The Danger of Sloppy Transactions When Flipping Websites

Whether or not we’d like to admit it, our world of buying and selling websites can be pretty sloppy at times. And as it pertains to arbitration and things just going bad in general with deals, nearly ALL of it stems from plain old sloppiness.

I’ll be the first one to raise my hand in guilt to admit that I’ve been too lazy, too trusting, too unorganized, and too uninformed in the past. Every deal I’ve lost money on, (even the ones that were “other people’s fault”), is a direct result of my own informal approach to the deal. Which I GUESS means it was my fault after all.

When you approach a transaction with all your ducks in a row, all your boxes checked, and all the stones overturned, the margin for error becomes very slim and all potential instances of arbitration over the deal vanish. So here’s a few things you should always make sure to do in any deal…

Due Diligence

This one is common sense, but goes at the top of the list. Approach the website (and it’s owner) as though you were conducting a criminal background check. That means you check out everything!

– The domain. I use domaintools.com to check for age, drops, registration matching the owner, etc. Then I use Market Samurai, Open Site Explorer, SEMRush, and SEO Spy Glass, to verify the incoming backlinks, the PR, the rankings, etc…

– The Seller. If you’re buying from Flippa or other online marketplaces, check feedback. Check their previous listings. Check their trust scores. GOOGLE THEM. Ask them LOTS of questions. Get to know them a bit. Is this the first site they’ve sold? Why are they selling it?

– The content. This one has bitten me in the rear before. Check Copyscape for duplicate content. Make sure it’s original. Make sure you have the right to use it. Make SURE it’s included in the sale!

– The Income. More and more, screen shots just aren’t doing it for me. I’m a serious buyer. Could you please take 60 seconds to make a screen recording of your affiliate dashboard, or your merchant account? I’d feel much better seeing it live…Especially if the account doesn’t come with the sale.

– The traffic. Same as income. Login, and show me. But I’m also gonna check sites like compete.com, alexa.com, quantcast.com, etc…I know they aren’t always the most accurate, but they should give me a general consensus as to whether or not the seller is telling the truth.

– The terms. Especially if it’s monetized with affiliate programs. Check out the affiliate programs terms. Check out any special payment arrangements the seller has with the vendor. Make sure those benefits transfer to you. Make sure the site isn’t in violation of those terms, etc…

– Everything you see posted in our Due Diligence category.

Contracts

I’m willing to bet that over 70% of website transactions, especially ones that originate in most marketplaces, don’t even utilize contracts. I suppose I understand why. Who knows how to write a contract? Who want’s to pay a lawyer? Can’t you get in trouble for ‘practicing law without a license?’

Getting a contract in place is one of the most important aspects of any deal. All of your protection (buyers and sellers) hinges upon the contents of this agreement, and it’s ability to be enforced. Having a lawyer that can draw up the contract for a few $100 is well worth it for larger deals. But even deals that are less than $10k need to have some sort of formal agreement.

At a minimum, I recommend you grab a templated contract from somewhere like Legalzoom.com, or Sitepoint.com. I’ve used these templated contracts many times. They’re written by professionals who know legal jargon, and cover most of the basics. It’s not ideal, but it’s better than going commando with nothing at all.

Record Conversations with Other Parties

This may seem a little anal, but having a skype chat, or a recording of a voice chat can come in handy when disagreements arise. When you begin working on a new deal, I recommend you create a file in your inbox to save all email correspondence as well. This little bit of extra work will settle any issues about what has been promised, and what hasn’t.

Third Party Verification of Stats

This falls under due diligence, but is really only necessary for large transactions. An accurate recasting of financial records, tax statements, etc, by a professional tax expert gives an added piece of security and peace of mind to everyone involved.

Listing Agreements with Brokers

If you’re dealing with a website broker, you’ll want to have their services clearly defined in a listing agreement. How long will you give them to sell your site? What commission do you agree to pay them if they are successful? Do they have sole and exclusive rights to sell your site during the term of the listing agreement, or are there exclusions depending on where the buyer comes from during that time frame?

Most website brokers shoot from the hip, and don’t even use listing agreements. However, most states require that a pre-approved one be used by any and all business brokers that deal in their states. (That means web based business brokers as well). It protects you and them…So if they don’t sign one with you, don’t work with them.

Payment Terms & Financial Checks

This falls under contracts, but is important enough to separate out by itself. Most large transactions need some sort of verification to be done on the buyer to prove they actually have the funds available to make the purchase. Even if they’re only making a down payment on the business, if it’s a substantial amount of money you should make a stipulation for payment in that amount to be made in full within a certain time frame after the signing of the deal.

This is just protecting the deal. You don’t want them to flake out on you half way through the transaction because they didn’t really have the money to back up the offer they made you. Or, worse yet, they were counting on a third party investor to pay for the site and that person wasn’t involved in negotiations. So at closing, they go to their “investor” friend, and to their surprise and yours, there’s no money available.

Ask them to send proof of their ability to pay you before signing the contract. And make sure to put a “payment due by” date in the deal. Not doing so is just leaving the door open for potential problems…aka, being sloppy to the point of hurting yourself.

Introduction to Business Employees & Content Providers

This can’t be done pre-sale often times because of confidentiality, and fear of employees leaving once they find out the business is for sale. However, having some plans to get to know them, or atl east ABOUT them, is only smart.

I purchased a large blog that had it’s content generated by a team of writers in the past. The writers had no clue the seller was selling the site, and when I stepped in, I had to re-staff the entire team because I was left short handed when several of the key contributors jumped ship. They were loyal to the original owner, and I was the new guy on the block. None of them were held by a contract to continue providing the great content they were providing, and because I didn’t have a plan for retaining their services when I became the owner, the business became a burden for me quickly.

GET TO KNOW THE TEAM BEHIND THE PROJECT. I can’t stress this enough. At a minimum, you need to have the selling owner feel out the employees for you to ensure the business’ stability post sale. Are they planning to stay? Will their compensation change? Will their responsibility increase or decrease? If you don’t have a plan, it can blow up in your face.

To wrap things up, a lot of what goes wrong in online business transactions is a result of sloppiness. Plan for the worst case scenario and many times by simply making that plan, you’ll avoid issues down the road. This list is by no means exhaustive, so there my be a part 2 of this article coming in the near future.

What are your thoughts? What do you do before a transaction to make sure the deal goes smoothly? Anything you would add to this article? Leave your thoughts in the comment section below.