Future Profit: The #1 Factor in Buying a Business

Future Profit: The #1 Factor in Buying a Business

Today’s post is by David Gass 

Experts will debate what the most important factor is when buying a web business.  Some may say it’s the niche, while others argue it’s the traffic or monetization method.

There are several factors to look at when buying a website and all should be considered.  Factors such as:

  • Niche
  • Type of Website
  • Number of Unique Visitors
  • Monthly Revenue and Profit Numbers
  • Page Authority
  • Page Rank
  • Traffic Value Based on SEMRush Reports
  • Page Views Per Visit / Bounce Rate
  • Organic Traffic or Paid Traffic

You know the drill. If you’re a regular reading of the Flippa blog, you’ll know that website valuation is discussed very frequently.

However, all of these factors are based on the history of the website.  Although the history does help with due diligence, it is not how a website buyer will make their money after purchasing the website.

A website buyer’s most important factor in buying a website is future profit.

What Really Matters

Future Profit is the total of the monthly profit from the site’s activities while the buyer owns the site, plus or minus the profit from selling the website at some point in the future.

If a website currently generates $600 in monthly revenue, but you have the knowledge, skills and time to improve the conversion rate of visitors in order to generate $900 per month, your Future Profit will be higher than the site’s historical earnings would indicate.

Although many website buyers’ strategy is to buy, hold and grow with no intention of selling, the future profit must include the value of the website in addition to monthly profits.  The value of the website is not truly realized until the website is sold at some point in the future.

What’s your site’s future profit?

Knowing the future profit of a website is impossible, unless a buyer finds a crystal ball that can see into the future.

For now, the best indicator of Future Profit is still past performance.  However, by basing a decision to purchase a website on past performance alone, with the many outside factors that can change a website’s traffic flow and monetization, it’s very difficult to be 100% on target.

All the factors mentioned above such as niche, type of website, page authority, etc. are important to look at, but they don’t tell you exactly what a website’s performance will be next month or next year.

In my opinion, the best indication of future performance is the experience of buying, running and selling a website with similar characteristics to the site a buyer is looking to purchase.

There are two ways to gather this experience:

#1 – Buy a smaller website in a growing niche and use the experience for future purchases

Obviously, this provides a dilemma.  There is still the first website that needs to be purchased on blind faith and any time a buyer wants to purchase a site in a new niche, they need to start over by buying another small site with no experience in that niche.

Based on my experience, I would guess this is what 99% of buyers are currently doing.  They buy their first, second or even tenth website in a new niche.  Each time they do this, they’re starting over with gaining experience in that niche to help determine future profits of any new website they want to buy.

#2 – Use the experience of others

Find others willing to share their experience of buying a website and the results they’ve had with the site.  In this case, a buyer is learning from the experience of another website buyer.

Where are these buyers?  Right on Flippa!

Flippa lists all previous auctions with the sale price and all data for the sold website at the time of the purchase.  A website buyer can contact the current owners of these websites and ask if they have an interest in selling the site they bought.  This works best when approaching someone who purchased a site at least 6 months prior.

If the seller has an interest in selling, ask them if they will provide the necessary due diligence data to purchase the site.  All the data will help in determining what the website’s traffic and profits were after the initial purchase on Flippa.

The future profit indicators are easy to determine now. Simply compare the new stats since the sale with the initial stats from the Flippa auction.  If a deal is put together, great.  The website seller can list the site on Flippa as a private sale and have the buyer make an offer on the listing to win it.

Putting it all together

By buying a website in a similar niche, with similar traffic and monetization methods, this comparison will help dramatically in determining the future value of a potential website purchase.

After researching a niche, building some experience in it and seeing where your strengths can help grow revenue, you should have a much better idea of how long it will take you to recuperate your investment. This helps explain why different investors will have such different valuations of a same website.

How One Seller Created A Web Business Out Of A Hobby

Building model airplanes probably won’t become your next profitable business.

Today’s post is by Tony Hosea, known on Flippa as SmartQuant. His profile caught my eye when I noticed he had over $45,000 in transaction value for 166 websites sold — and perfect feedback. When Tony and I emailed for the first time, I was surprised to learn that he isn’t a web developer by trade: he described his Flippa activity as a “money-making hobby”. If you’re like most people, your hobbies are a money drain, not a money-maker! Here’s how Tony does it. 

To most people the words, “money-making” and “hobby” just don’t seem to go together. Usually a hobby costs money and is done purely for the fun of it. What if I told you that you can have a hobby that you really enjoy and make money from it? With that said, let me tell you how I started selling websites as a money-making hobby.

Stressful day job, relaxing side project

My day job of analyzing global financial markets can be fast-paced, non-stop, and about as stressful as any business can possibly be. Those who are able to relax and keep a cool head in the hectic world of global finance stand a much better chance of long-term success. I’ve loved the markets from the moment I bought my first stock and have been very fortunate to have the markets love me back! With that said, I’m basically just a number cruncher who sifts through mountains of market information to find those opportunities with the greatest probability of success.

So how did I start to build websites as a hobby as I grew my investment business? I was always interested in the limitless information-sharing potential of the internet. Creating a website seemed like a great way to share my investment ideas with other interested parties. As I starting building websites I discovered something amazing… building websites relaxes me. Who knew?

See Opportunity Where It Lies

When Flippa opened for business, back in 2009, it was a natural fit for me as I was already skilled at creating effective websites. Initially I had only built websites  for my own online portfolio which was growing every day. With Flippa I saw an opportunity to share my site-building expertise with those that seeking a quality, ready-made website. I also saw an opportunity to sell some of my existing websites as I was looking to reduce the size of my portfolio and focus on just a few core websites.

If you’re thinking of developing your skills into a money-making hobby, here is what I did:

1 – Study The Flippa Site Rules and the Seller Guide

Get a smart start in your business by familiarizing yourself with the Site Rules. These form the foundation of how buyers and sellers should operate on Flippa.

Flippa’s guide to selling websites is also a good overview of the sale process, including best practices and tips. There are specifics for each platform that can be surprising before you read about them (for example, did you know about the one-hour extension when a new bid is placed? Or that you need to verify a credit card before you place a bid over $200?)

2 – Plan Your Strategy

You may have heard the saying, “If you fail to plan, then you plan to fail”. This saying holds true regardless of what you are trying to achieve, so planning is essential.

Decide why you want to build and sell websites. This may seem obvious to you, but remember that the motivation behind why you want to do something will serve as the driving force behind your success.

Decide early on how you plan to position yourself in the Flippa marketplace. Will you sell new/startup websites or will you develop websites and sell them once they are earning a healthy profit? Alternatively, will you buy existing websites, improve them, and sell them for a profit?

3 – Don’t Be In A Rush To Sell

If you happen to have a day job, or you own currently own a business, you are in a perfect position to create your own money-making hobby in website selling. You see, by already having income coming in you are in a unique position to not have to sell anything. When you do start selling websites you are in a position to not have to give your websites away for nothing. Unless you are a retail giant like WalMart, you will find that competing on price alone may not be the route you wish to take.

4 – Always Do Business With Integrity

It should go without saying that you should do business with integrity. For a seller of integrity, “Honesty Is The Best Policy” is more than just a saying or quote, it’s a way of life.

How do you do business on Flippa with integrity? It’s really very simple if you adhere to a few core principles:

  • Create something of value – Remember that there is a difference in the mindsets of person A, who creates something just to sell and person B, who creates something to benefit the buyer.
  • Creating listings that are truthful – It’s natural to be enthusiastic about a website that you have for sale. Check and double-check your listing information to make sure that you have given potential buyers an accurate description of what they are getting.
  • Say what you mean and do what you say you will do – If you say you provide service after the sale then provide service after the sale. If you state that you will have a customer’s website up and running in three days then make absolutely certain that you do exactly that.

This is how I do business, and it works. Anyone who says you need to be dishonest or offer questionable value in order to succeed is only trying to justify their own behaviour.

Photo Credit: Bill Abbott

7 Tips for a better work life balance when running a small business

7 Tips for a better work life balance when running a small business

When was your last vacation? I mean a real, email-free, no-phonecalls vacation. If you’re like most people I know, you can’t quite remember. This is why I like today’s post, by David Bakke. It’s a reminder that entrepreneurship is about balance (not extremes), and that having a better work life balance can improve productivity and happiness. 

Running a small business is tough. With the flexibility of creating your own schedule and being your own boss, comes big responsibility. But not only are you responsible to your business, you are also responsible to yourself. If you don’t pay attention to balancing personal life with work, your health, relationships, and finances can seriously suffer.

A friend of mine found this out the hard way. She owns a lively coffee house, but in the beginning, she worked 12 hour days and didn’t take a single day off. She was ultimately forced to take a break when her husband threatened divorce unless she start devoting time to their family. Extreme, perhaps, but it got her attention. By prioritizing balance, learning to delegate responsibilities, and better managing her time, she got her personal life back on track.

If you’ve been burning the candle at both ends lately – or wish to avoid that trap – read on for seven tips that can help restore balance to your life.

1. Create a Schedule

Once you start your own business, you won’t have a boss to report to, and can work whenever you want. However, I made the transition to small business ownership several years ago, and my organization suffered significantly at first due to my ineffective management of time. By setting a schedule, I became more efficient, and now know when it’s okay to unplug for the day. To create a schedule, use Gmail’s Calendar. Or, if you don’t have a Gmail account, use the free software WinCalendar (available for download via CNET) or the calendar feature in Microsoft Office Outlook.

2. Commit to Breaks

You may feel guilty by doing so, but taking breaks is important. Trying to get work done when you’re not at your best can waste valuable time.

3. Focus on Personal Health

If your business is Internet-based, you may find that finding time to exercise is more difficult than ever before. Get a gym membership or exercise at home to improve your health and increase your chances of succeeding. Running a small business requires long work days, but by exercising sufficiently, you’ll sleep better each night and wake up each morning with a clear head so you can better tackle the challenges of the day.

4. Improve Your Personal Finances

Is credit card debt nagging at you? Are you struggling to pay monthly bills? If so, these nuisances can impede your ability to fund your new endeavor. It can become more difficult to concentrate on running your venture, in addition to putting unnecessary pressure on yourself to succeed. Get yourself on a personal budget and pay off your debts. By doing so, stepping away from your business to allow for more personal time becomes easier.

5. Improve Your Diet

If your day is filled with quick stops at fast food restaurants because you don’t think you have the time to eat healthier food, you’re not doing yourself any good. Take the time to switch to a diet based on homemade dishes consisting of more fruits and vegetables, and look for a farmers’ market in your area to buy fresh, organic produce for cheap. You’ll save money and potentially decrease your medical bills.

6. Get Out More

If you’re running your operation solo, loneliness or even depression can seep into your life. To prevent this, make an effort to strengthen your relationships with family or friends, or go out and make new ones. Volunteer your time, and keep an eye out for social organizations in your area. As you meet new people, try to keep business topics out of the conversation so that you may give yourself the mental break you deserve.

7. Find a Mentor

If you find yourself working too much or too little, seek a mentor. Check with family or friends for recommendations, or post your request on your LinkedIn profile. Your local chamber of commerce may be able to help too. A mentor can assist with virtually every facet of your small business, including juggling your operation with your personal life. Finding someone who’s been there and done that can cut down on the time it takes you to achieve the right balance.

Final Thoughts

According to a small business survey conducted by U.S. Bank, 45% of respondents said “their business is their life, and their life is their business.” Don’t be one of those people – always be sure to include some “me” time during every single work day. Even if it’s just watching some TV, even mindless entertainment can be an effective way to unwind and refresh. Or, pick up a good book – and not a small business self-help book. Select an author that you like and read their work.

What additional tips can you suggest to balance small business ownership and personal time?

Photo Credit: happykiddo

David is an online marketer, author, and blogger for the popular personal finance and business resource  Money Crashers.

Interview: Entrepreneur and author of The $100 Startup Chris Guillebeau on overcoming naysayers

Interview: Entrepreneur and author of The $100 Startup Chris Guillebeau on overcoming naysayers

Today’s interview is with Chris Guillebeau. Chris set an ambitious goal for himself: visit every country in the world by 2013. He achieved this goal just a few months ago. In the meantime, he also wrote the hugely popular book The $100 Startup and hosts the World Domination Summit every year in Portland. Whew! Busy guy. 

Going from grad student to international traveler to best-selling author and startup inspiration sounds like a dream come true, right? And yet, there’s so much negativity surrounding the people who actually take the first steps towards making their dreams into reality. One of the most positive people I know is Chris Guillebeau: this guy has enthusiasm and positivity oozing from his pores.

That’s why I wanted to ask him a few questions about negativity. Sure, it’s easy to let negative comments roll off your back once you’ve made it big, but what about your first few years as a fledgling entrepreneur? What tips does he have for people who are finding that their family and friends aren’t quite on board with their big plans? Here’s what Chris had to say.

You’ve been very successful in writing about your love of travel and living independently. What do you say to people who claim that:…

You’re “selling out” by writing a book and charging for a conference?

I have a great life. I feel very fortunate to be able to write and travel. I do at least 80% of my work for free, and everything on my blog is free. If people feel like they’ll be helped by something else I offer them for sale, it’s available. If not, there is more than one way to support my work for those who enjoy it. I’m just as grateful to those who spread the word as I am to customers who buy something.

So in short: this is the business model I’ve used for five years now, and it’s working very well. If it means I’m selling out, I guess I’m selling out.

Working for yourself is selfish when you have a family to support, and encouraging people to leave their day job is irresponsible.

If you want to support a family, why can’t you do that through a small business? Most wealth is created through entrepreneurship, not by saving 5% of your salary for 40 years and hoping for the best.

As for leaving a day job, I’d never encourage anyone to do anything “irresponsible”. But I would encourage everyone to think about what security really is. Are you really better off entrusting your well-being and livelihood to someone else?

Don’t you need a well-outlined backup plan, and a lot of money in the bank, before you can start your own business? You make it sound so easy…

It’s not easy in the sense that it doesn’t require hard work. It takes a lot of hard work, actually. But as for money, most of the people we studied in The $100 Startup began their business with $1,000 or less. This then turned into a reliable income of $50,000 a year, $100,000 a year, and in some cases, a lot more.

Digital products are dead, no one is buying ebooks or access to webinars anymore.

I’m not sure who would say that. There are more people buying ebooks than ever before. There are more people coming online for the first time all over the world than ever before. Learning has certainly changed, but this doesn’t mean digital products are done. Quite the contrary.

Not everyone can just decide to become an entrepreneur, and not everyone can be the boss. We need people to hold down day jobs!

Well, not everyone wants to be an entrepreneur, and that’s fine. But to return to the question of security, I’ve found that most people do want to create their own security one way or another. Even if you remain in a day job, wouldn’t it be great if at least some of your income came from a different source? Wouldn’t it be great if you had a little extra?

Photo credit: Kıvanç Niş

Case Study: Why I Chose Flippa For My Domain Sales

Case Study: Why I Chose Flippa For My Domain Sales

Flippa specialises in established web businesses, but we also sell many domains each week — here’s a list of our most recent domain sales. Eagle-eyed readers will notice that many of these were sold by one Flippa user: Federer, known in the wider world as Luc-André Biggs, a 31 year-old self-taught entrepreneur, living in Portugal. I asked Luc a few questions about his experience in buying and selling domains, and why he’s chosen Flippa for his most recent sales.  Here’s his story!

About 7 years ago I stumbled upon some articles relating to domain names, what there are created for, the benefits of owning a great domain for your business etc. I found the information fascinating and spent hours, if not weeks, researching domain ownership, reading articles, sales reports, forum posts and so forth. Each week, I was becoming more of an “expert” on the matter and decided after a few weeks to swim in the deep end. My first purchase was a 3-letter .COM domain name with 2 decent letters, a so-called double premium LLL.com. After negotiating, I landed the domain for around $7,000. According to my research and analyzed sales reports, the domain was worth at least $10,000.

12 days later, I had found a buyer at $11,500.

And then I went full-onboard and have been on cruise-control ever since. I have been investing in keyword-rich internet domains since that day, and with each year that goes by, the quality of my domain acquisitions rise. For many years, I invested mainly in .COM/.NET/.ORG domain names, but am now also investing in .INFO as well as some ccTLDs (country code top-level domains).

.INFO is a fantastic extension for information-related sites (ex. Travel, Sports, Health, Finance) and we have recently acquired a wealth of awesome names under the extension. Most of these domain names have fantastic development potential and that is where Flippa.com fits in. I have never seen so many web entrepreneurs and developers all united under one auction platform. Many of these investors have the resources and dedicated teams needed to take high-category domain names to the next level and build upon their premium brand value.

Instead of selling my properties simply to resellers, I use the Flippa platform to sell domain names to web developers and eagle-eyed entrepreneurs who can spot an unforgettable online brand when they see one. I see domain names being snapped up by investors and transformed, sometimes in a matter of days, into profitable web portals.

Life is being breathed into more of our web names with each week that goes by. These domains are finding buyers due to the sheer quality of the domains up for auction – not to mention the sheer search volume of our keyword(s) among the major search giants.

Here’s a sample of the sales I’ve made on Flippa:

Company.net
Outsourcing.net
Asbestos.info
Games.info for $20,300
Vacation.info for $11,650
Bathroom.org
Rock.org
Architect.net

Right now, I’m auctioning Homes.info & Domains.info. Both are past reserve, and both auctions end this week!

Photo Credit: Spreng Ben