• First time purchase, analysis of future risk.

    I think focusing on the site operations and viability going forward is exactly the right place to put your attention. One of the key aspects of a site that is almost always glossed over, especially by the website broker crowd, is what it takes in terms of expertise and time to keep a site running at the level that they're selling it as being. That's a bit of a mouthful there, but in a nutshell what you won't see is a detailed explanation of the time the (soon to be) former owner puts into running the site. Beyond that, what you will need to become in order to match that level of effort. How long will it take you to ramp up, and does the person currently running the site have some special experience or background that makes them more suitable than you would be to run the site?

    Let me give you an example of this. Recently, I was looking at an online community website (these are the types of sites I specialize in), listed by a broker. Here's a link if you're curious. Now, the data there only accounts for a small amount for hosting in the expenses column. In other words, the amount of time the current owner invests in the site is valued at zero. It's currently listed at a bit over a 3x multiple, which may be fair if all the numbers are solid. I usually assume they are not, though.

    The real problem with the site I've given as an example, though, is that the current owner is far more qualified to run the site than I could ever be. The current owner not only works in the industry, but states that he has inside information that even if other people could gain access to, would be extremely difficult for anyone else to be able to assemble in a meaningful manner. In other words, for anyone other than an industry expert, you can expect this site to be a declining asset from the moment you buy it. Of course the broker and the seller would dispute that, but this is the way I interpret the listing.

    So, to get back around to what you're asking, being able to assess what you personally would need to do in order to maintain and expand on the business that you're taking over is a critical piece of information that too many people buying websites overlook. Even if the stats you're being sold are solid (which they are usually not), you need to make sure you're not going to buy a declining asset because the seller misrepresented the amount of time and the level of expertise the site demands.
    This article was originally published in forum thread: First time purchase, analysis of future risk. started by nokkieny View original post