyers are in business to make deals, so they may overlook some weaknesses. They often leave day-to-day website operations unchanged, but they buy with a view to selling, and they don’t give a damn about your vision for the future of the website.

Strategic buyers expect synergies with their other websites. Because of these synergies, they can afford to pay a premium, but they may not need to because they already have an intimate knowledge of the market. They may know your websites strengths and weaknesses better than you do. Therefore, strategic buyers offering premium prices are in short supply.

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The best match sometimes comes about if they seek you out after having determined that your website fits their plans. Of course, the goals and objectives of strategic buyers may differ greatly from your own.

Financial statements are the best indicator of the future performance of the business, and audited financial statements are much more reassuring to a buyer--and to the bankers financing a purchase. Many buyers have fiduciary responsibilities--that is, they are accountable to shareholders or to others who have provided funds. Therefore, the buyers have an obligation to avoid undue risk. That means they will prefer, or maybe even require, audited financial statements. You help yourself by reducing risk for a buyer.

The buyer will put your financial statements under a microscope. Audited numbers strengthen your hand in the negotiations and allow you to demand better terms and to switch suitors more readily--and threatening to do so is one of your strongest weapons.

Buyers might question the quality of your earnings, meaning that your accounting may be too aggressive. For example, capitalizing website-development costs can be controversial, as can the presence of onetime gains in operating income. Be ready to point out those areas in which your accounting might be conservative, such as profits that have been understated because of accelerated instead of straight-line depreciation.

To avoid the cost of an audit, some owners have their financial statements reviewed by outside accountants. Buyers know the difference, but at least the review provides a professional presentation. One other step is vital if you think you might need retroactive audited statements: have outside accountants review your books for a year or two so that later they can express an opinion about the fairness of the financial statements.

Many intermediaries prepare selling memoranda to describe websites for sale. They assemble all the data and present the reasons the website is an attractive investment. It's better, though, to sell your story yourself by doing up a business plan. Financial projections are of primary interest to buyers, and sellers rarely give them the attention they deserve. A business plan has several advantages. It does not send any messages about how long you may have been talking to buyers. And a good plan reflects well on a website’s management--you are describing an enterprise with continuity independent of the owner's instincts. A business plan is a perfect tool to show to prospective buyers without signaling an intense desire to make a deal soon.

If an inquiry tempts you, think through what will follow. If you want to sell, don't tie your fate for months to a single buyer without making comparisons. Nothing protects a seller's position better than having a competitive buyer in the wings. Moreover, hearing "Thanks, but no thanks" is the ultimate insult after you have revealed all your secrets during months of talks. Although the termination of the deal could easily be attributed to problems in the buyer's business, your website could end up tainted after competitors and other potential suitors learn that a deal collapsed.

When the inquiry comes in and you make your initial response, everything is confidential and low risk. But to reach the point of a closed sale, certain steps are inevitable. After some gentle fencing, you agree on a price, which is usually incorporated into a letter of intent (also called an agreement in principle). At that point the buyer asks you to stop all efforts to sell to anyone else in exchange for the buyer's commitment of time and money to try to complete the deal. Now the buyer wants to begin due diligence, the investigation of your website to verify that you portrayed it accurately. It is unrealistic to continue believing that you can keep a possible sale secret. You'll begin a period of uncertainty for a minimum of 8 to 12 weeks, during which time the buyer in effect has an option to buy your business at the negotiated price but is not irrevocably committed. Sellers should remember that many deals collapse, or undergo major changes in their economics, after a handshake on the price.
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