While it is generally a good business practice to keep an adequate amount of cash on hand to cover expenses for at least a few months, there are plenty of reasons why it is necessary to do so if you are in the domain industry. Aside from the lost opportunity of not being able to purchase a domain name that can help your business, you never know when unexpected liabilities will pop-up, and money will be needed.
A perfect example is the LH.com legal situation. While we can all assume FMA has adequate cash to pay for the defense of LH.com, smaller domain investors might not have had the cash. I would peg the re-seller/need to liquidate quickly value of LH.com in the ballpark of $300,000 (not taking the offers received or anything else other than the 2 good letters into consideration). Had a domain investor saved up and purchased LH.com as his prize investment, there is a good chance he would have been drained of his cash reserves. While he holds a high value domain name, you can’t really pay the bills with this paper worth.
Now say a UDRP is filed against the domain name. The ballpark cost for a UDRP defense is anywhere from $5,000 – $15,000 (very high) if you hire a competent domain attorney. With that said, if the UDRP defense was unsuccessful, the domain owner would be on the hook for the defense fees, and he would have lost this $300,000 hypothetical paper value. If a federal lawsuit would follow this action, as it could be the only way to recover the domain name, the cost of this could be in then tens to hundreds of thousands of dollars. While it is possible to sue for attorney’s fees, I don’t know the success rate of that.
The point of this is that we often jump on great domain deals when they come up, but as business people, we need to be mindful of the cash we have in reserve. Even though the interest rates in American banks are very low and we all assume that most of our premium domain names are fairly liquid, we need to realize that our domain names could be frozen and contested by overreaching corporate entities, and we need to be prepared to defend them.