- Contract of Sale
Is it worth signing up with a website broker?
See also: Where to sell your site
First, a good broker can be a useful ally in selling a website; his guidance can be invaluable. But good brokers are few and far between and sellers often use a service such as The EXIT Firm to find the right broker. Before you sign on the dotted line and commit yourself to a tie in of several months, let me arm you with how you can decide if he's any good. Some brokers rely on the fact that you as a seller have no way of verifying the claims in their sales pitch and hope you will blindly rely on their advice. As this is a critical partnership and your website is likely your biggest asset, you need to choose brokers carefully. Here's some insider advice from someone who has dealt with many brokers, good and bad (and a more detailed version of this advice is here and here).
I've laid this out in the form of a) the claim he's likely to make/ the
reassurance he's likely to give followed by b) the caveats - how to evaluate the
merits of those claims. I then conclude each point with c) advice on action you
can initiate yourself to verify his claims and what you'd need to do if you were
handling the sale yourself.
1. Valuation: Has he valued your site higher than other brokers and believes he can sell it at that price?
Caveat: It is not unknown for brokers to over-value a site to land
the job. If it doesn't sell he can always change his advice later and tell you
to lower your expectation. The excuse could be that the market has changed,
there's a glut of other sites for sale, there is a recession on, the recession
is over ... or something else altogether. Don't choose a broker based on his
valuation of your website.
2. Higher Multiples: Has your broker claimed he can sell your site at a higher multiple (of EBITDA) than if you sold it yourself?
Even if he offers some kind of proof, bear in mind that brokers pre-select sites. They take on only established sites with steady revenue streams. These sites are likely to sell for higher multiples anyway ...wherever they are listed! The higher multiple your site fetches may be to your credit, not his.
Action: Test the market with a dummy listing. At places like Flippa.com you can run an auction with an impossibly high reserve price to see where bidding ends. As bidding won't reach your reserve you won't be obliged to sell, but you will have a multiple to compare against what the broker suggests he can get you. Further, make 100% of the broker commission contingent on him selling.
It's highly unlikely that a motivated seller prepared to do his homework would get a lower price if he sold the site himself.
3. The buyer database: Has your broker claimed that he has a database of eager buyers, wealthy individuals?
Caveats: This is another one of those claims that can't be proven. He may have a millions of so called buyers but were they tricked into signing up for his newsletter or incentivised to sign up with a promise of a free ebook? How many actually open his email? Of those that do how many are just nosey bystanders rather than eager buyers with cash in the bank? How does he know they are wealthy, did they give him access to their savings accounts? Sites like businessesforsale.com send out regular emails to their buyer list with updates on the market, popular sectors etc. Business brokers, on the other hand, tend not to cultivate their lists. They don't send out regular newsletters, they don't build a relationship with their subscribers. They know very little about these people and have no idea how many are genuine buyers. The number of subscribers he claims is no indication of how useful that list is going to be for the sale of your site.
Action: Will he agree to release you completely from the contract if
you do not get more than X serious enquiries within the first two weeks via his
4. Understanding buyers/the market: Has he claimed that you need someone who understands what website buyers want/what's happening in the marketplace?
Even if you consider the wider marketplace, most brokers aren't aware of what's happening. Spend a few hours in our forums and you'll realise that there's a lot going on behind the scenes. Buyers are more organised than brokers realise. They've got tools that analyse the market, find going rates for websites, discover unvalued websites etc. (Does your broker's listings feed into these tools?) Buyers also tap into APIs and feeds from marketplaces, have spiders that crawl other listing locations and programs that analyse all the data. They've plugged into Twitter and other social networking sites and apps.
The premier place for all this discussion is our forum. Some brokers are in there actively participating and keeping a finger on the pulse. Some are still stuck in 1995 and believe that all they need to do to sell a site is list it on their own homepage and send out an email newsletter to their subscribers.
Action: Pre-arm yourself with the knowledge first and then have a chat with him to gauge how much he knows about what buyers want and how much he knows about your specific market.
5. Data and due diligence: Has he told you that many sellers don't appreciate exactly what buttons to press to interest buyers; that he'll guide you with what records and what info to make available and how to present it all?
Caveats: Most of this is common sense and our due diligence pages, though written for buyers, will tell you what buyers are looking for. When it comes to presentation, I've seen sales documents drawn up by sellers that are a darn sight better than some of the best brokers.
Action: If you have the time to spare, put on a buyer's hat and take a trip down to a listing site such as businessesforsale.com. There you'll find business/ websites for sale by owner and for sale by broker. You'll get an idea of what a typical listing looks like. Ask your broker to email you his last ten listings. If they look like they all came off the same template you might draw the conclusion that you can do a better job. You probably can. Trawl through some existing good listings and you'll soon figure out what data is considered important. It's not rocket science.
6. The Safety Claim: This is the biggest asset you're selling and it's only with his guidance that you can ensure you aren't scammed?
Caveats: Not true. Sellers of multi-million dollar sites regularly execute perfect sales and get full payment. Is it really the case that a seller who built a multi-million dollar business is unaware of the need to use an attorney to draw up the documents and advise him on escrow?
Action: Ask him what risks he can protect you from that a good lawyer can't?
7. Other Value Adds: Does he claim that he can provide specialist advise surrounding website sales such as how to shelter the proceeds from Capital Gains Tax?
Caveats: Website sales regularly happen across borders. Is your broker a tax expert in your country? Is he registered to give tax advice?
Action: Ask your own accountant whom you've dealt with for years whether he can advise you on this.
8. Registration: Does he try to reassure you that he's registered or approved to sell businesses?
Caveats: There are all kinds of registrations to all kinds of associations and charters with very official sounding names. Many are worth nothing at all. In some countries like the UK there isn't a body responsible for registering and monitoring the specific activity of selling websites (or selling businesses).
Action: Research the organisation he claims to be registered to. Does it have any real teeth to put bad brokers out of business?
9. Does your broker take the long term view / take your long term interest into account? Does he claim that you have nothing to lose as you pay him nothing till the site is sold?
Caveats: That means they sign you up for a long time i.e. they get the commission even if you give up on them and go market the site yourself (read that contract!) So, yes, you have something to lose. You could end up paying his commission even if he proves useless and you end up finding a buyer yourself a year later.
Action: The longer the tie-in the more the confidence you need to have in the broker before you instruct him.
10. References: Does your broker have some great references he can give you or testimonials he has posted on his site?
Caveat: As with all such referrals the fact that he has selected them makes them largely worthless. He isn't going to select an unhappy client to provide a reference.
Action: If you can, contact his previous customers directly. How? You can use archive.org to find websites he listed a year or two ago.
If your site is worth less than $50,000 you're best off selling it yourself and we'll help you with advice, documentation etc., for free. If you expect $100,000 or more on your site, you're probably best off using a broker. In either case our non-profit forums about buying and selling websites is a good location to engage with buyers, sellers and brokers. There even a thread there for savvy, clued-in brokers to reply to the Top 10 list above. Have a question or want a broker recommended? Register for our forums and start a thread.