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Buying a Business in the Cloud

Estimated reading time: 5 minutes, 57 seconds

Buying a business is hard work.  Building one from scratch is even harder.   Many of heard me speak of opportunity costs and economies of scale.   Many times (especially in the virtual world) starting a website from scratch, with an existing positive cash flow,  makes more sense.  Other times, buying one does.   Some of the virtual properties can be in the tens of thousands,   this is where fractional ownership comes into play.  Buying the asset with other people.   More about that later.

When buying a high value item such as an automobile or an apartment you have laid down procedures to follow that simplify the entire process. The clear procedures guarantee the purchase is safe and secure; leaving no room for fraud. However, there are no prescribed norms to go by for buying a website. The absence of a defined process makes buyers of websites vulnerable to scams. So, what can you as a buyer do, to protect yourself from dishonest sellers?

Without proper leads to guide buying a website can become a daunting task. It is not a simple process where a buyer pays money and buys a website. There are tricky dealings involved that can leave you befuddled. As a buyer it would be prudent to first corroborate all the details of the website that are provided by the seller, to make certain they are not fabricated, and you are getting what you are paying for. Once you are satisfied with the findings you can go through with the procedures that involve the actual transferring of the website. These entail making the payment to the seller and ensuring the domain name, website and virtual assets are transferred to you. This looks quite simple when you read about it, but to ensure the actual transaction happens without a hitch, requires expertise.

 

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Here is a detailed account of steps that need to be followed when buying a website

How to Avoid Fraud While Buying Websites

The first step necessitates identifying a website that you want to buy. This decision in all probability will be based on the performance of the website, as claimed by the seller. In the virtual world there is no place for trust - As a buyer you will need to validate these claims before you move forward. Doing so in an individual capacity might be impossible and you will require assistance of a professional service to determine whether the claims made by the website owner are factual.

You can use Flippa to substantiate the claims made by the buyer. Flippa does a professional job of collecting and categorizing vital data of websites, which can be used to assess their worth. Alternatively, you can confirm claims on search engine ranking, traffic and revenue that the seller makes through tools available on the internet.

Three Steps to Ensure a Safe Website Transaction

Verify the Numbers

  • The internet offers a plethora of tools that can be used to confirm the status of websites. Here is a lowdown on some of the best tools available to you.
  • Search Engine Ranking Validation – Validating search engine rankings is quite simple. Ranking can be verified through tools such as RankChecker and SEMRush. These sites provide almost instant data on website rankings.  The data is both current and reliable.  Armed with actual Google PageRank and Alexa Rankings you can correctly determine the true worth of a website.
  • Traffic Validation – The amount of traffic a website receives is important in deciding its value. An estimate of the traffic a website receives can be established at Complete.com. It must be noted here that the website provides only a ballpark figure, which maybe lower or higher than the actual figure.

Be cautious if there is a huge discrepancy in the traffic the seller says the site receives and what shows up on Complete. If the seller projects a figure of 45,000 monthly visitors and Complete indicates a much lower figure treat this as an indication that the site you propose to buy is not healthy.

Check the figure against the page ranking. If the page ranking is high and so is the estimated traffic, then it is most likely to be high in actuality.

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In case Complete fails to reveal a record for a site it could indicate that the website receives very little or no traffic.

Revenue Validation – Remember the saying “The proof of the pudding is in the eating”? If a seller alleges that his site is earning X number of dollars each day, ask him for evidence to prove his claim.

The seller may try and outsmart you by doctoring revenue stats on listings he shares with you or send in fake stats. You need to confirm the stats are from a valid site and the images have not been tampered with.

The best way to protect your interest is to connect with the seller on Skype. Ask them to setup a screen share so that you are guaranteed screenshots of revenue listing you receive are completely genuine.   Keep an eye on the URL's he or she is going to,  make sure you can see them and they are legitimate.

 

Treat the Sale as a Business Transaction

Buying of a website is a business transaction between you and the seller. It would therefore be practical to treat it as one. Observe the following practices to avoid being cheated

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Have a Sales Contract

Signing a sales contract is a common practice in business, in the real world. It is a contract that is binding and needs to be initialed by the seller. It is within your rights as a buyer to ask the seller to sign a sales contract.

The sales contract is a legal document that comprises of terms and conditions of the sale and protects both you and the seller. A seller who is hesitant to put his signature on this document is in all probability fraud. You should know better than to do business with him; no matter how good his offer appears.

Escrow

It is wise to use Escrow.com while trading in virtual assets to avoid being robbed of your money. It is unquestionably amongst the most dependable and safest escrow services. Escrow.com will never transfer money into the sellers account until it is authorized by you. This ensures the seller receives payment after successful handing over of website and domain name; ruling out any chances of fraudulent dealings.

Inspection Period

To play it safe you can also stipulate an inspection period, where you can gauge the actual traffic and revenue as against the sellers claim.

Google Analytics

Google Analytics is an accurate tool to verify the amount and kind of traffic a website receives. Don’t hesitate to ask the seller for a copy of Google Analytics data of the website, to determine the actual traffic.

The above tips are designed to help buyers protect their interest when buying virtual goods online.

If you are interested in buying a business "in the cloud" and all the benefits of doing so,  check out my book on Amazon below.

The Virtual Economy by John Higginbotham

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