Selling a Web-Powered Business
Twelve Tips That Will Help You Achieve the Highest Possible Exit Price
By Domenic Rinaldi
With blood, sweat and tears, you've built your web business into a thriving moneymaker.
Sure, you could keep running for years to come, but maybe you'd prefer to cash out and enjoy a little rest and relaxation, or switch gears and jump to an entirely new startup concept.
No matter what your current situation, the time will come when you will want to execute an exit strategy for your web business. It's never too early to start thinking about how you will sell the company and maximize the sale price.
Understanding what it takes to sell a web business should be your first step. With that in mind, here are some important things to consider as you start contemplating selling your website and the accompanying business to an interested buyer.
1. Sell The Business, Not Just The Site
The sale price for a business is almost always greater than the sales price for an asset. Think, for example, about a retailer who can sell either his company or just his store fixtures. Which will get a better price? Instead of just selling the site, position what you have as much more than that. Doing so will allow you to command a much higher sale price.
2. Show Forward Progress
Acquirers look at revenue and traffic trends in order to build their own pro forma financials on your business, which they then in turn use to define how much they will pay you. As such, in the months and years prior to selling, you need to work very diligently to ensure that your numbers are all trending in the right direction. If your numbers are trending the wrong way, you'll do well to have a convincing plan of action as to how the acquirer can turn things around.
3. Clear Up Content Ownership Issues
A prospective buyer wants to know that you have the rights to sell what you are selling. For example, if you have hired freelance writers, do you have proof that those writers will not later claim that they own the content they gave to you and that you cannot sell it to an acquirer?
4. Lock In Long-Term Revenues
For sites that rely on advertising revenues, it's best if your contracts with your advertisers are long-term and don't have a termination clause. To understand why this is important, put yourself in the shoes of a buyer. If a website has a two-year, no-cancel ad contract with a Fortune 50 company, would you rather buy that firm versus an identical company that has a month-to-month contract that can be cancelled with five days notice? The choice is obvious. Remember, what buyers pay a premium for is certainty. It's uncertainty of any kind that makes a buyer nervous and leads to a lower offer price.
5. Make Operating the Site a No-Brainer
Your website may look great and have tons of traffic, but if the backend operations-side of things is a mess, you may have trouble selling the business. Before you package up a web business for sale, take the time to streamline operations. That might involve spending a few bucks on a better content management system, more reliable ad serving technology or upgraded ecommerce infrastructure. The benefits of this investment are two-fold. Your business will become more efficient, and you'll get a much higher price when you finally achieve your exit strategy.
6. Consider Giving the Website a Facelift
Industry lore has it that ugly websites can make more money than beautiful websites. That's because a site with, say, AdSense ads on it, does better if a visitor arrives via a search engine, doesn't like the look of the place, and then hurriedly leaves by clicking on an ad. In spite of this, many business buyers will pay more for a site that has a more sophisticated and professional look. As such, prior to selling a web business, think about improving your curb appeal by bringing in a talented designer to upgrade the look and feel of the site.
7. Prepare for the Tough Questions
Buyers will probe for weakness and you need to be prepared with smart answers. For example, can you show the buyer that there isn't a risk of a big market downturn which would affect ad revenue? Can you show them that your business is not greatly at risk of adverse SEO problems via algorithms changes at Google that could affect traffic? Experienced buyers have seen situations where Google changes their SEO algorithm and sites see their traffic decimated because they no longer get the search position they had in the past. While you may not be able to guarantee against the worst case, you at least need to be able to explain why the risks are not that high.
8. Show the Potential to the Buyer
You need to create a vision that allows the buyer to see the future potential of your site, above and beyond what you've accomplished to date. Maybe your site has excellent traffic and strong ad revenues but you see potential in adding a new content type to the site or putting a lead aggregation offering in place. You've never had time to do these things in the past, but you need to make the case that the new buyer can do them. Since a picture is worth a thousand words, it's a good idea to mock up some screen shots of what the new offerings might look like. For example, let's say you run a site about hockey but think you could expand into many other sports. Have a designer mock up a version of the site that shows your site supporting all those other sports and then quietly allude to how this enhancement could easily quadruple your revenues. Don't oversell it. Let the prospective buyer connect the dots.
9. Identify the Synergies Between What You Do and What the Buyer Does
If you are just selling out to an entrepreneurial wannabe or selling to a competitor, you will get much less for your company than if you were to sell to somebody who has a strategic interest in your company. As such, it's very important to think about who would benefit strategically from buying your website. If you own a top electronic gadgets review site, for example, maybe a big consumer electronics retailer would benefit from buying your site. The key is having strategic empathy for potential buyers. Don't think: What can I get out of this? Instead, think: What can they get out of this? By thinking in that fashion, you'll end up doing much better.
10. Don't Go It Alone
Selling your web business is not like selling a car or a bicycle, where you simply list the item and then quickly close the transaction. Rather, selling a business is an art form that requires years of experience to master. For this reason, it's imperative that you work with a qualified investment banker or business broker who can advise you on preparing to sell, find interested buyers, and then help you maximize the results of the negotiations that ensue once you have a buyer on the line. In addition to a broker, you will also want to round out your exit strategy team with a qualified accountant, attorney, tax advisor and financial planner. Yes, these folks will cost you some money, but you'll find your return on investment is huge versus what you'd get if you opted to go it alone instead.
11. Leverage the Web to Sell a Web Business
Since you are presumably a web expert, you should certainly leverage the web to help you sell your business. Make sure your business listing is viewed by as many qualified buyers as possible. For example, you probably will want to list your business at BizBuySell.com, the largest online marketplace for businesses for sale. You'll be surprised how many interested buyers you get.
12. Keep It On the Down Low - Mum's The Word
Make sure you keep the potential sale of your business confidential. Instead of overtly listing your business with your site URL, use generic phrasing like "Profitable Beauty Industry E-Commerce Site" or "Passive Income B2B Content Site." Don't let a buyer know who you really are until after you've gotten them to sign a confidentiality agreement. Otherwise, if confidentiality is breached, you may find it has adverse effects on the business. For example, your largest advertiser might get nervous and cancel its contract with you or your CTO might be worried and jump to another company. Again, this is another reason to work with a broker or investment bank because you can anonymously stay in the background while they vet buyers on your behalf.
Domenic Rinaldi is a nationally recognized expert on selling a business. He is the president and managing partner of Chicagoland Sunbelt, a business brokerage firm with a deep track record in helping Internet entrepreneurs to successfully exit their businesses. Visit www.chicagolandsunbelt.com for more information.