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MJ DeMarco
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I am interested in the idea of acquiring established websites that are already producing income. I have seen several websites that has got my attention but never pulled the trigger. Usually after doing my due diligence I find factors that are very unfavorable but some I just did not buy because of lack of communication between myself and the seller. Here are my questions for you guys who have more experience with websites and building businesses online.
1. How do you verify traffic stats and income (payment screenshots), expenses, ect? All of the “numbersâ€, how do you verify they are really true?
2. What would be the best (most safe) payment method to complete a acquisition of this type?
3. Where is a place to find legit web companies for sale?
4. When you have decided to make the purchase, what legal paperwork would need be involved?
Thanks
1) Step one: Review the site and public records.
2) Sign Non-Disclosure Agreement if seller requests.
3) Interview seller
4) Negotiate with seller a price.
5) Sign a Letter of Intent (LOI) which secures your EXCLUSIVE rights to perform due diligence for a period of time -- typically 90 days or so, sometimes longer/shorter depending on the size of the deal. Key: Exclusive -- the seller cannot shop the company around while you undergo this process.
6) During the LOI period, do your diligence on the company and verify seller claims:
Things to verify and research
A) Tax returns of the seller. If seller says "We cleared $1,000,000 last year!!" make sure his tax returns reflect a similar number.
B) Last "X" years of business bank statements. Again, you need to verify income claims.
C) Randomly contact and interview customers of business
D) Any internal reports (ROI, CPA, Daily Run sheets, whatever is normal to business operation
E) Vendors
F) Software/hardware review and analysis
7) If your diligence proves correct and no issues are found, you should proceed to secure an Asset Purchase Agreement (APA) which is the legal document that outlines your purchase of the business assets.A) Tax returns of the seller. If seller says "We cleared $1,000,000 last year!!" make sure his tax returns reflect a similar number.
B) Last "X" years of business bank statements. Again, you need to verify income claims.
C) Randomly contact and interview customers of business
D) Any internal reports (ROI, CPA, Daily Run sheets, whatever is normal to business operation
E) Vendors
F) Software/hardware review and analysis
8) Deposit money in Escrow account while closing conditions are met.
9) Close
I recommend ASSET PURCHASES for internet properties, not Entity purchases. As an Asset Purchase, you buy only the assets of the company, not the entity. This helps minimize possible legal/credit claims against the purchased assets. Under an entity buy, you are buying the corporation and its assets -- hence you are subject to prior claims against the corporation, unless specifically excluded and adequate diligence is done to uncover any such issues.
An attorney should be assisting in all facets of this process -- the NDA, LOI, and APA.
EXAMPLE OF SAID PROCESS:
You want to buy AAAWebsite.com from Internet Media, LLC
Sign LOI to buy assets of Internet Media LLC which consists of:
-- Domain names
-- Software
-- Customer list
-- Operating procedures
-- Hardware/Office/Etc.
LOI gives you EXCLUSIVE time period to do Due Diligence.
Your company, MyCompany LLC purchases the aforementioned assets after successful due diligence.
AAAWebsite.com is now owned by MyCompany LLC, not Internet Media LLC.
Good luck!