The Biggest Issues To Consider When Buying an Online Business
By: Richard Parker: President of The Business For Sale Buyer Resource Center and author of How To Buy A Good Online Business At A Great Price ©
Personally, I love the online business model. My company now does business in over 70 countries. The business has no inventory, no receivables and a handful of employees; we outsource nearly every key function except customer service and support. I have absolutely no technical expertise. The entire business is automated and it’s incredibly profitable. An ideal business model, isn’t it?
Perhaps the best part about an online venture is that you can get into one quickly and inexpensively whether you buy an existing one or start one from scratch. Although multiples for successful online ventures are far greater than most bricks-and-mortar businesses because of many of the factors you’ll read about here. Additionally, because an online business can be run from anywhere at anytime, it’s an ideal business to have if you’re not yet ready to take the full plunge into your own business or you like to travel, work remotely or casually (it’s 3:00 pm now and I’m in Australia with my family on vacation, looking at the famous Sydney Harbor and Opera House… and, even better, people are buying our program right now Gotta love it!).
Don’t be misled thinking it's all fun and games. But it’s the kind of business where, if you put in the effort up front and automate every aspect of it, it will pay enormous ongoing dividends relative to the time expenditure. Right now, it takes me about 90 minutes maximum each day to operate the business, if at all.
If you want to buy an existing profitable venture, keep in mind that the multiples may be higher than traditional small business valuations since there are so many great benefits to them. You should also know that the financials of most pure Internet businesses are generally simpler to investigate because there are generally no cash sales, and almost all of the transactions are via credit card.
Likewise, if you decide to start one from scratch, you can build a website, and begin initially marketing for just a few thousand dollars.
Here’s what you need to be aware of when buying an existing online business:
- Online businesses go far beyond building a website. It’s not an: “if I build it they will come" business. Sure, you can have clients worldwide, but they have to find you before they can buy your goods and services. If not, it would be like Wal-Mart opening a new store with more products at deeper discounts, then locating it ten miles offshore in the ocean. Even if they offered a 50% discount off every item, nobody would make the trip to the store. You need to figure out how to get people to the store (the website). In other words, you need to market the business and figure out how to get the store to the land where all the people are (translation – how to get people to your site).
- Niche products work great.
- You’ll need to do extensive research to learn about the competition, the industry, products, competition, etc. It’s not as easy as finding out about a local bricks-and-mortar business.
- You need a bullet-proof non-compete clause with the seller since it’s so easy for them to open up a competing business in another name, country, etc. That is why you MUST have a large balance of sale as part of the deal.
- Make sure that any products or services being sold, if not proprietary, are going to be available to you from the various suppliers.
- If the business relies on email marketing campaigns, investigate how they get their lists and prospects. No matter how great email marketing is, spam is out of control. It will eventually become highly regulated with massive penalties for offenders.
- Stay away from fads or any products that may become subject to government intervention or stricter controls, such as pharmaceuticals.
- Verify any potential liabilities, guarantees, etc., that may have been offered in the past. Get copies of old site versions from the owner. Some sites began by offering 1-2-or 5-year guarantees on their product. These claims can come back to haunt you. You’ll need the seller to indemnify you from any future claims or you need to have a mechanism to offset any claims against the balance of sale.
- Get detailed listings of all individuals who have access to the site’s backend or passwords for accounts. In fact, make certain that you change all passwords once you take over.
- If the seller developed the site, bring in a tech-savvy individual to review the actual programming. Quite often the site evolved through the seller’s design and he/she may have kept adding little bits of programming to it. While it may make sense to them, it may very well be a “plate of spaghetti” to someone else and can never be figured out.
- Get copies and ownership to all source code for the site.
- Meet with the webmaster and any other people who work on the site if you won’t be doing the work yourself, and make certain that the relationship will continue.
- Investigate the credit card processing. You might have to put up significant personal guarantees with the merchant bank to process credit cards. In fact, you may want to check this out in the very early stages of your investigation.
You can locate online businesses for sale at various online businesses for sale databases and there’s a ton of them on eBay, but many seem like scams to me. There are other websites that specialize in Internet businesses for sale. Plus, most online business for sale databases have an online category.
It’s been said that the best business is the world is everybody else’s. However, an online venture, when set up and run properly, is, without question, one of the best business models around. The key, of course, is to provide a profitable product or service in a sustainable business.
This article represents a fraction of what you’ll cover on this topic in How To Buy A Good Online Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying an Internet business. Read a detailed listing of what you'll learn.