Selling web-based business is different than brick-and-mortar store

 

Part I of a two-part series.

 

If you have spent years building a successful business on your website and social media pages, sooner or later you will think about selling it. But selling a web-based business is different — a lot different — from selling a brick-and-mortar business.

To illustrate how the process works, I’m going to bring back a childhood memory. Do you remember spending rainy Saturdays putting together jigsaw puzzles with your siblings or friends on the kitchen table? Specifically, do you remember when Mom wanted to set the kitchen table for dinner (yes, families once ate together) and you had to move your finished or almost finished jigsaw puzzle to another location? Remember how you struggled to keep pieces from falling out (or the whole thing from collapsing) when you picked up the puzzle and carried it in your hands?

That’s a lot like selling a website. Unlike many businesses, a website is a jigsaw puzzle with pieces of different sizes — content you have created; content you have acquired from other people; maybe software or a SaaS (software as a solution) program; contracts with advertisers, suppliers and developers — and all of the pieces have to be moved to the website’s new home. If pieces fall out along the way, the buyer must know about it and be willing to live without them (perhaps with a reduction of the purchase price).

If you have a corporation or limited liability company for your business, you could just sell the stock in your company to the new owner. But doing so poses tax disadvantages to the buyer, who will insist on buying the assets of your business instead. That means you will have to transfer all of the puzzle pieces one by one.

Here are some steps you need to take to make sure your jigsaw puzzle makes the transition in one piece and you get paid what it’s worth.

  • Check your domain name registration. You should know where your domain name is registered. If you don’t, check with your web hosting service. Check your domain name registration, and make sure your domain name is registered with the person who will be selling your website. For example, if your corporation or LLC is selling the website assets, the domain name should be registered in your corporation’s or LLC’s name.

Then, check the expiration date on the registration. If the domain name is set to expire within a year, renew it for another year so the buyer doesn’t get nervous.

  • Check your web hosting agreement. Next, check your web hosting agreement and make sure it can be assigned or transferred without the host’s consent. That way the hosting services’ invoices, tech support emails and other correspondence will be directed to the buyer once the sale takes place.
  • Check for blanket liens on your business assets. Do a Uniform Commercial Code (UCC) lien search on your state secretary of state’s website — virtually all states allow this to be done electronically. If the search uncovers a lien on your business assets (if the creditor or secured party is a bank, you can be certain that the lien covers all of your assets), that lien will need to be removed of record when you sell the website, which may require you pay off the bank loan.
  • Check your terms and conditions or user agreement. Hopefully, you have these documents linked to your website and you clearly instruct suppliers, customers, content providers, developers and other third parties who interact with your site to review these documents before clicking the “Yes, I Accept” button.

Hopefully, these documents also contain the following two essential clauses:

First, an “assignment of rights” clause by which third parties assign all of their intellectual property rights, such as copyright, to you when they interact with your website.

Second, a “successors and assigns” clause allowing you to transfer your users’ rights to a third party without their consent.

If you do not have legal documents posted on your website, or if your documents do not contain either or both clauses, then you will have to obtain signed “Assignment of Intellectual Property Rights” agreements from each and every person who has contributed content, software or other stuff that appears on the website.

  • Make sure all licensed software is transferable. If you have licensed software (other than open-source software) from other software developers, make sure you have a nonexclusive, transferable license to use the software and transfer it to others.

If you are using open-source software, such as WordPress, for your site, find out which license you signed up for and be prepared to disclose that information to the buyer so she can determine whether there will be any impact on her own proprietary software products (if any).

  • Consider an escrow arrangement. Companies such as escrow.com offer domain-name escrow agent services to website owners (www.escrow.com/domain-name-holding). Putting your domain name(s) into escrow with such a service will make it much easier to transfer the domain names when the sale takes place. The agent will also insist on escrowing the purchase price so that when the transfer takes place, you get your money at the same time.

More next week…•

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author, and former host of the PBS television series “Money Hunt.” The opinions expressed in this column are those of the author.

© 2018 Clifford R. Ennico

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