Selling a Website. Rich Now or Later.
By A on Mar 24, 2008 in Selling a Website
We have sold quite a few developed websites over the years and its always interesting to view the offers. From the insane offers (not in a good way) - to the somewhat fair market ones - to the ones that seem very, very good but a bit of a longer payday.
It’s pretty easy to scratch the silly offers from the table so now we have (1) a not so bad offer involving a bulk payment and (2) a pretty great offer with a couple payments staged over time.
I remember when we first faced this dilemma in 2001. The numbers were higher than most people will ever sell a website for so we were on cloud nine. However (and here’s the dilemma) there was a substantial difference between the two offers on the table. Substantial meaning I could pay cash for a Maserati, retreat to the Greek islands for a year, buy one of those crazy jet cards and even have a little money left over to be Client 10 for a few weeks from the spread between both offers.
Only question I had to answer was…
Do we take the smaller offer and secure all the funds upfront .. or.. do we go with the larger offer – taking less now but in 12 months end up way ahead of offer #1?
You have no idea how much I went back and forth on this until one day I called a friend of mine. This guy is self made and worth 8 figures (10 if you include cents). He told me the decision was simple – all you have to do is ask yourself one question.
If you accept the offer (#2) with multiple payments then would you be happy with the amount received from the first payment?
You see his logic was once you defer payment for a portion of your business then you should consider any payment after the first check a bonus. Too many factors including bankruptcy, the economy, currency fluctuations, simple supply and demand – so many that can’t fit here – will be working against you every day. Sometimes the risk will pay off but unless you can afford to take that risk why do it.
We choose #1 - lump sum, one-time payment.
He was right. The company with offer #2 later went bust 3 months before we would have received our second payment.
Present day – happened again last year.
Still not taking anything but a lump sum, one-time payment.
Of course, this doesn’t always apply but at least ask yourself the question before signing on the dotted line - especially in today’s economy.
Russ Chafe | Mar 24, 2008 | Reply
Another great article. Very relevant and timely.
I look forward to the next one.
Patrick McDermott | Mar 25, 2008 | Reply
Hi,
Am I missing something?
For #2 offer, the domain should have been put in escrow until paid in full with the understanding that any payments made are yours (Seller’s) if the Buyer fails to complete the purchase.
The Buyer could have used the domain but not obtain ownership until paid in full.
Monies paid to date cover usage and taking domain off the market.
Agree?
Disagree?
Patrick
admin | Mar 25, 2008 | Reply
You have a point and in the case of a straight domain sale you could be right however anytime you elect for future payments there are many risks - especially if you are selling more than just a domain name such as a developed website.
Plus, there is always the flip side. If your buyer fails to pay the second payment and you get your property back by default are you sure it will be the worth the same?
Imagine this scenario…
Last year you received 2 offers for a mortgage lead generating website. Offer (A) is $1M and offer (B) is $1.5M except the $1.5M offer includes 3 annual payments of $500k.
Fast forward to today’s market - buyer probably would default and you couldn’t sell it for even close to last years price.
Result, you’re sales price is now effectively $500k less than option (A) and you hold an asset which may have substantially less value in current markets. Yes, you still have the website but then there’s the question of how the other party used it during the last year.
Was the brand tarnished?
Did the traffic entirely die off?
Were old systems replaced with new?
Did the domain get banned from search engines?
Remember, cash is not the only element. Once you transfer use to another party - you not only take the risk of default for future payments you are also betting on continued successful use of the business until your other checks clear.
Going further, assume the buyer and seller use different currencies at home. I know a few people who still have generous amounts (over 500k) pending from transactions involving multiple payments. The assets they sold could be worth more or the same today but instead they are losing money daily as the dollar gets rocked - Ending up with 20-25% less than originally planned when converted to their home currency. In the case above the $500k second payment is no longer 500k - more like 400k and still dropping. The factor here is not the buyer – it’s something that’s entirely out of your control and not even an attorney can help (unless a currency provision was included in the original contract which is highly unlikely)
It comes down to a matter of choice and whatever lets you sleep at night