Tips For Selling a Small Business in Arizona

If you'd like more information on this subject, please Contact Us.

Should You Buy a Business? Is Entrepreneurship Right For You?

Before you buy a business in Tucson, here are a couple of important questions to contemplate:

1. Do you feel a strong passion for the business you plan to buy? No matter which way you slice it or dice it, acquiring a new business is a challenge.  For almost every business buyer, the time will inevitably come when you will question whether or not you made the right decision. Even the thorough due diligence that your business broker will assist you in performing can not anticipate the types of challenges you will face, which could include long nights, struggles with customers and staff, and lower profits than you may have expected. Since you would be become the chief salesperson for any business you buy, it's important to ask yourself whether you feel a strong enthusiasm for the products / services the business offers.  Whether you're sellling handmade artisanal products, operating a franchise, or providing a service that you personally perform, your enthusiasm can and will make an important difference when it comes to attracting customers, partners and investors.  Why get into a business that you don't feel that passion for, when a genuine and lasting interest in a business can make all the difference and be what gets you through the tough times long after the initial enthusiasm of buying a business has faded. 

2. How much risk are you comfortable with? For some would-be entrepreneurs, quitting their day job is challenging enough. Signing a lease, drawing down savings and wading deeper and deeper into the commitment to run a business means a steadily increasing diet of risk. How much risk are you ready to take? Think of all the successful Tucson restaurants that started small, in a single location, and have grown into househould names over the years.  Eegees, Baggins, Guadalajara Grill, El Guero Canelo are just a few that come to mind in a tough business.  Their founders had to be willing to take the leap and figure it out day after day as they launched a new concept in a tough market.  Any number of circumstances could have, and probably have, arisen along the way that could have caused them to fail: picking a location ended up to not be ideal, problems with city liquor licenses or food inspectors, insufficient parking, theft or embezzlement by staff, unexpected supplier price increases, and the list of potential risks could go on and on.  If you're not willing to take on risk, much less in unforeseeble amounts, buying or starting a business in Tucson may not be the best path for you.

3. Do you make good decisions? After buying a business in Tucson, nobody else is going to make the tough calls for you.  You can seek advice from advisors and employees, but there still will be countless decisions that you'll need to make on your own as business owner.  Do you trust your own track record of making decisions? Here are few you might run into: Buy vs lease your space? Hire a manager or run the business yourself? How much time to spend working in the business? Work from home or on-premise?  How many employees to hire, and what level? How to position your business in the market, high-end or low-end, etc?  What legal structure to use? Whether or how much to advertise? How to raise capital and from what sources? How much of your savings to wager? While some of these early decisions can appear daunting enough, the number and complexity of such decisions will only increase over time as the business grows and more and more customers and employees depend on you.  The quality of your own decision making can spell the difference between success and failure.  Do you trust yourself to make the right call? 

4. Can you multi-task? If your background includes working for a large corporation, then you likely were lead down a path of specialization and developed strong skills in certain areas while remaining, perhaps unbeknownst to you, less strong in other areas.  As business owner, you have to be comfortable and conversant and every area of expertise as it relates to your business, or at least know when and where you're out of your depth and need to bring in professional advice.  Depending on the size of the Tucson business you buy, you might end up being the chief salesperson, bookkeeper, marketer, accounts receivable collections clerk, and chief cook and bottle watcher. If multi-tasking doesn't suit you well, chances are entrepreneurship may not end up being a good fit for you. The more areas of expertise you're comfortable with and can perform yourself, the better off you're likely to fare, particularly in these times of challenge and economic uncertainty.

5. Do you know how to achieve work-life balance?  You may have concluded that buying a business in Tucson is something you're well-suited for, and have the skills and risk orientation to give it a go.  But how will you fare over time?  After a few years of working the seven day weeks that may be necessary, falling out of contact with friends, not spending enough time with your family, dropping enjoyable hobbies and interests, neglecting physical fitness, you could find that your life has fallen out of balance and feel burnt out.  Burnout is one of the leading causes of small business failure.  As you consider buying a business, and evaluate all the many other considerations that implies, make sure to include a work-life balance plan into your calculations that could include rules like not working on Sundays, scheduling gym time and time for hobbies, developing a network of business associates and advisors to reduce isolation, and prioritizing family and social time, as well. 

Take some time to mull over these questions, do some soul-searching, and then if you think you have what it takes, go for it.  If you've reflected on these points, and have concluded that buying a business in Tucson may still be for you, then you may well be ready to take the next step.  Review our listings,  or scehdule a free buyer consultation. We'll talk over some of these very points with you, and if there's a good fit, help you start focusing in on finding the ideal business for you. 

If you'd like more information on this subject, please Contact Us.

When is the Right Time to Sell Your Business

Timing is important. Owners spend a long time building their business and will want to maximise the price when it comes time to sell a Tucson business

Some thoughts on “when” is the right time"

1. When there is strong demand– immigrants, redundancies, corporate refugees and returning expats are fuelling the market at present and there is a short supply of businesses with genuine potential or proven profits.

2. When the company has peaked–waiting may lower value, the owner can lose energy and enthusiasm, the economy shows few signs of improvement, and new competition or technology could diminish profits.

3. When approached by a “trade buyer”– with sales difficult to build in this recession many companies are looking to grow through acquisition and paying premium prices for businesses that promise synergies and economies of scale.

4. When proper planning has taken place–be aware of the buyers’ concerns and follow the steps in our “10 Commandments”. email us (info@clythbiz.co.nz) for your free copy.

5. When you are comfortable with the buyer– deal structure may be more important than price. A sale we are finalising at present has the seller entering into an employment contract with the buyer – ensuring a smooth transition, retention of clients, less responsibility for the vendor, and he has his “pile of chips” out of the business. A win-win for both parties.

If you'd like more information on this subject, please Contact Us.

The Difference Between Value & Price With Businesses For Sale

If you're looking to sell your business in Tucson or Southern Arizona, no doubt one of the foremost questions on your mind is how to price it for sale.  You want to know what it's worth.  In fact, those are two different questions that are often confused.

Price is one thing. Value is something different. 

When you come to Allen & Young Business Brokerage for advice about your listing, and end up listing it for sale with us, you should know that we will perform an appraisal of  every business we list so that you will have a pretty clear idea about the range that a market-based selling price is likely to fall into. What the business is worth and what a buyer will pay for it are not the same thing, and can vary greatly depending on a number of factors, including, importantly, the individual buyer.  As the old proverb goes, "one man's trash is another man's treasure."  We certainly don't mean to suggest that anyone seller's business is trash, rather in this case we mean that any given business for sale can be "worth" much more to one buyer than another.

How can that be the case?  To begin with, a buyer who is familiar with your business may be willing to pay more for it because they have greater confidence in their ability to make a go of it.  The location of your business could be incredibly convenient for one buyer, and less so for another.

You, the seller, can also make your business more valuable to some buyers, and thereby obtain a higher price, by being flexible with the structure of the deal itself.  For example, by being willing to seller financing, you can attract a buyer who may be a great fit and wants to to buy  a larger business, but would otherwise not have access to financing.  You could also agree to offer an earn out, to reassure the buyer of your confidence that certain future targets will be met after the sale, and / or agree to stick around for a while and work for them to ensure the business keeps ticking along. 

In short, if you want to get the maximum price for your business, then you need to be thinking about what is valuable about to each buyer on a case by case basis, and how you can alter the terms of the deal to maximize that price with each individual buyer.  A well designed deal structure can benefit all parties – maximising price for the seller, and minimising risk for the purchaser. 

Helping determine the optimal deal structure for your business on a buyer-by-buyer basis is one of the principal ways that your business broker can help you sell a business in Tucson

If you'd like more information on this subject, please Contact Us.

Buy A Business: Get The Best Deal When Buying An Online Business

There is a lot to like about an online business model. For starters, your company may have access to a much broader market, including in other countries. Some online businesses can also be run with no inventory, few to no employees, and without the hassle of accounts receivables when online payment is required at the time of purchase. Additionally, most key support functions can be outsourced, with the exception of marketing and customer service. Finally, if you're armed with the right set of tools, you can even setup and run a business like this with little to no technical expertise.

Here are a few other characteristics about online business models that make them attractive:

• you can launch or buy one really fast and at at low cost

• An online business can be run from anywhere at anytime

• You can run it on the side without giving up your "day job"

• You can run it while traveling or work remotely from wherever you choose

However, we don't want to give you the impression that starting or buying an online business is a cake walk.  If you're starting from scratch, it can take many years -- yes, that's years -- and considerable effort and expense to achieve online awareness for your business. You will likely have a lengthy learning curve as you seek to become proficient at bringing traffic to the website, converting leads and customers, upselling and cross-selling, building community among your customers, and automating and personalizing the customer relationship.  Assuming you do these things correctly, an online business can pay tremendous dividends for you, over time, as your customer base expands and you drive greater volume through an automated process.

If you would rather buy an existing online business, in order to benefit from the inftrastructure and process, and profits, that the original founder has developed, then you should also be prepared for the reality that online / software driven business models often command higher multiples than their offline equivalents due to the many attractive features and benefits of them that were mentioned above.  Performing due diligence on an online business for sale can often be simpler than for bricks and mortar businesses due to the audit trail that 100% electronic payment generates.

If you find the notion of running an online business attractive, remember that in all other respects purchasing an online business is the same as any other business buy/sell transaction, and that a licensed business broker is a great asset to have on your side as you negotiate the deal. 

Here are a few additional things to keep in mind when considering buying an online business:

• There is a lot more involved than simply building and launching a website.  You'll need to have an online marketing strategy in place, supported by the requisite skills and tools, in order to attract traffic to that website, convert leads and sales.

• Often, due to the highly competitive nature of competing for traffic online, tightly focused niche products will work best.  

• Try to avoid products that are very trendy, for which the lifespan of the business you're going to build will be limited.

• Make sure you're aware of all government regulation that pertains to the business model and product type you choose to pursue.  Avoid highly regulated industries, or those at risk of becoming so in the near future.

• You will have other online competition, and you'll need to know who they are and have the skills to outmaneuver them

• If you're buying an existing business, you will need to take extreme care to ensure that you have a bulletproof non-compete agreement in place that covers the broadest possible geography while being highly specific about the niches to be protected.  That's because it would be easy for the seller to launch a competing online business, located almost anywhere and even in another legal jurisdiction.

• Before launching your business, or buying an existing one, ensure that you have solid supplier agreements in place for the products you'll be distributing, unless your business will sell proprietary products.

• Know who your target customers are and how to find them.  An existing business should come with an email list. It's also possible to purchase highly target lists of prospects from list vendors.  Whatever your approach, comply with all CAN-spam regulations with regard to your email marketing.

• Undertand your exposure to any current or past warranties, product performance guarantees, customer service promises, or accrued liabilities such as loyalty points.  Either obtain an indemnification from the Seller against such unquantifiable future claims, or have a mechansim in place in your contract that allows you to offset their cost against the balance of sale.

• Protect the security and integrity of the online business you purchase by requesting archived file copies of previous site versions from the Seller.  Some sites began by offering 1-2-or 5-year guarantees on their product. 

• Make sure that you are provided all passwords for the website and all related online tools, and immediately reset the passwords for all of them.  Require that the Seller provide you with a list and contact information for all persons, including family members, former employees or third party vendors who had access to any of the accounts in the event you discover tampering or unauthorized access after the acquisition.

• If the Seller was also the developer or programmer of the computer code that causes the business to run, make sure to bring in a qualified expert to perform a "code audit" as part of the due diligence. Oftentimes, the coding that underpins an online business has been developed over time.  It could be that the coding is elegant, and efficient, and clearly intelligible by you or any developer professional you might bring in in the future.  On the other hand, it could be a real patchwork of code, a complete mess that anyone but its original developer would have a hard time understanding.  In the latter case, you'll want to make allowance for this in your offer price.

• As part of the sale, make sure that you receive copies and ownership to all source code for any and all websites and related applications.

• Ask the Seller to arrange for you to speak or meet with any third party webmasters or related vendors, and any other people who work on the site to make sure that these relationships can continue seamlessly going forward.   Unless you're able to do all aspects of the work yourself, not having continuity of service providers could place you at risk.

• Dig into the details of the agreements with your shopping cart provider, credit card processor, and merchant services provider, as applicable, to understand the conditions and criteria you'll need to meet in order to set up identical or similar services in your name.  You will want to know if you qualify, for starters, and, if so, what kind of personal guarantees you may have to make in order to process credit cards.

There are plenty of online services apparently dedicated to buying and selling online businesses, including many listed on Ebay, of all places.  Keep in mind, however, that the process of buying and selling a business is exactly the same whether that business be online or offline.  Would you buy a restaurant or franchise online, without any outside consultation or specialized advice?

As members of the IBBA, and the AZBBA, Allen & Young is part of a national and international network of certified business broker professionals.  We can assist you with the purchase or sale of an online business, no matter where you are situated.

There are many advantages to an online business, but don't be confused by what may appear to be their relative simplcity.  They are in every regard businesses, and you will have to be equally capable and focused around a profitable product offering and sustainable, scalable business model if you want to make them work.

If you'd like more information on this subject, please Contact Us.

Stock & Asset Basis For Tucson Business Investment Transaction?

Darrell V. Arne CPA, ASA, CM&AA Investment Banking Representative, runs a business called www.thebusinessbroker.com.  It is an excellent resource for anyone seeking to learn more about the process of buying and selling a business in Tucson, or making Tucson business investments. 

In particular, we wanted to share with you a recently published series of articles Mr. Arne authored that discuss the ins and outs of whether to use a stock or asset basis for the transaction, and in what circumstances it may be possible to do both. 

Arne writes that:

"Purchasers in a business transaction generally prefer an asset purchase in order to step up the basis of acquired assets. Yet, a stock purchase may be preferable for a variety of non tax reasons. Normally in a stock purchase, the consideration paid becomes the tax basis of the stock from the purchaser's standpoint.

However, in certain circumstances, the Internal Revenue Code gives the purchaser and the seller the ability to make a joint election where the actual transaction is a stock purchase, but for tax purposes it is treated as an asset purchase. This is accomplished by making a Section 338(h)(10) Election (H-10 Election) - the subject of this article."

Follow the links below to the original article, which comes in three parts.

Part One

Part Two

Part Three

 

 

 

If you'd like more information on this subject, please Contact Us.

Buying A Business in Tucson? Look at Existing Online Businesses

This article was written by Matthew Toren, and originally appeared on April 26, 2012.  Here is a link to the original article:

http://www.entrepreneur.com/article/223425

We wanted to share it with you because business owners in Tucson and Southern Arizona who are looking to buy a business should also look at online businesses.  And, as this article suggests, there are many reasons to consider buying an exisiting online business as opposed to trying to start one from scratch.  For starters, if you don't consider yourself an expert on the technoglogy part of the business, you'll acquire a working model and have time to learn how to run and improve it.  Technology will not be a barrier to entry for you, in other words.

Read on.

=============================

Want to fast-track your online business? Try buying one that already exists.

Facebook's recent $1 billion acquisition of Instagram, the $200 million forked out by Zynga to acquire Draw Something maker OMGPOP, and Twitter's purchase of Posterous.com shows the level of activity in buying online businesses right now -- especially when it comes to those with a strong and loyal audience.

Even for more modest acquisitions, buying an established online business, rather than starting one from scratch, gives the new owner a number of advantages -- not least of which include: instant customers, traffic and revenues.

Just ask serial business investor, Adam Radly, who recently found himself enamored with the idea of getting into web-media services. After considering starting up his own shop, the Los Angeles, Calif.-based entrepreneur says that idea quickly vanished once he found Flippa.com, a website marketplace. For $140,000, Radly in 2011 purchased CreativeLogicMedia.com, a custom web development site with a strong client base.

Similarly, the entrepreneurial father-and-son duo, Randall and Matt Caldwell from Philadelphia used Flippa to find PitchingMachinesNow.com, a site that fit the pair's criteria -- which included cash flow, price-to-earnings ratios, profit margins, search rank and scalability. In 2011, they spent $149,000 on the online baseball equipment retailer, which had almost 10,000 unique visitors each month.

Here are three steps for calling a ready-made site your own:

Search
Based on your desired business and industry, consider the following two options: Canvas the web for sites that match your criteria and contact the owners in hope of a sale. Or, you could search for companies on online business marketplaces.

Should you choose door No. 1, you may be forced to do some serious legwork. An analogous situation is buying a house by going door-to-door in your desired neighborhood. One time-saving strategy is to search for abandoned sites by including terms like "Copyright 2009 + [your keyword]" or "copyright © 2009 + [your keyword]" in your search query. All sites should have copyright notices which are usually located at the bottom of the site. If you search for a site that has an old copyright, it could mean two things: either you found an abandoned site or the site owner hasn't updated the site's copyright. If you get lucky and find an abandoned site -- like we have in the past -- then it's time to start negotiating a deal. Be sure to consider a company's social-media exposure too.

Related: Do's and Don'ts of Securing a Domain Name

Like Radly and the Caldwells, you might also visit website marketplaces like Flippa, Digital Point or WebsiteBroker.com. These sites allow you to compare and contrast sites based on different criteria such as revenue, traffic, age and niche. The charges can include a listing fee, a percentage of the sale price or a combination of the two.

An important consideration during your search is the pricing of a potential web investment. According to Justin Gilchrist, a Manchester, England-based industry consultant and founder of FlipFilter.com, a website sales analysis tool, website buyers are typically paying between 12 and 24 months revenue. You can usually expect to pay between $100,000 and $200,000 for an online business that is generating $100,000 in annual revenue.

Inspect
Once you've spotted a few sites in your price range, you'll need to verify a seller's claims. Most website marketplaces will provide free tools to help you through this process. But you will need to work with the seller to verify their claims regarding particulars like financials and traffic data.

Related: Online Business How-To Guides  

Screenshots can be doctored, so they shouldn't be considered alone as proof of financials or traffic. Instead, try to arrange a time to do a screen share with the seller so that she can walk you through her site analytics and accounting systems. This can be done through tools such as Skype, Join.me, Screenleap or even through Google+ Hangouts. Even better? Some sellers will be able to provide audited accounting records.

Protect
Once you've agreed to a sale price, you'll need to put together a website-sales agreement that outlines the buyer's and seller's obligations. In high-value transactions, a good agreement will include a seller's promise to perform consulting services as well as any noncompete clauses.

Related: How to Negotiate a Noncompete Agreement  

The extent to which you use formal legal services for this agreement, or templates such as those provided by website marketplaces, will naturally depend on the size and complexity of the transaction. But clarity is always key, says Zak Muscovitch, an intellectual property attorney in Toronto. "The most important considerations in choosing the type and source of a legal agreement… are whether it reflects the parties' intentions and is understood by the parties to the transaction."

 

If you'd like more information on this subject, please Contact Us.

5 Questions To Ask Before Buying A (Tucson) Business

We were understandably gratified when our principal and designated broker, Carrie Allen CBI BBS, was contacted by Fox Business News' Small Business Center to share her thoughts and expertise on the process of buying a business.  As a leader in the Arizona Business Brokerage community, and recipient of the Business Broker of the Year Award in 2007, Carrie is an inspiration to our team, and leads by example by setting the highest standards of competence in our industry.  There's nothing wrong with pumping up your boss once in a while, particularly when it's true, is there?

Our thanks to Cindy Vanegas of Fox for giving Carrie the opportunity to share some her thoughts, which she did with the same straightforward candor and integrity that our customers have come to know and appreciate. 

Here's what Cindy's article, entitled "5 Questions To Ask Before Buying A Business" had to say:

============================================================

If you'd like more information on this subject, please Contact Us.

Selling An Internet Business Is Like Selling Any Tucson Business

This incredibly helpful post by Justin originally appeared here on FlipFilter.

We wanted to share it with you because it provides an excellent discussion of what is happening in the market as regards sellling internet businesses and websites.  It predicts that, one day, internet businesses will be bought and sold much more readily as they become more common and better understood.  There is also a discussion at the end of the emerging role of business brokers in this category of business sales, as well.  It's important to remember that online businesses are --well, for lack of a better word -- businesses. In that sense, when it comes to buying and selling them, all of the same criteria apply that would apply to a normal bricks and mortar business, plus a few more considerations unique to an internet business model. 

If you're looking to sell an internet business, or would like to explore the possibility of acquiring an online business, we can help you with that too. And, for what it's worth, we have a very small office, a virtual business model, and wear very normal shirts:) When you work with Allen & Young, you're getting expertise and integrity, not image and attitude.

==================================

Here's the article

Lately I’ve studied hundreds of solid, profitable websites for sale at the $10K – $150K end of the spectrum, but looking at the market on the whole there’s a definite change from this time three or even just one year ago.

Some changes are merely reactions to new technology; for example we’re seeing more sites built around Facebook or Twitter simply because their APIs probably didn’t allow then what they allow now. Other changes are definite trends – things that are probably difficult to quantify (for example, how do you measure ‘buyer sophistication’) but are still noticeable if you’ve been studying the market for sometime.

The following is a summary of what in my opinion are the most important changes to happen over the last year. This is in the hope that if we can see where the market is generally heading, we can design offerings better placed to give people what they want and ultimately sell quicker and for more revenue.

** At several points in the article I’ve borrowed the term ‘small cap’ to refer to sites that typical sell for less than $150,000. It has nothing to do stocks and shares.

Larger Gaps in Valuations

Originally, when very few people had much of an idea as to how to value a small – medium sized website for sale, multiples of monthly profit became the accepted norm, with most sites being sold at 8 – 10x monthly gross revenue. (Originally, most of these sites were content driven, so I can only assume that net profit was close to gross revenue as margins were typically very high).

Over the years this changed and morphed into an accepted figure of around 7x monthly net profit valuing sites much lower, but more realistically. Lately we’re seeing less of an ‘average’ (or technically speaking ‘mode’, if you’re a stats geek!) and more of a divide with sites either being valued at around 4 – 6x monthly net or significantly higher, with little ground in between.

On example is Petspeopleplace.com, which I wrote about in an earlier edition of Flippa’s A-List newsletter. This site was a good ‘old-fashioned’ portal, which had everything from forums, to classified ads for pet lovers. The site had a claimed net monthly profit of $2,282, but sold for $95,100 (and so far, the sale seems to be valid) which by ‘small cap’ standards would equate to a multiple of 42x monthly net. PPP are not alone; it seems more sites broke conventional valuation on Flippa in the last 12 months than any other year previously. What they had in common is the subject of an upcoming post (stay tuned here), but as an overview, they all

• Had revenues > $1,000 per month and usually significantly higher
• Kept an up to date mailing list and list of members
• Most (not all) had a documented system that detailed day to day operations
• Had multiple web formats (content blog, forum) and often multiple domains included in the sale

It seems that sites which ultimately sell for over $25K are moving more towards the valuation model favoured by more established internet businesses and offline companies, typically valuing a web business for sale at 4x EBITDA (effectively 48x net monthly profit).

(If you’re interested in the multiples that larger web businesses are currently achieving, I’ve found a free report by Software Equity that should provide some light bedtime reading)

Buyer sophistication improves

We’re in a market that I would guess is still at the very early growth stage of its lifecycle, and there are a lot of changes still to take place. There’s been a shift in the mindset of buyers for both new and more experienced owners.

New owners generally have a different mindset about the ‘primary problem’ they face.

• The rise in popularity of WordPress has made it easy for new entrepreneurs to build a site rather than have to buy one. People are now less likely to buy a site simply because of technical issues they might face in building it themselves.
• As more people attempt to start their own site, the ‘primary problem’ has now shifted from “How do I create a web site” to “How do I attract traffic”. This is probably why starter sites that offer to solve the problem of attracting new visitors outsell those that don’t.

Overall, new buyers appreciate that buying a site which already has traffic (and a system in place to keep generating it) will solve their biggest problem and justify buying a site rather than building it from scratch.

More experienced buyers also seem to have had a mindset shift; previously, a site would often sell purely on the strength of its revenue (or at least it seemed), but more big-ticket sales are taking place for sites that have relatively little revenue, but masses of targeted traffic. My assumption is that potential buyers are more commonly recognising potential in a site, thanks to education (blogs and forums) and experience in their own sites and previous purchases.

As companies move from one main site to having several sites in a niche, new motives arise for purchasing a site and each one gives the website for sale a different value to the person buying.Taking the financial industry as an example, a business insurance lead gen site that sells 100 leads per month at $50 per lead will typically generate $60,000 per year and be worth around $40 – 80K to the right buyer (Buyer A) who purchases it as a standalone business.

If a company with several sites in the business services niche (e.g. insurance, loans, payroll) decides to buy, it will have an entirely different value to them, especially if they know their lifetime value of a customer. If this value was $400 for example (from other services the client purchases across their other similar sites), they will generate $480,000 annually (8x the amount Buyer A would be able to generate), assuming all the leads are unique clients.

This scenario is becoming more commonplace as established offline companies are starting to notice, and purchase sites in the ‘small cap’ end of the market (especially in publishing). We can certainly expect to see a rise in competition for sites that have a strong presence in their niche, good traffic and a solid domain. There are also signs that more individuals and businesses are recognising the benefits of ‘mini-mergers’, buying similar sites purely to share traffic and advertising costs whilst increasing member retention across their newly formed group.

Domains become even bigger business

If I had a dollar (or preferably a pound) for every time I saw a lack-lustre site sold for a crazy valuation simply because of an aged or high PR domain, I’d be able to buy my own Pussycat Doll. Domains have always mattered to internet business sales, but never as much as they do recently.

My guess is that it would be in connection to the last point about buyer education and sophistication. Buyers are being constantly reminded as to the value of a good domain (good = keyword match, aged or high PR) that will ultimately help you rank for more terms in a shorter time span. Bloggers like Kenny Goodman are doing a great job leading the crusade and tools such as Domain Face, Fresh Drop and of our own FlipFilter Aged Domain Finder make it easier than ever to find ‘good’ domains.

The effect of a good domain is probably more noticeable at the sub $20K end, but it still matters across the spectrum. For example, you can pick up a PR4, aged .com with several backlinks for less than $50, but when coupled with a basic content site, the valuation (which would typically be around 7x net monthly) seems to jump significantly and hovers around the 12x mark when compared to a similar site on a regular domain.

Mobile Apps start to make their way to the market

There have been a small number of sales on Flippa for IPhone applications and I think the rate is going to increase exponentially in the next couple years.

Unfortunately, there’s a problem with selling standalone IPhone Applications. Every IPhone app is linked to an Apple Developer account ($99 per year) and all of the app’s sales history, downloads, reviews and ratings in the ITunes Store are linked to this account too. If you, as a developer, want to sell the app to another developer you have two choices:

• Sell the code only. This means the new owner has to have a developer account and re submit the application to be listed (which to Apple will look like a duplicate of a pre existing App). If the application is successful, all the details mentioned earlier will be lost.
• Sell the developer account. Probably the most viable solution, but a problem if the developer either wants to keep existing apps on this account, or develop new ones.

For iPhone applications, neither solution is ideal, and my guess is that we’ll initially see a few sales of entire portfolios of applications until someone finds a workaround.

On the other hand Android Applications offer an opportunity. Currently, the Android market is only a fraction of the ITunes market (approx 20%), but in $ value this is still significant. Amazon have recently entered the sector with their own Android Marketplace (with free registration for the first year). I don’t know Google’s T&Cs relating to the sale of Android Apps, but I would assume that it’s significantly less restrictive than Apple’s, presenting an opportunity for an owner to sell the right to an app to a suitable buyer.

Mobile Applications have an entirely different lifecycle and valuation process, mostly because they have a relatively short lifecycle compared to a website. Developers will often have a portfolio of other apps so I would expect there will initially be a lot of ‘off-loading’ of weaker apps, until the market grows and we start to see more profitable applications appearing for sale.

More than just Sites

Just as the type of websites being sold have evolved from simple content sites and blogs, the ‘package’ is starting to evolve too with more buyers offering more than just a website for sale. Take a look at these examples.

• More buyers are selling the company rather than just the site, which effectively will come with the company’s trading history, financial accounts and bank account. This will (theoretically) make raising finance for a new owner much easier.
• Some sites are being sold with exclusive contracts for distribution, national licensing or even grandfathered supply agreements that provide a product or service from a distributor at a preferential rate.
• In the past, it wasn’t uncommon for a physical product site to be sold along with full rights to a product the company had produced or licensed, but some sites are starting to appear which have granted patents, or patent pending technology included in the deal.

Coupled with the rise in mobile app business sales, I would expect there to be a significant rise this year in entire companies being sold rather than just the sites. This will create a gap for specialist legal and business transfer services operating specifically in the online business market. (And someone needs to give escrow.com a run for their money!)

There also seems to be some emigration from the traditional offline business sale market. Previously, many product companies who relied on their online presence for sales (and had no offline retail presence), would list their site alongside other offline businesses effectively as a ‘offline businesses for sale with an online presence included’. It’s only a hunch, but I think there’s a shift towards these same types of companies now listing as ‘online businesses for sale with an offline presence included’, both with brokers and in places like Daltons and BizBuySell. Many of these businesses have staff, offices and sometimes warehousing included in the sale but their primary marketing channel (the internet) will allow them to classify themselves as an ‘Internet Business’.

As technology patents relating to software catches up with the changes in technology on the whole (it’s still notoriously difficult to patent code), expect to see more businesses applying for patents and those assets being included in a business sale. It’s unlikely that we’ll see this at the ‘small-cap’ end of this market though.

Rise of the broker

They’re loved a little more than Realtors but probably less than Attorneys, and they are, to some extent, another necessary evil. High value transactions have always seen involvement with brokers, but there is a trend towards sites, typically in the $30K – $150K bracket, having broker representation too. This seems to be due to smaller niche operations appearing that due to lower overheads can afford to represent sites with a smaller potential sale value.

A combination of Flippa’s ‘double selling’ agreement (preventing listing outside of the site) and most brokers’ snobbery towards the service means the two shall probably never meet, at least for the short term.

Expect to see more brokers starting their own ‘mini marketplaces’ for the sites they represent. Further down the line, HTML 5 microformats combined with Google’s desire to scrape the world could see more and more business listings appearing in their classified search results, giving much wider exposure to a fragmented industry.

Less of a prediction, and more of a whim (or wish!), but I think eventually, everyday people will invest in online businesses in the same way that a parent may buy a property to give their child a residual income, or to contribute to their pension. That’s still a long way off, but as an industry we’re moving in the right direction and we’ll probably see the most change over the next five years.

 

This post by Justin originally appeared on Flipfilter.com

http://www.flipfilter.com/blog/2011/02/25/evolution-selling-internet-business/

If you'd like more information on this subject, please Contact Us.

Finding Buyers For Your Tucson Business For Sale

Finding buyers is a challenge that every business seller faces. Allen & Young Business Brokers has successfully completed hundreds of business sales. In addition to our base of hundreds of qualified buyers looking to purchase a business we qualify new buyers every week. This is done through an aggressive confidential print and internet campaign.

Allen & Young Business Brokerage has no upfront fees and only gets paid if and when the business is sold. Once you put your business on the market you must be thoroughly prepared to respond to any and all inquiries. This is the time you have been looking forward to.  While Allen & Young qualifies all buyers through initial screening it is imperative that you the seller know your buyer. If the prospective buyer does not meet your requirements you are under no obligation to sell.

Discussions and negotiations are conducted confidentially. It benefits neither the buyer nor seller for the word of a pending transaction to leak out. Employee, competitor, supplier, bank and customer behavior, and attitudes can all be affected if they learn something is going on. ALL potential buyers must sign a NON DISCLOSURE FORM before seeing any confidential information.

Negotiations have two primary components: 1. Price and 2. Terms and conditions.  In the typical transaction one is not more important than the other. They are often interrelated.  For instance the buyer may be willing to pay a higher price if the seller agrees to finance all or part of the deal.

Deal structure refers to the terms and the methods of payment by which the buyer will compensate you for the sale of your business. Deal structuring allows you to meet your needs and enable you to get the best price for your business and minimize your tax obligations, while allowing the buyer to meet his objectives.

A building has to be built on a solid foundation so does the sale of a business.

--Larry Orenstein

If you'd like more information on this subject, please Contact Us.