Internet Marketing | Lead Generation

I have been asked quite a number of times recently about how “bigger deals” are structured when it comes to selling a website business. Of course I can only speak about my own experiences, but hopefully the following will assist some of you who are selling a web business - big or small.

For example, I have been asked, Do you get all the business valuation in cash or if you do not, what kinds of security can you look for? Basically Barry, give me an example of how a deal to sell a web business (or indeed any business for that matter) can be structured.

Like I say - I can only speak from personal experience and my knowledge of some of the DEALS my friends have done when selling their businesses.

So here goes and first the “bad news”

Very few buyers of big sites or web businesses will ever give you the full money in cash up front, it just does not happen that way - well not on BIG deals when you get into 7+ figures (and I dare say, for 5 and 6 figures also)

Of course, depending on your point of view, the above is not necessarily “bad news”. Some business owners just get bored with what they are doing, or consider they have taken the business as far as they can and are looking for something new. That was the case with me - some boredom creeps in. (Sad, I know!) But I am not unique, I have met other business owners, in similar situations who just got bored.

So in my example - at exit (sale of business) I was actually looking to keep a stake in the company I was selling - simply because it still had a long way to go and with a bit of luck the new management, would make an even better job of it than me - resulting hopefully in a “second payday” for me when the new management sold out. (The new management it has to be said, are professional managers, unlike the serial entrepreneur that I am)

To be fair I was never ever offered the full valuation in cash, but even if I was, I’m not sure I would have wanted to take it - or perhaps I would have wanted an even higher cash valuation.

With regards to “security” - well that’s a difficult one. The buyers actually offered me Preferential Shares - that were redeemable should the new management fail or not meet certain levels of performance. In the end I declined the “Redeemable” bit, but this was to do with UK Tax laws - basically if the shares had been redeemable, I may have had to pay a higher rate of tax. So to answer your question - there is no Security in the normal sense and in my experience that is also pretty well the norm. I think as a seller, it is best if you can live with the concept that the only CASH you may ever see, is the initial cash and anything over an above that is a bonus. For that reason, you should of course look to get a significant cash sum on doing the “deal”.

Of course in my example - I am talking about selling a business, not a website and selling a web business is quite different from selling a website or two. I should think that if you are selling relatively low value websites, then you would want all the cash, there and then.

I am not going to reveal the exact deal I did - but I would say that in my experience, the following format is not uncommon.

CASH - PREFERENTIAL (INTEREST BEARING) SHARES - REGULAR STOCK (SHARES)

Cash: Typically anything from 20 - 50% of valuation
Preference shares (loan) - paying interest - anything from 20 - 50% of valuation
Regular Shares - say around 30% of the new company (in many cases, a new company is created, which will own the company you are selling and you will own shares in that new Holding Company)

The last part of my example above assumes the STOCK / SHARES is still in the business you owned or a NEWCO created out of the business you owned. If for example the buyer is an established company, who offer you stock as part of the deal, then the percentage bit I’m quoting would I’m sure be quite different.

So for example:

40% Cash / 30% as a loan and paying you interest (Preferential Shares) and 30% stock in Newco is fairly normal

Interest on the Preferential Shares varies - but anything around 10% paid monthly is good

Typically the new management will seek to redeem the interest bearing shares ASAP - as the interest rate being paid out is usually above a commercial rate available from banks. They will pay you out of this either by refinancing their borrowing after two or three years or from profits in the company. (Yes, you are being paid out of the profits of the company you created and which you would most likely have still enjoyed, if you had kept the company - again fairly normal.)

Some sellers have an issue with the company they sell, paying them out of the profits, later down the line - but in my experience, unless you are pretty unique or lucky, that’s just the way things are done.

A side note to my deal: I agreed to do one day a week consultancy for two years.

Another Point To Consider:

Almost all new owners will want some “hand over” assistance - even on small purchases, never mind, BIG purchases!

As an example recently I wanted to buy a very nice “authority” site - with a PR7 and frankly TOP of it’s niche. Owner wanted circ $50000, which in itself was not that big an issue, but quite remarkably, did not want a consultancy contract or to help out any more with the site - post-sale. In the end, that was the main reason I did not proceed with buying his site. And I was more than happy to pay additional for that consultancy.

Think of it from a buyers point of view, you are the seller, make it as easy as possible for them to do the deal. Offering to help out, to assist, gives them more confidence in you and helps get the deal done.

Also, as another side note, if the new management are raising funds from Banks or VC’s they will almost certainly want to see some ongoing commitment from the previous management.

I hope this helps. If there are any more questions you consider I can help with or give an opinion on, please ask away