How to Run Your Domain Investing Like a Business

Investing in domains can be both financially rewarding and fun. But if you don't take your investment strategies seriously, then you could easily run into trouble.

Like any investment, your domain purchases must be based on a solid understanding of the market, as well as an accurate appraisal of your prospective domain. If you're making decisions based on gut feelings or guesswork, then you're creating a lot of unnecessary risk for yourself.

We recently stumbled across a great post by business consultant Michael Gilmour that illustrates "how domainers get into financial messes."

"So many business owners have an incredible desire for profit," Gilmour writes, "but so few actually understand why it’s so important or how to attain it."

To take your domaining beyond just a hobby, he argues, you need to run it more like a business.

If you're new to investing in domains, or can't seem to make your portfolio profitable, here are 10 questions to ask yourself immediately:

• 1) Do you have cashflow?
• 2) When was the last time you looked at your balance sheet and profit and loss statements?
• 3) Do you have a clearly defined business model for each of your domains?
• 4) When was the last time you cleared out non-performing assets?
• 5) Does your accountant know how to treat domain names?
• 6) Why is tracking both the purchase and the sales price so important for your business?
• 7) What is the return on your investment and could you gain a better return elsewhere?
• 8) How much do you value your time in your business plan?
• 9) When was the last time you seriously considered outsourcing to free up your time?
• 10) Do you understand the difference between cash and profit?

Let's face it: even the most experienced domainer may look at that list and wonder, "Do I really need all that?"

Yes, you do, Gilmour argues. A lack of understanding these business fundamentals is what causes many domain businesses to fail, he says.

Can you get by without treating your domaining like a business? Sure, especially if you only own a handful of domains and plan on sitting on them for a while. But if you want to successfully build your portfolio and buy and sell your domains strategically, so you can continue growing your revenue (and minimizing tax losses), then you essentially need to become your own CEO. You need to understand the basics of business and treat your domains as assets. Doing anything less will make your love of domaining more like a hobby, but a lot riskier.

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