The Small Business Administration estimates that one-third of business startups with employees fail within the first two years. A Forbes article quotes a Bloomberg claim that 80 percent of startups fail within their first 18 months. I have seen other estimates that for every one web business startup that succeeds, one hundred fail within the first year.
I doubt anyone knows for sure.
How it normally works
Sometimes it is difficult to do the very thing you want. The biggest mountain anyone has to personally climb is the hesitation born of unfamiliarity, so here is a general description of what happens when selling or buying a web-based business:
The broker markets each available web business with a listing on the broker’s website and posts the listing on affiliated websites. Listings and price changes are announced in the broker’s weekly newsletter that is sent to its VIP customers, the mailing list, to private equity investors, and via cold-calling prospects.
- Buyers work with assigned brokers who supply information, schedule meetings with Sellers, and assist with negotiations and the final sale transactions.
- Brokers attract listings through marketing, referrals, broker outreach, and existing relationships with clients.
- Seller executes a Seller’s Agreement, which spells out the duties of the Seller and the Broker.
- Broker takes company information from Seller and creates a strategic pricing and marketing plan that includes information that is only available to Buyers who have signed a Non-Disclosure Agreement (NDA).
- Prospective Buyers sign NDAs and receive information about the web business, talk with the Seller, and present letters-of-intent (LOI) that outline the terms of purchase, such as the price and potential closing date.
- Seller may either accept an offer or counter.
- Once there is agreement on price and terms, the Buyer has an exclusive period to perform due diligence on the web business being considered.
- Money is deposited with an escrow agent.
- The Purchase Agreement is signed and the transaction closes with the escrow agent disbursing the proceeds of sale minus
Buyers want deep and detailed information on their prospective web business purchases.
If you are a Seller, start compiling a file containing platform or marketplace (e.g. Amazon, Walmart, etc.) and supplier contracts, trademarks, patents, incorporation documents, tax returns, supplier contact information, customer lists, and other things a Buyer will want to see during due diligence. Your consultant or broker can help you with this.
If you are a Buyer, these files also come in handy when applying for bank loans.
Key elements of a due diligence file include:
- Business activity. If you have a referring website or are active on other platforms such as Walmart or eBay, provide proof of the number of transactions, unique visitors, page views, traffic sources, and backlinks.
- Proof of ownership of all assets. Information on trademarks, copyrights, and proofs of photo or graphics ownership or licenses. A Buyer will use this information to help evaluate the business.
- Financial records. Statements of sales transactions, product invoices, ad-network payments, affiliate commissions, marketing expenses, and hosting and maintenance expenses, bank statements, merchant account statements, and such.
Take the first step
If you are unsure of whether to sell your web-based business, or how to buy a business, do yourself a favor and hire a consultant. Web Property Investor is a consulting firm that works for you. We educate you and help you avoid or at least limit mistakes.
Take a look at What We Do for further information.