top things to look for when buying a site for a future resale?

[Tamethebull]

Lets create a checklist...

Question: If you wanted to buy a site with the goal to resell it in 12-24 months at a profit, what are the leading items to look for?

Here is a start...

1. The ability to measurably grow sales/financial transactions
2. The ability to earn more per transaction either by acquiring the product at a discount rate or by increasing the fee collected
3. The ability to add an additional product/service to the mix
4. The ability to locate new buyers

What else?

[grynge]

The ability to fix a sites coding
The ability to easily get quality backlinks for the site
The ability to convert more sales from existing traffic
The ability to get loyal customers for further sales

[KenW3]

The ability to analyse competition and beat competitors
The ability to continue to serve the site's visitors
An understanding of the semantics in the industry it serves
A niche not declining in interest, or in the process of becoming obsolete

[Clinton]

To merge two companies to make the combination bigger than the sum of their parts
To strip a company of some of its assets, IP etc., arnd resell company separately from stripped assets
The right location for the purchase gives opportunities to sell elsewhere at a higher price
Inside information on the industry that you know will increase the site's value in the near term even without any work done to the site
The ability to cut costs, move work overseas or to otherwise improve the P&L account and Balance Sheet

[meathead1234]

1) Buying it below market value in the first place

[Tamethebull]

You are bringing up a huge topic by saying to "buy it below market value". Let's define "market value". My first thought is to define market value as a multiple of cash flow earned, and compare the multiple paid by other similar sites that have recently sold in the same industry. What do you do to define market value?

"The ability to cut costs, move work overseas or to otherwise improve the P&L account and Balance Sheet"

This is a great topic and is a full seminar series in itself. What are the top 'key performance indicators' you look at first that can make the biggest impact in improving one's P&L and balance sheet? Let's peel the onion back a little more, eh?

I would first look at a.) increasing cash flow by gaining more new customers, b.) cutting product/service acquisition costs, and c.) increasing repeat transactions. (which I pretty much said in the beginning of the post)

[Clinton]

You are bringing up a huge topic by saying to "buy it below market value". Let's define "market value". My first thought is to define market value as a multiple of cash flow earned, and compare the multiple paid by other similar sites that have recently sold in the same industry. What do you do to define market value?

I think you're spot on and it's the principle on which I built ebizvaluations.com. There are a few problems with comparative pricing I've admitted on that valuation site
1. The data you need to make the comparisons is not available as most transactions are confidential
2. No two sites are identical (or even comparable in the way a flat in a block of apartments is largely similar to other flats in that block). There are too many variables.
3. A multiple of past earnings is valid only when all properties are expected by all buyers to grow in a uniform way (or stay static). The reality is that while we talk about past multiples, they only have value if earnings are expected to continue into the future. So what buyers are really doing is using historical earnings to form an expectation of future profit and their multiple is a reflection of that profit expectation tempered by the risk they perceive. All very subjective. Further, it does not take into account synergies buyers see or value they think they can add... which considerations also affect the price they're willing to pay.
4. etc.

midascode, a member here, and I jointly executed a purchase last week of a PR7 property that didn't get posted at any broker or auction site. We paid a price below what I think it would have sold for in open auction. Maybe that's the kind of deal meathead1234 is talking about. But those aren't the norm.

What are the top 'key performance indicators' you look at first that can make the biggest impact in improving one's P&L and balance sheet?

Increasing inflows and decreasing outflows, obviously, but there are a million things a good accountant can advise on. For example, accumulated loss on the balance sheet can be a big draw for some buyers for the tax reduction potential it represents. If you can accumulate loss on the balance sheet while actually making a profit - possible with a high amortisation rate, for example - you've got the best of both worlds.

[DomainMagnate]

for me it's mostly:

1. buying it cheap
2. being able to improve monetization methods to increase revenue
3. being able to improve seo traffic, based on current link profile and serps

in that order

[meathead1234]

You are bringing up a huge topic by saying to "buy it below market value". Let's define "market value". My first thought is to define market value as a multiple of cash flow earned, and compare the multiple paid by other similar sites that have recently sold in the same industry. What do you do to define market value?

Precedent transactions (if available) are a pretty good indication of market value.

I tend to just base it on gut - if I think I could sell it for more tomorrow, then I've got a good deal.

*disclaimer - I do broker sites so have a pretty good idea what my clients would pay - no real science behind it

[Tamethebull]

How about doing due diligence on the seller? Doing a google search, trying to find out about past projects, what kind of groups he/she associates with, etc?

Any thoughts / experience here?