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When Buying a Website, Here Are Three Lessons To Get a Better Deal
By Quiet Light
I had three interesting experiences in recent months which I found to be noteworthy and educational in regards to getting a better deal as a buyer, when buying a website. I hope you will find them useful as well.
Lesson #1: Don’t Be Ashamed of Your Offer
I had a listing that wasn’t attracting much attention. It was very small, and earnings were dropping because the seller had removed virtually all marketing focus from this site. The seller was aware that removing marketing focus would likely hurt the value. Eventually, he accepted an offer that was significantly less than the asking price. (This is unusual, but illustrative.) The deal closed and all was well. Then I was contacted by a buyer who had interest in the site, but had been sitting on his hands for a month because he didn’t want to submit an insultingly low offer. As it turns out, his valuation was pretty close to the deal that actually sold, and his hesitation probably cost him the deal.
Lesson: If you believe a site is overvalued, it still makes sense to submit an offer, but send an explanatory note to the broker explaining WHY your offer is what it is. Unless that offer is well-below the thresholds stated by the seller, the broker will most likely present it and provide your explanation to the seller. The seller may not agree with your assessment and may reject the offer, and if that’s the case, you’re out the cost of a piece of paper. As my dad taught me when he was encouraging me to learn to be assertive and to ask for things, “the worst the other party can do is say ‘no’.”
If you’re lowballing just to find out the seller’s bottom line, that strategy often backfires, but if you have legitimate reason to believe a site is overvalued (usually due to rapidly declining financials, don’t be afraid to point this out.)
Lesson #2: Take a Balanced Approach to Your Offers
A potential buyer called me after reading an article about deal financing and asked me which is the best kind of financing. I explained that as a buyer, your ideal purchase would be one where the seller takes on all the risk for the future performance of the business and requires no money up front. The problem, of course, is that no seller in his right mind would accept such a deal unless the business has serious undisclosed issues or was simply too small to think about. From a seller’s perspective, they want an all-cash deal with minimal responsibility after closing. If a business is earning real money ($50k/year or more) and doesn’t require more than regular work hours, then it’s important to put yourself in the seller’s shoes and figure out whether an offer would even be in a range of consideration. Sure, you could offer 100% performance based financing, but if you do, and if the seller is willing to accept it, the broker will likely suggest relisting the business while offering performance financing. In the situations where we’ve had such listings, they inevitably attract so much attention that usually a cash buyer emerges. Ultimately, there’s a “market price” for deals, and trying to veer too far from that often leads to not getting the deal at all.
Lesson: As a buyer, you should definitely structure an offer in the way that makes sense for you, but if it’s not close to what the market will eventually bear, you likely won’t get very far. It takes two parties to make a deal, so it’s always good to ask yourself, “If I were the seller, how would I react to this offer?” Also, it’s totally acceptable to ask the broker how motivated the seller is. Sometimes you’ll get some decent information.
Lesson #3: Be Decisive
I had a listing for a perfectly good business for several months. In the span of a week, I got five offers, and likely could have gotten more. What seemed to get buyers to put in their offers was hearing that other offers had been received. Do you think this puts upward pressure or downward pressure on the price? (Answer: upward pressure.) I believe the deal that was accepted was fair to both sides and falls within the market price range I would have expected.
Lesson: If you want to avoid the competition, learn to act decisively. Read enough marketing summaries to know what you’re looking for, and when you spot it, make a move. If you wait for the validation of others, then you’ll likely pay more. When the stock market was crashing in 2008, Warren Buffett was out buying stocks, not waiting around to see what others were doing. Also, keep in mind that the game is not always about getting the lowest price. It’s about getting a good return over the long haul. In my opinion, the price of the deal is much less important than my evaluation of how well the business will perform over time, what improvements I could potentially bring to the business, etc.
Getting a Better Deal When Buying a Website
Most buyers develop an intuition and discipline that can only be obtained by experience. With this experience they naturally learn how to feel out a deal in advance, how to structure a deal that is balanced, and how to be decisive with their offers. It is these traits that makes it relatively easy to identify a novice buyer vs. a buyer who has been through several acquisitions.
What traits do you believe are necessary to be a successful buyer? Please share below.