Evaluating a website or internet business for sale is all about finding the right information quickly and taking an investment view based on the facts presented. If you’re thinking about a business purchase, you should consider using a broker for a number of reasons, not least the quality of information provided to help your investment decision.
Below, we walk through the sale materials FE International put together to present an internet business for sale. A prospectus is typically provided to buyers after they have signed a non-disclosure agreement.
The fundamentals are an important start to any business search. There are a number of internet business models to pick from and its vital to understand their characteristics in the context of your own experience and preferences.
Each FE International prospectus will start with a summary of the business’ vital details, namely:
- Asking Price
- Age of Site
- Sector / Niche
- Business Model
- Web Platform
- Business Description
A typical FE International prospectus starts out like this.
Naturally most investors have a strong inclination to grow the business beyond its current profitability, in order to accelerate their payback and ultimate exit valuation. Even buyers looking for purely passive income should take interest in the potential growth opportunities available.
Often the person with the best insight on potential growth strategies is the current owner. At FE International, we always canvass the seller’s opinions on expansion options as well as providing our own insights from extensive experience buying, selling and growing online businesses. Many investors have bought sites through FE International and successfully employed seller-recommended growth strategies to great effect.
See here for an example of how this usually looks in the prospectus for a website for sale.
Sale Rationale
An important point to establish for any buyer is the underlying reason for selling the business. As important as the “why” is the “when”. As discussed in our section on questions to asking before making an offer, understanding the story behind both is vital to establishing trust between buyer and seller. To recap:
“Buyers should look for natural reasons and explore them in depth. If the seller is moving to another business venture ask in detail about what the venture is, why they are moving on and what they intend to use to capital for. As a buyer you should keenly examine the seller’s motivations and look for any evidence in the information provided that conflicts or confirms the story.
Just as important but asked a lot less often is the ‘when’ instead of the ‘why’. If the seller’s answer to why seems unconvincing then take a look at the timing of the decision. Are they selling after a recent growth spurt? What has contributed to this and will it last? Is the opposite true and sales are sliding? Has the seller run out of ideas to grow the business?”
Traffic is the lifeblood of the majority of internet businesses and as such should be carefully investigated before any offer and subsequent purchase of a website. FE International typically provide overview information showing the traffic over the last 12 months of visitor data with accompanying details on pageviews, average time on site, bounce rate etc. We also show the top sources of traffic (search, referral and direct) to give the best sense of what drives traffic to the site.
To learn more about analysing traffic, check out the advice in our due diligence article. You can see how it looks in our prospectus here.
Naturally the financial performance of the business should be at the core of any acquisition decision. Investors should look to review either the income or cash flow statement of the business with at least 12 months history, shown on a month-by-month basis to observe trends in the recent operating period.
It is important to sense check the operating costs shown against the business model (e.g. SaaS would likely incur higher hosting costs) and versus the responses in the seller questionnaire (see below). Understanding which of these costs you can inherit at a higher, lower or equivalent rate is important to appraising the acquisition and also identifying synergies.
A good example of the kind of financial information buyers should look for can be found here.
One of the main attractions to running an online business is the location independence that e-business models can provide. It is still important though to set personal limits on the time you want to invest in the business (or pay someone else to).
The maintenance component of the prospectus details the operational setup of the business including the number of hours the owner spends on the business on average per week as well as their typical duties. It is important for a successful acquisition to marry up the time requirements and technical needs of the business to your own preferences and abilities.
The ‘package’ is a useful summary of the assets for sale, the current hosting/operating environment and the training and support you will receive upon transfer of ownership.
The last and arguably most valuable part of the deal prospectus is the seller questionnaire. This is where the owner responds to specific questions relating to everything from the inception of the business, through to marketing strategy, employees (if relevant) and beyond. The responses here often form the basis of many buyers’ investment decisions and should be carefully checked against the material presented elsewhere in the prospectus and versus your own independent research.
Concluding Thoughts – Reviewing an Internet Business for Sale
With the above information, most investors feel they can form an informed preliminary view on the business and decide whether to move forward. At FE International, we always recommend buyers carry out their own independent research in parallel with reviewing the prospectus before then proceeding to engage the seller with further Q&A.
If you would like to request information on any of our listings you can do so on the individual listing pages. Get in touch directly with me if you have any questions on us, our listings or brokerage in general.