Buying an existing web business is much the same as refurbishing a fixer-upper house. If you have the skills, money, and time, flipping real estate is a good business in pretty much any economy. The same can be true of refurbishing a web business as well.
As with anything, success is all about making the right choice. To continue the real estate analogy, a cracked foundation or a significant termite problem can be so hard to fix that you won’t make a profit. The perfect house to flip is one that is sound but looks like crap. The same holds true for websites and the same purchase criteria and mindset should apply.
The easiest stuff to fix is conversion related, so an ugly site that still somehow makes money is a good place to start. By fixing conversion, often through cosmetic and usability improvements, the existing traffic brings more revenue and your acquisition is immediately worth more money.
A significant portion of the purchasable value of a site (unless, of course, it’s simply a killer domain name or has special significance) will be the traffic that it gets now that and you can reasonably project to continue. Here is where you better look hard for termites!
At a minimum, I would require reporting access to their analytics, not just the reports they ran for me, and then I would take an in-depth look at where the site gets it’s traffic and where it is getting it’s linking. What I’m looking for, in a word, is fraud.
Make sure the external links are not from the seller’s own properties and verify every way you can the sources and consistency of traffic.
If this checks out, then use analytics to look at their visitor value and their conversion funnels for places you can improve.
Finally, do a “Make or Buy” analysis. What would it cost you in time and money to build the same site from scratch?
One of the several ways a web business is just like any other business is that it is run by some owner, and these owners vary widely in the skill and attention they bring to the table, so naturally some of them end up not doing a very good job and decide to throw in the towel. Because of this, sometimes purchasing a business in distress can be very lucrative.
That being said, one major difference between sites and houses is that web businesses often have relatively little cash invested and almost no cash valued assets, so owners are just as likely to simply close them as they are to try and sell them. You should therefore try to understand why the site is being sold and how the owner came to decide to sell it.
The bottom line when buying real estate or a business is to do your homework, be on the lookout for deal-killer problems, and use some simple common sense.
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