As technology advances and the internet continues to grow, there are plenty of opportunities for both existing and new businesses. However, to capitalize on them, your website needs to stand out from the rest.
It is estimated that there are close to 2 billion websites in the world. Though less than 200 million are active, competition for web traffic is high. Starting a website and growing it can be very lucrative, but it takes time and a lot of effort.
This is why many people today opt to buy already established websites to gain an immediate online presence. Buying a website saves you the time and technical work required to start one, and it comes with existing traffic and customers.
On the other hand, buying a website also comes with its set of risks, and you can lose your money on a bad investment. Before making a purchase, there are several things you should consider, and it is vital to have a risk management plan.
What Is Risk Management?
Every business or transaction comes with some risks that can jeopardize your objective. Risk management is the process of identifying, evaluating, and mitigating such risks before they impact your capital or earnings.
Such threats arise from several sources, such as legal liabilities, data breaches, and even natural disasters, among others.
What Is a Risk Management Plan?
The risk management process is extensive and often requires the involvement of personnel from different levels of the organization. A risk management plan is a written document that details how the process should be carried out and the role of each member of the risk management team.
The process of developing a risk management plan involves:
- Setting objectives
- Identifying potential threats
- Risk assessment and analysis
- Determining risk tolerance
- Risk mitigation
Why a Risk Management Plan Is Essential When Buying a Website
When searching for the right website to purchase, there’s a lot more to consider than just traffic or potential revenue. Unfortunately, some scammers prey on unsuspecting buyers. As such, you should be aware of some of the risks involved and come up with precautionary measures.
These risks include:
- Receiving inaccurate figures from the seller
- Purchasing a website you are ill-equipped to run
- Poor traffic quality
- Purchasing a website that is performing well because of a trend
With such risks in mind and a risk management plan to guide you, you will be able to avoid most of the pitfalls involved in buying websites.
Procedures of Buying Websites
If you are buying a website for the first time, the process may be a little confusing. However, with sufficient knowledge, it can be fast and straightforward.
Search for a Suitable Website
When searching for a website, it is vital to do so via a well-established online business broker. This not only reduces your risks, but you will also benefit from guidance throughout the process.
Get in touch with the broker once you have identified a suitable listing. At this point, you will be required to sign a non-disclosure (NDA) agreement before the broker can share additional information about the listing. At times you may even be requested to prove your eligibility and that the funds are available.
Review the Website
A website may seem perfect based on first glance, but you have to dig deeper to ascertain if it’s worthwhile. The broker will give you a detailed prospectus to assist you. It will include details on:
- Business operations
- Market Trends
- Growth opportunities
- Financial data
- Growth opportunities
- Continuing obligations
If the website matches what you are looking for, request the broker to arrange a call with the seller before you make an offer.
Make an Offer
Aside from the prospectus, you should also do your own research on the website. Proceed to make an offer if you are satisfied with your findings. To make you offer formal, it should be accompanied by a letter of interest (LOI).
The LOI is a form of non-binding agreement between you and the seller to proceed with the offer terms.
Once the offer is accepted, you can begin doing your due diligence to verify that everything stacks up. You should focus on the following areas:
- Sources and quality of traffic
- Maintenance requirements and habits
Such reviews take 1-10 business days.
Establish Contract Terms
Once the due diligence phase is over, the broker will prepare an Asset Purchase Agreement (APA). As you formalize, ensure the contract highlights the timeline for non-compete as well as post-sale training and support.
Use Escrow to Transfer Funds
The good thing about reputable brokers is that they use escrow services to facilitate and secure the transaction. Purchasing a website without using escrow is highly discouraged.
Is Buying a Website Worth It?
There are undeniable risks of buying websites. However, if you develop a risk management plan and follow the guidelines above, the benefits greatly outweigh the risks.
Ken Lynch is an enterprise software startup veteran, who has always been fascinated about what drives workers to work and how to make work more engaging. Ken founded Reciprocity to pursue just that. He has propelled Reciprocity’s success with this mission-based goal of engaging employees with the governance, risk, and compliance goals of their company in order to create more socially minded corporate citizens. Ken earned his BS in Computer Science and Electrical Engineering from MIT. Learn more at ReciprocityLabs.com.