6 Mistakes Sellers Make When Selling Websites: #5 Do Not Prepare Financial Reports
The main reason why website buyers purchase websites is to receive cash-flow. As such, buyers have to analyse financial reports carefully. It is therefore extremely important for website sellers to compile and prepare financials in an easy-to-read format for potential buyers.
Most website owners receive income from many different sources. Income sources may include AdSense, affiliate programs, advertising, and e-commerce sales. Each income stream has its own financial reporting platform. This makes it slightly complicated for website buyers who are looking to analyse the website’s financials. A buyer has to look at multiple platforms to figure out the financials of the website.
It is the website seller’s responsibility to ensure that website buyers receive a financial statement of all income and expenses that they can understand and analyse quickly and easily.
Multiple Websites owned by the same Seller
Most website owners actually own multiple domain names and websites. As such, very often, the income from multiple websites may show up on a single financial report.
For example, a website owner may own 5 websites that produce AdSense income for him. But this owner only has one AdSense account. When he is selling any one of these websites, he has to make sure that he only includes income from this particular website on the financial report that he will deliver to potential buyers.
Shared Expenses
The other challenge that website owners face when producing financial statements for buyers is that multiple websites often share expenses.
In our example above, let’s assume that all 5 websites were under the same owner’s website hosting account. In this case, the seller has to include the entire hosting cost in the financial report for one website even though the expense is shared with 4 other websites.
Any other shared expenses that can be broken out and reasonably allocated to this website will have to be presented in the financial report as well.
Financial Reporting
Unfortunately, most website owners present their financial reports very poorly when attempting to sell their websites. Many website sellers believe that by simply stating the total revenue per year, this is sufficient information for a website buyer to make a decision.
Most buyers expect to see, at the very least, monthly financial statements. Buyers want to see the monthly financial trends in the business. They want to be able to analyse and understand whether the business is stable, increasing, or in decline. As such, a total revenue number for any given year is not sufficient for a buyer to make an educated decision to invest in the website.
It is important for a website seller to dig up financial information month-to-month and compile it into a monthly financial statement for buyers. It is not the responsibility of the buyer to look at different reports for multiple income sources and figure out the financial health of the business. This is the responsibility of the seller.
The extra effort to compile these diverse financial reports by a seller will yield dividend in that it simplifies the communication process between the buyer and the seller.
Otherwise, the seller may have to dig up this information while already in communication with a buyer.
Buyers will ask for this detailed information anyway and so it is best for the seller to have it readily available. Whenever a buyer has to sit around and wait for a seller to find information that he asked for, it’s easy for the buyer to just move on to another investment.
So, always compile and present easy-to-read and easy-to-understand financial reports to potential buyers.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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