Buying a Website

The internet business revolution is in full swing. There has never been a better time or opportunity to earn money from home. The internet business opportunities out there are unlimited. The technology available today at your finger tips, simply allow you to run an entire business from your home. Long passed are the days when making millions required an office and at least 10 employees. All this is possible today from your room, and all you require is a PC, an internet connect, and the needed skills.

Obviously you have heard about people who made millions by investing in the stock market and in the real estate industry before the financial crisis. Now there is a new breed of entrepreneurs investing in online businesses and earning a handsome amount of money. An intelligent entrepreneur finds an online business with an unexploited opportunity, buys it, exploits the business to its maximum, and then finds a profitable exit strategy. Sure, this requires a good amount of experience and shrewdness, but the outcome is massively rewarding and enjoyable.

Today, there is a humongous number of poorly SEO optimized websites. Add to that, lots of these websites’ owners don’t know how to monetize their websites properly. Therefore, there is a large number of missed opportunities out there. This could be anything like implementing google adsense, better SEO required, little design tweaks, etc... Today, investing in websites could be a lot more profitable, let alone cheaper than investing in real estate, shares, bonds, etc... And it is definitely more reliable.

Reasons For Buying a Website

Before buying a website, you have to ensure you are ready for such an investment. You basically need three things: the required skills, the energy and time, and a budget. Following are the benefits of buying a website:

• Websites that are already making a profit, and have a healthy cash flow, are apparently fully-fledged businesses. Another major attraction is that a profitable website is already generating traffic, therefore there’s no need to start the whole process of SEO from scratch. Moreover, internet businesses are very cheap, as they are only sold for as little as 24 month worth of profit. We will shed light on the valuation of the website later in this article. Also, some websites have their own huge list of loyal mail subscribers. This alone could take you months to develop.
• Buying a forum with a massive number of registered users could be very rewarding. If you find out how to monetize it, you have probably found the goose that laid the golden eggs. A lot of forums were started as a hobby, and their owners are not aware how to make money out of it. This is where an entrepreneur comes in, with an easy massively rewarding business.
• If you already have your own offline business, it will make perfect sense to buy an internet business that sells/advertises similar products. Hence, you could advertise your own products on the website, and channel the already acquired traffic to your products. Moreover, this way you also eliminate competition.
• Other reasons include but are not limited to: buying a website/domain that ranks high in a highly competitive niche, buying underperforming websites with good content that require little tweaking to generate more traffic or profit, etc...

Finding a Website To Buy

There are basically two ways for buying a website online. First way, you can find a suitable website in auction websites like the following:

https://flippa.com/buy

http://www.businessesforsale.com/search/Websites-for-sale-in-All-Countries

http://www.websitesforsaleworld.com/

http://www.affiliates4u.com/forums/domains-websites-sale/

http://www.businessesforsale.com/search/Websites-for-sale-in-All-Countries

http://www.ebay.com

Other than that, you can look through the internet for a website you would like to buy. Type the keywords for you niche into google, and check the results. My advice is to look for a website with good content in the 3^nd or later page of results. If a website with valuable content doesn’t rank in the first or second page, it gives the indication, that the website owner is not a webmaster guru. Therefore, here lies an opportunity because the website owner is more likely to undervalue his own website while selling it. Also, if you are a webmaster guru yourself, you can tweak the website and generate more traffic easily within a short time after buying it. Hence, email the website owner, and ask if he is interested in selling his site.

What else to consider?

You have to consider many things before completing the transaction. The following are very important points to consider:

• Research the background of the website owner/seller. Sometimes this information is easily available. Websites like ebay have a rating system for website sellers. If you find that the seller has a good history rating, then the transaction is more likely to go smooth. Moreover, run a Whois query on the website, find the owner name. Research the owner name thoroughly to make sure he was never involved in any scam.
• Do your homework well and research the industry, the competitors, and the target audience of the business. Run a SWOT analysis, and find out more about your competition in this market. Study all the areas of the business like: Supply, Marketing, Sales, Supply, Product Development and their interrelation. Moreover, ask the website seller how the business is being run. What resources is needed, and how much time is required to run the business.
• Make sure you include the following clauses in the contract with the seller:
  • Use an escrow service for making the payment and completing the transaction
  • The seller will not compete with you for a fixed length time in the same market after selling you the website
  • The seller must do a proper handover of all the necessary resources and information required to run the business.
  • The seller must provide support for an agreed upon fixed length of time after selling his website
  • Nobody else other than the seller has all the passwords required. Change the passwords immediately once you acquire the website
  • The email subscribers’ list should be included in the package. This list will not be shared by anyone, and will not be used by the seller, after the acquisition.
• Investigate all the marketing campaigns of the website. Research the business website properly, and make sure the seller never indulged in any marketing scams. Moreover, make sure that email subscribers’ list was not collected through spamming techniques
• Check the number of backlinks to the website, its pagerank, the number of visitors, its history, etc... You can use the following tools to investigate the website:
  • WayBack Machine Use this tool to look back at the history of the website you are about to buy. Wayback machine takes snapshots of websites. Hence, you can investigate the activity of the website more than 6 months ago.
  • Backlink Watch Use it to check how many backlinks refer to the website. The more backlinks, the better. It is an indicator of how popular the website is.
  • Alexa You can check the page rank, the traffic history, the number of backlinks, the popularity of the site. You can also compare the website with its competitors.
• Investigate if there are any liabilities for the website. Make sure all the loans if any, were paid before the acquisition.

The Valuation of the Website

If the seller is the one setting the price, then you should expect the price to be equal to the earnings of the last 18-24 months – total debt. Otherwise, if you are buying a website off an auction, you can still use the total earnings of the last 18-24 months. If you saw a missed opportunity in the website, that you think you can tweak, and exploit the business better, then you might need to increase your bid, to beat your competitors in case they also discover this missed opportunity as well. The 18 -24 months is the simplest method of calculation, but is not very accurate. There are lots of things that are missing from the equation like traffic is not always steady, depreciation of assets, missed opportunities, etc... A far more accurate method is to use the service of professional website evaluators. You can use the following website valuation services for free:

http://ebizvaluations.com/

http://www.websitevalue.co.uk/

Compare the price you receive from a professional evaluator with the price of the seller, to determine if the price is overpriced or not.

The Investment Decision and Appraisal Techniques

The only reason someone buys an internet business is because he sees a value in it. An entrepreneur expects to make a profit after buying the website. To determine if the business is profitable or not, an entrepreneur must make assumptions based on the historical data available. This includes but is not limited to:

• Traffic data, and the Conversion Rate
• Financial statements (Balance Sheet, Cash Flow, Profit/Loss)
• The original business plan of the website owner

The items should be investigated before buying the website. Hence, ask the seller to provide you with this information for better evaluation. This is more applicable to businesses that are more than 12 months old and have an asking price more than 20K.

We have seen earlier how to investigate the traffic historical data of the website. Now we should look at the conversion rate of the website. The conversion rate is the ratio of visitors who convert their visits into desired actions. For example, if it is an ecommerce site, and the number of visitors is 10,000 per month, and the number of visitors who purchased items is 100 visitors. Hence, the conversion rate is equal to: Number of Goal Achievements / Visits * 100= 100 / 10,000 *100 = 1%.

Usually a 1% conversion rate, is a good rate. It gives an indicator that products on the website are sellable, and the design of the website is properly optimized. Moreover, assuming that the website has an online advertising campaign using adsense, then you should evaluate the success of this campaign as well. You can compute it separately, and have two conversion rates, one for purchases and the other for adsense clicks. And now after we investigated the traffic, and the conversion rate, we can make future forecasts of traffic and the revenue the business is going to generate. You should refer to the financial statements to compute a more accurate estimation.

Now, if you are planning to buy a website, to make a profit out of it, you are probably going to have a maximum payback period in mind. A payback period is the duration it will take the business to break even. Breaking even is the point where the total revenue generated by the business is sufficient to cover its costs. After you estimated future forecasts, you should check if the payback period of the business fulfils your expectation and aspiration. To find out more about how to compute the payback period, click here. Other appraisal techniques to consider are Accounting Rate of Return and NPV. All the appraisal techniques are based on historical data collected from the financial statements.

NPV and Accounting Rate of Return (ARR) are particularly useful when you are comparing more than one internet business. You can decide which one is more profitable on the short and long term if you compare the values of ARR and NPV. Moreover, you should also look consider Depreciation of Assets. Depreciation is an expense that allows an internet business to subtract a certain amount of money from an asset so that its original price is reduced by its useful life. Example if an internet business owns a software program that is worth $5,000 and has a life expectancy of 5 years, then each year you have to deduct $1,000 from the assets value of the business. Sometimes this is not applicable.

Finally, wish you good luck with your investment

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