buying a website

watto · #1 (**permalink**) 03-16-2008, 01:57 AM

I am not sure which section this post should be in. Please move to the right section if need be.

I am looking at purchasing a website which is making around $10k profit per month all coming from natural search and has 12 months of proven sales.

This person wants around the $200k mark for the online business. There is no stock involved as the site sells space.

Is this price realistic? How does someone value a business?

All help appreciated.

Regards

watto

chandrika · #2 (**permalink**) 03-16-2008, 06:58 AM

When a business is valued they use a certain formula

Pre-Tax Profit + Owner's Salary + Additional Owner Perks
+ Interest + Depreciation less Allocation for Capital Expenditures multiplied by 1-3

So if this site is making 10K profit a month, then I suppose he has put that figure on it base upon his 10K monthly profit multiplied by 1.67, if he can prove those profits, then it is a reasonable figure to ask.

However I would make sure you see his actual business accounts, his P&L sheets and stuff, rather than going on web site statistics.

I say that because it is easy to make a website look very profitable in stats, and by showing screenshots of paypal accounts and stuff, such things ar also very easily tampered with and I would wonder if it is doing so well, why would he sell it.

If it is a viable business opportunity he will have proper accounts, i would make sure it is them you use to gauge the viability, dont go on screenshots of things.

Also how have you checked whether his website traffic is organic? In a websites stats it looks the same whether traffic has come from ppc or organically, again the only way to truly gauge this is to see a companies proper business accounts, where expenses for advertising etc are all listed.

It is an awful lot of money to spend, worth it if it is genuine, but I am sceptical of websites for sale that claim to make loads of money, as if they do, why would they be for sale.

Would you be able to tell the website in question?

A website is just an assett of a business, so make sure that the business is doing as is claimed, as a website can be made to look like it is doing all sorts of things.

(ps- I got stung when I first became interested in websites some years back, paying $800 for a website that ended up I just got a duplicate site that obviously was worth zilch)

amxfan · #3 (**permalink**) 03-17-2008, 04:48 PM

Chandrika has given you sound advice and from reading her reply, I believe she feels the same way I do...very skeptical, very suspicious. I would ask yourself, how did you hear about this sale? Most sales of this magnitude would go through a website broker and/or be handled by legal. By somewhat reading between the lines, I do not feel that this sale is being handled by either of those two parties, which leads me back to how did you find out about it? If you found out about it via word of mouth, TV, newspaper, etc. I would do a lot of research. To be honest, I would start out by researching the person selling the website. Do you have the person's phone number? If so, type it into Google search and see what you get. A lot of times you will get the name and address of the person it belongs to, if it is listed. Do you know the name of the person or address of the person selling the site? Is a company selling the site? If it is a person, most states have online property assessment. Try to locate the person's house. What square footage is it? What part of town is it in? A 10k profit per month is 120k per year. If the person lives in a 1200 square foot house, in a blue collar part of town, I'm sorry it does not add up. The more you make the higher your stature of living...nice house, nice car, etc. All this information can be gotten through your own research.

Again, Chandrika was spot on when she said get the proper paper documentation, but this can also be drug out, attempted to be altered to where the other you can do yourself, if a single person is selling the site. If a company is selling the site, research the company thoroughly. This also can be done online by viewing public records of the company, any public court cases, claims, disputes with the Better Business Bureau, date that company was founded, etc. The newer the company, the lower the trust factor.

I myself to be honest would not give this site a second look unless it went through a reputable broker or handled by a reputable lawyer who can supply full documentation and credibility. Just by you asking here, I do not think that that has happened. This is just food for thought. $200k is a heck of a lot of money.

cw1865 · #4 (**permalink**) 03-17-2008, 09:58 PM

If you're buying a business try to get tax filings. If its an LLC, there will be an LLC, if he's a sole proprietorship he has to file a Schedule C. By seeing this information you know that the business, AT LEAST, is making that amount (who overreports profits on tax returns)

See how that flies!

Keimos · #5 (**permalink**) 03-17-2008, 10:08 PM

Ask your self, why are they selling a profitable site? Have they provided you with the address? Beware, as suggested above, do your homework

cw1865 · #6 (**permalink**) 03-17-2008, 11:29 PM

Just as a tip there are many ways that purchasers of a business can do their 'due diligence' - actually the IRS is 'helpful' in this respect. They publish guidelines on how auditors should be looking at businesses, ie. if you're buying a pizzeria, look at the number of boxes purchased or the pounds of mozarella, for dry cleaners, look for hangers, etc. so on and so forth.

Actually one of the nice things about websites is that most revenue is generated from credit card sales. On a monthly basis statements are generated and sent to the merchant which is a nice third party summary of sales.

Martinscholes · #7 (**permalink**) 03-22-2008, 09:37 PM

You need professional advice from business accountants and the like. Don't try to buy a business without professional help.

websiteproperties · #8 (**permalink**) 05-13-2008, 12:56 AM

There are a lot of very legitimate website businesses for sale with established history of revenues. With only 12 months of history - this business is pretty new and thus will have a more discounted valuation - or multiple of net cash flows(net profits) The average multiple for profitable and established websites with at least 2-3 years track record that are not in decline is 3 times net cashflow.
So at $200,000 the seller is not too far off - be sure to do strong due diligence - tax returns are great, but bank statements and merchant accounts should be provided - if the site is earning revenues passively via affiliate commissions or pay per click like Google adsense - you will be able to prove these easily. Check on traffic stats and search engine positioning in the natural ranks to verify organic nature. All in all I would negotiate to $175 - $180K as an acceptable and very fair market price considering the short history.

friend1 · #9 (**permalink**) 05-26-2008, 07:19 AM

A very nice offer

MikeinFlorida · #10 (**permalink**) 07-22-2008, 06:19 PM

It doesn't appear the poster ever came back for information offered here, but my compliments to the posters-- Some great advice!