If you’re interested in purchasing an online business, how can you know that the business you’re buying is legit?
Let’s face it, anyone can create a WordPress blog, buy an established domain name, Photoshop a few screenshots showing affiliate income and try to sell the website.
I’ve read several horror stories on various blogs and message boards where people have spent their hard earned money on websites that just didn’t pan out. In fact, there was a thread on Reddit that discussed the failures entrepreneurs experienced when buying an established website on Flippa. If you browse the thread, you’ll notice that most of the experiences were negative.
With an online business, you have to anticipate a higher risk of ruin. That’s just the nature of the game. I’ve decided to compile a few tips that will help you dodge some of the risk when you decide to buy a website venture.
You’re Putting Up the Money – Do the Deal on Your Terms
If the seller of a website is rushing you to pay, you have to ask yourself why the seller is so eager to offload the website. After all, if the website is profitable, why would the seller be so eager to get rid of their cash cow?
It’s important that you do the deal on your terms. In fact, if you are in a negotiation with a seller, you probably want to start out with a low ball offer. Don’t insult the buyer and offer an unreasonable price. The industry norm is to offer 12 months of income as your bid. I would personally start lower by offering 3-4 months worth of revenue.
If you’re being asked why you are coming to the table with such a low offer, back up your reasoning due to the fact that your risk of ruin in website ventures is quite high. If you lose on an investment, you want to ensure that you are minimizing your losses. Always treat your web properties as an investment and never deviate from the perspective of a disciplined investor.
Thoroughly Investigate the Reasoning Behind the Sale of the Website
If a website is consistently earning profits, why would the owner sell it? Investigate the history of the seller. Try to obtain the sellers name in order to verify the seller’s true identity. Check the seller’s history to see if they have sold similar websites in the past. Also use search engines and other public information services to verify the identity and history of the seller. If someone is trying to scam you, they’ll likely try to use a fake name.
If you decide to purchase a website using a platform such as Flippa, utilize the comments section in order to engage the seller. Most sellers have won’t mind telling you why they are stepping away from their project. Use your best judgment when evaluating the reasons behind the sale. If it all seems too good to be true, it usually is.
Research the Domain Name’s Metrics
One of the ways scammers trick unsuspecting website entrepreneurs is by performing spammy, black hat SEO techniques that will rapidly drive traffic to the website. It’s imperative to research this since domain names can become blacklisted from affiliate programs and search engines if they are found to be generating traffic using questionable means.
When you know how to use tools such as Moz’s Open Site Explorer or MajesticSEO, you’ll be able to get a comprehensive breakdown of the back link profile of the website that you’re considering purchasing. This gives you considerable insight into the websites that linking back to the domain you are publishing your links.
You’ll want to closely scrutinize the Trust Flow and Citation Flow of the domain name using MajesticSEO. See where the domain name is getting all of its backlinks and use these tools to help establish the credibility and reliability of the backlinks.
Another domain metric to look for is the email address in the WHOIS information of the domain name. If that email address is registered to another domain name that if offering similar services, your seller may not be acting in good faith. Reverse WHOIS from Domain Tools could help you research other similar domains that the seller has in their possession.
Get the Deal in Writing
When you buy a website, the seller will often promise you the world. Any type of business deal you do should have all of the terms and transfer details written in black and white.
While websites such as Flippa give you a framework for working with sellers, if you are doing a deal in person, it is critical that you get the deal in the form of a contract. If you’re spending a large sum on a website, you may even want to have the contract drawn up or reviewed by an attorney. Some website acquisition contracts contain clauses that will allow you to do the deal in payments based on certain website metrics.
For example, if you bought a membership website with 1,000 members, how do you know that all 1,000 members will approve of the website being sold? Some members may get wind of the acquisition and join another service leaving you holding an empty bag.
A perfect example of this would be a web hosting business. It may be prudent for you to include a clause that reduces your payments to the seller incase members decide to leave post-acquisition. For example, if a website lost 50% of its members after you buy it, you could have a clause that lowers your payments to seller based on the fact that so many people left the website after the acquisition.
While it’s not always necessary, you may want to explore the possibility of adding a “No-Compete” clause within the final terms of the sale. If a seller is hesitant to sign, you may want to re-evaluate the deal.