High-revenue, high-profit web stores cost a pretty penny to purchase, even when the annual earnings multiplier is fairly low (i.e. 1.5 – 2.0 times annual net profit). Very few people have sufficient funds to purchase a high-value site outright; and of those who do have the necessary funds, most don’t have the time or the know-how to effectively operate and market the store and continue to increase its profitability after taking ownership of it.
That’s why many would-be site owners are so excited to learn about the buyers group model for purchasing a high-value site. By forming a buyers group, a small group of savvy investors can pool their funds and purchase the website together and then outsource the day-to-day operations to StoreStream, thus making it 100% passive for each member of the buyers group. The beauty of this model is that, even after StoreStream’s operating fee, the annual return is typically much higher than traditional investments (such as stocks, bonds, real estate, etc.). Plus it’s 100% passive (unlike real estate and virtually any type of small business ownership).
Here’s an overview of how the buyers group model works…
- Most buyers groups are comprised of just a few people, usually no more than 4-6 total owners (with most sites, there is a 10% minimum buy-in). Each person will likely own somewhere between 10 and 40%, just depending on how much each person wants and can afford.
- The store is officially owned by an LLC (taxed as a partnership). Each member of the ownership group owns a portion of the business and will receive a K-1 at year-end for his/her pro-rata share of the business’ profits and earnings. You can own your share either as an individual or through a business entity.
- Each member of the ownership group has voting power equal to his/her ownership percentage (for example, a 20% owner has 20% of the vote). A 70% majority is required to make the decision to sell the business/website or make a handful of other important decisions (all of which will be outlined in the business’ official Operating Agreement). The ownership group will typically “meet” every few months via webinar/conference call to review how the website is performing, discuss major items and vote on major decisions. (StoreStream’s Operations Manager can sit in on such meetings to report on StoreStream’s work and present the P&L and such.)
- StoreStream handles 100% of store operations (including website/catalog maintenance, Search Engine Optimization (SEO), content creation, marketing, Pay-Per-Click (PPC) ad management, accounting/tax preparation, etc. – literally everything!) for a for a pre-determined percentage of the store’s revenue or profits (negotiable). So ownership is 100% passive for all of the members of the ownership group. (Note: The ownership group will of course have the power to fire StoreStream and outsource operations to a different company or take operations in-house, if it voted to do so.)
- Most websites can be purchased for somewhere between 1.5 to 3.0 times its annual profit. Even after StoreStream’s very reasonable operating fee (for handling 100% of store operations), this typically results in annual returns up in the neighborhood of 20-40% of the amount paid in to join the buyers group and become part-owner of the LLC.
- Profits are distributed quarterly by the 20th of the month following quarter-end (i.e. 1Q profits are distributed by April 20th, 2Q profits by July 20th, and so on).
- If one member of the buyers group wants to sell his/her stock, the other members of the group have the “first right of refusal” (on a pro-rata basis) and can purchase his/her stock based on a pre-determined business valuation using the same annual earnings multiplier the website/business is purchased for (i.e. if the site is originally purchased at a multiplier of 2.0, that same 2.0 annual earnings multiplier will be used to value the site if/when one members wants to be bought out). If one or more members elect NOT to purchase the pro-rata share available to them to purchase, the other members of the group will have the option to buy that portion (again, on a pro-rata basis). If nobody in the buyers group wants some/all of the selling member’s stock, the selling member can sell the remaining stock to ANY third party he/she wants for whatever price he/she can get for it.
Please contact us for more information about joining a buyers group for a high-value website.