Dont Forget Working Capital When You Buy a Website :: Sell Websites Buy Websites

Don't Forget Working Capital When You Buy a Website Reprinted with permission of VotanWeb.com If you intend to obtain a loan to buy a website, you should consider how much capital you should have available until the website starts generating income. Believe it or not, many buyers overlook this and wind up in trouble soon after they acquire a website. It is important that you determine the "working capital" requirements of the website before you purchase. This is the amount of money you will need available to fund the website after you take over until it becomes self-sufficient, meaning that there is enough inflow of cash to pay the bills of the website as well as your family. There isn't a standard method to determine working capital requirements, but it is something that you can calculate. Of course, you must keep in mind that every scenario is different. For example, if you acquire a website where clients pay immediately, then you will have an inflow of cash the first day that you take over. On the other hand, if it's a website where you grant payment terms to clients and the average time to collect is 30 days, then at a bare minimum, you will need at least one month of working capital. The other thing to consider is inventory. If you will have to purchase products to sell prior to seeing payments form clients, here too your cash flow will be affected. The best way to approach this for any website is to do a forecast for the first six months after closing. Generally, you should take the average monthly revenue for the past year. Then, factor in any seasonality to the business. For example, if you are buying a website that sells primarily school supplies to college students, then you can certainly expect sales to be far lower in the summer than they will be in September. Once you determine the average sales, then you must calculate all of the fixed costs that you will incur from day one. These are all of the expenses that the business will have that are not related to the sales. For example, your webmaster is a fixed expense. You have to pay this regardless of what the website revenues may be. Other fixed costs include: marketing, advertising, insurance, taxes, etc. Always add a cushion of at least 10% - 15% to cover miscellaneous costs that always arise for new website owners.