What is a Website Purchase Agreement?
A website purchase agreement captures the transaction when one party buys a website from another.3 min read
A website purchase agreement captures the transaction when one party buys a website from another. There are lots of internet-based businesses including mobile apps, web apps, and websites that are very profitable. In most cases, these businesses will never reach their potential due to the inexperience of the original developers or founders. Inexperienced owners may have great products but are unable to turn a profit; however, if such businesses are purchased and handled by experienced entrepreneurs, they could bring in multiple returns.
Identifying Good Investments
The challenge is identifying the website/blog or domain to purchase and determining whether it will be a good investment based on personal goals and needs. Buying and selling websites is regarded by most people to be a profitable business venture. Although this is true, you may end up losing a great deal of money if you don't do it the right way.
Requires a Smaller Investment
One of the biggest advantages of purchasing domain names or blogs and websites is that when compared to other businesses, such as real estate or a physical franchise outlet, they require a significantly smaller initial investment. Individuals who want to sell brick-and-mortar businesses are reluctant to part with it for less money than it is worthwhile online business owners are willing to sell for less, in some cases, less than twice their annual revenue.
Greater Quantitative Advantage
As such, buying websites is a far better proposition in terms of quantitative advantage. When it comes to selling and buying websites, Flippa appears to be the go-to place. Although it is a good idea to use third parties to buy or sell listings, such parties have limited involvement in the legal transaction.
Basically, brokers are neutral entities and do not represent either party. They don't promote the interests of the buyer or the seller; however, there are brokers who operate the way business brokers do. These brokers actually represent the seller, buyer, or both.
However, these entities also have their shortcomings since they only focus on the business end of the transaction and may unknowingly leave you entangled in a legal mess.
Equity and Asset Sales
Sales of businesses are usually classed as either equity sales or asset sales. Mobile app or website sales are usually classified as asset sales. The important advantage of an asset sale to buyers is that they only purchase what they want without the attendant liabilities that may come with the sales (excluding those liabilities that are directly associated with the purchase of the assets). Flippa and other like sites focus on asset sales.
Agreements with Third Parties
On the other hand, equity purchases usually include all the assets together with the liabilities. By itself, agreements which the seller made with key service providers and suppliers may be considered as assets; however, they need to be specified and legally transferred. This is because the buyer may not want the liabilities that come with such agreements.
Detailing a Business' Assets
It can be difficult to specify all the assets of a business. In such cases, it is a good idea to use an all-inclusive clause specifying that each and every asset related to the business has been included in the sale, except those that are listed. Usually, account receivables or cash on hand are not included.
Before acquiescing to a sale, both parties should ensure that they understand what is on the table. The sales agreement must specify this eloquently. Buyers should never borrow to purchase a business if they can. Payments should be done in cash and profit.
Valuation of Online Businesses
Usually, business owners calculate the value of their business using a 3x – 5x model. This means that they multiply the yearly profit three to five times. This means that if a business records a profit of $5,000 within a calendar year, it will be sold for $15,000 to $25,000. Such purchases are not feasible for most people unless they acquire a loan. For online businesses, the number is closer to a valuation of 1x – 2x. Therefore, an online business equivalent can be purchased for $5,000 -$10,000.
If you need help with a website purchase agreement, you can post your job on the UpCounsel marketplace. UpCounsel accepts only the top five percent of lawyers on its site. Lawyers on UpCounsel's marketplace come from schools such as Yale Law or Harvard Law and usually average 14 years of legal experience, including work with or on behalf of companies like Menlo Ventures, Google and Airbnb.