The digital landscape has paved the way for entrepreneurs to build and subsequently sell online businesses.
However, this virtual frontier presents a myriad of complexities when it’s time to transfer ownership.
Drawing from my experiences, I aim to shine a light on the most crucial clauses you should be aware of during negotiations.
1. Valuation and Payment Structure
- Understanding Business Valuation: Establishing a business’s value isn’t as straightforward online. Multiple factors come into play, from the website’s organic traffic and revenue consistency to profit margins and future growth potential. Warren Buffet, the renowned investor, consistently preaches the importance of discerning the intrinsic value of a business before leaping into any agreement.
- Payment Structure: A significant point of contention can be how payments are made. Some buyers prefer a lump-sum, an upfront payment. Others, wary of future uncertainties, might suggest staggered payments based on performance milestones. For instance, for a business priced at $100,000, an offer might be structured as $70,000 upfront with the balance contingent on performance metrics being met over the next six months.
2. Non-compete Clauses
Non-compete agreements aim to prevent you, the seller, from starting a competing business shortly after the sale.
- Duration and Geography: The two primary dimensions to consider here are time and space. How long are you restricted, and how wide is the geographical expanse of this restriction?
- Scope of Business: Beyond geography, the nature of the business also matters. Elon Musk’s experience post-Zip2 is a testament to the profound impact a non-compete can exert on subsequent entrepreneurial endeavors.
3. Asset and Intellectual Property Transfer
An online business is an amalgamation of various assets and intellectual properties.
- Tangible vs. Intangible Assets: While tangible assets like servers or inventory are relatively easy to account for, intangibles such as logos, content, and software code can be trickier. Each has its value and must be accounted for in the agreement.
- Patents and Proprietary Algorithms: If your business thrives on proprietary tech or processes, they either need to be explicitly included in the sale or reserved. Ensure all such critical assets are clearly enumerated.
4. Liability and Future Obligations
The sale might be current, but its implications can reverberate into the future.
- Pending Liabilities: From unpaid bills to ongoing lawsuits, the business might have liabilities. Who assumes these post-sale?
- Future Commitments: An e-commerce site might have unfulfilled orders, or a SaaS platform might be under annual contracts. How are these obligations managed once the business changes hands?
5. Training and Transition Period
Change in management often necessitates a hand-holding period.
- Duration of Training: Define how long you’ll be available to guide the new owners. Whether it’s a few weeks or months, set clear boundaries.
- Scope of Assistance: Beyond time, outline the nature of your involvement. Will you be troubleshooting tech issues, or will it be more about strategic guidance?
6. Return and Refund Policies
Post-sale, the business might face refund requests or product returns.
- Policy Clarity: Your return and refund policies need to be clear and should ideally be part of the business’s Standard Operating Procedures (SOPs).
- Post-sale Requests: Who addresses refund requests after the business has been sold? The contract should lay down the procedure for such eventualities.
7. Approval and Veto Rights
Especially if the deal involves staggered payments or stock options, the buyer might want a say in future decisions.
- Extent of Control: Clearly outline any decision-making powers the buyer retains. This could range from vetoes on strategic shifts to approval rights on budgetary matters.
Given the intricacies of online business transactions, leveraging platforms that specialize in this domain can be a boon.
In my entrepreneurial journey, Empire Flippers has emerged as a reliable marketplace for selling various online businesses.
For those contemplating selling or purchasing online enterprises,
take a moment to explore Empire Flippers.
Conclusion
Selling an online venture demands as much acumen, if not more, as setting one up. Every clause, every word in the agreement matters. Always be prepared, and remember, in the world of negotiations, everything’s up for discussion.
Further delve into the world of online businesses and investments with this invaluable resource: Free Books & Audiobooks on Investment and Business Creation.
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And to the entrepreneurs out there, which clauses have posed challenges for you? Do share, and stay tuned for more insights to navigate the digital entrepreneurial space seamlessly.
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