We’ve bought, sold, and brokered many deals for online businesses over the past few years. This puts us into a small group of people who have seen every side of a deal. We’ve seen the good, the bad, and the ugly. That’s why we decided to write this guide on how to buy an online business.
To pass on all the information we wish we knew when we started. After reading this, you’ll learn how to buy an online business to match your skill set, find the best-priced asset, and avoid potential pitfalls. Let’s get into it!
Why do People Buy An Online Business?
Some entrepreneurs are confused when we talk about buying an online business. “Why would you buy one when you can just build one?” They ask.
Well, when you understand the answer you unlock a powerful wealth-building strategy. The main reason why people buy is to skip the building phase and generate income from day one. This means it’s not only a cash-flowing investment but you step into a pre-established brand with an existing audience.
There’s a long, long list of reasons why people buy online businesses. These are just some of the reasons we’ve heard after speaking to hundreds of entrepreneurs.
- To break free from their 9-5 office job
- To become their boss
- To travel the world and be location-independent
- To have more time with loved ones
- To make life more flexible
- To build a portfolio of high-return alternative investments
Try to understand your reason for buying. Every business model is different so when you know what you want, it’s easier to get there.
What Type of Online Businesses Can You Buy?
There are a range of business models so there’s something for everyone like:
- SaaS brands are subscription-based software that provides recurring revenue.
- E-commerce businesses involve storing inventory and selling physical products online.
- Dropshipping brands ship directly from suppliers to customers without the need to hold inventory.
- Content/affiliate sites generate income by promoting other company’s products and earning commissions on sales and display advertising.
- Newsletters are an established traffic source protected from search engine algorithms and increasing PPC costs. This audience can then be utilized to sell advertising deals and promote affiliate offers.
Assess which business type fits your skill set and what each model offers.
Which One is Best for Beginners?
For beginners, content websites and affiliate marketing sites stand out as the best options due to their lower upfront costs and simpler management requirements. These online businesses offer a great starting point for those new to the industry.
For these websites, the primary focus is on creating valuable content and optimizing it for SEO, rather than dealing with inventory or customer service.
Also, Running these types of sites helps you acquire essential skills like SEO, content creation, and digital marketing. These skills aren’t only needed for your site’s growth but are also transferable to other online businesses you might pursue in the future.
7 Easy Steps to Follow When Buying An Online Business
There are seven basic steps that you need to follow to find an online business. We’ll break each of them down as we go through the article, but it can help to understand the process at a macro level.
- Establish the asset type you want to buy and your buying criteria.
- Find assets that match your criteria. A broker speeds up this process.
- Start your due diligence.
- Make an offer.
- Ensure contracts are drawn up correctly and signed.
- Purchase the business, establish its legitimacy, and release the funds.
- Transfer the asset from seller to buyer.
If this is your first time buying an online business it might seem complicated, but it doesn’t have to be. With the popularity of online businesses, there’s a high deal flow so you can get plenty of practice learning how to find opportunities and doing website due diligence.
How to Do Due Diligence Before Buying?
This is the exact buying checklist that we’ve used to purchase businesses before. It provides a great base for a SWOT analysis; Strengths, Weaknesses, Opportunities, and Threats.
- Traffic Analysis: Review traffic sources and patterns using Google Analytics. Examine user behavior, looking for consistent growth or understanding reasons for any decline. Ensure the traffic is genuine and not inflated by bots or paid traffic.
- Revenue and Financial Health: Examine detailed profit and loss statements to understand the financial health. Verify all expenses, revenue streams, and profitability. Look for any financial red flags that might require further investigation.
- Competition: Analyze the competition level within the market. Use tools like Moz or SpyFu to understand the competitive environment and identify the business’s unique selling points or reasons for any low competition.
- Niche Stability: Determine if the business operates in an evergreen niche or one that’s trend-based. Use Google Trends to assess the stability and future potential of the niche, ensuring it’s not just a fad.
- Content Quality: Evaluate the originality and value of the content. Check for plagiarism using tools like Copyscape and assess the level of keyword optimization to ensure it’s not overdone.
- Backlink Profile: Assess the quality and relevance of backlinks by using tools like Ahrefs or SEMrush. Avoid businesses heavily relying on Private Blog Networks (PBNs) as these can be risky and penalized by search engines.
- User Experience: Ensure the website is easy to navigate and functional. Check for broken links and page load times using tools like GTmetrix. A smooth user experience can positively affect customer retention and sales.
- Marketing Strategy: Review the current marketing efforts and channels used. Identify opportunities for diversifying marketing strategies to boost growth, such as exploring new platforms or content strategies.
- Contracts and Legal Matters: Review all existing contracts, licenses, and permits. Ensure the business complies with all legal requirements and check for any history of litigation that could pose risks.
- Employee Relations: Identify key employees and their roles. Determine their willingness to stay post-sale and understand the responsibilities they hold to ensure a smooth transition.
- Speak with the Seller: Build a relationship with the seller to gain deeper insights into the business. Clarify any final due diligence questions and understand the seller’s perspective and reasons for selling.
How to Check If The Business is Profitable?
To accurately evaluate profitability, focus on the following key areas:
- Profit & Loss Statements: Examine financial statements to identify consistent revenue and profit growth. This will give you a clear picture of the business’s financial health. Steady growth suggests a solid foundation, while erratic patterns may signal underlying issues.
- Cash Flow: Check if the business maintains positive cash flow. Positive cash flow indicates that the business generates more money than it spends, providing liquidity to cover expenses, invest in growth, or pay off debts. Negative cash flow can be a red flag, indicating potential financial trouble.
- Customer Acquisition Cost (CAC) and Lifetime Value (LTV): Calculate the cost of acquiring a customer compared to the revenue each customer generates over their lifetime. A profitable online business should have a low CAC and a high LTV, confirming that the cost to acquire customers doesn’t outweigh their revenue contribution.
Also, review the business’s debt and liabilities to understand any financial obligations that may impact future profits.
What Makes It A Good Opportunity?
No business is perfect. Actually, as an investor, you don’t always want to buy a “perfect” business. This is because a perfect business doesn’t give you much room to grow. Growing a business is what allows you to speed up your ROI.
The benefit is twofold. If you increase the net profit of a business it not only means more monthly income but also increases the value of the business. This means that you can sell it for a profit; a process known as flipping.
So, with that in mind, here are some opportunities to look for.
- Strong Financial Performance: Look for businesses with consistent revenue growth and profitability. A history of increasing sales and net profits indicates a stable and thriving business.
- Scalability Potential: Find Opportunities that can be expanded with minimal additional investment are highly valuable. Consider the potential for increasing product lines, entering new markets, or optimizing operations.
- Traffic and Audience Engagement: High-quality, organic traffic from diverse sources is a good indicator of a healthy business. Engagement metrics like low bounce rates and high conversion rates are also positive signs.
- Matches your skills: Perhaps your skillset lies in paid advertising or streamlining operations. Whatever your skillset, identify businesses that are currently lacking in those areas.
You can buy them, fix them up, and earn profit in the process.
How to Get The Best Price for the Business?
Most businesses will be valued by multiplying the net profit with an annual multiple. It helps to have a basic understanding of how valuation works so you can get the best price. For example:
Annual Net Profit x Multiple = Sales Price
For examples, $35,000 (annual net profit) x 3 (multiple) = $105,000 (sales price)
You can try our FREE Online Business Valuation Calculator to find out what’s the real worth of your website.
During the thorough investigation process, scrutinize the financials, customer base, intellectual property, assets, and liabilities to ensure you’re making an informed decision.
Don’t hesitate to seek expert advice from business brokers, accountants, and legal professionals. Their experience can help you navigate the complexities of buying an online business and guarantee you’re getting a fair deal.
- Set Boundaries: Know your limits and the maximum price you are willing to pay. Having a clear idea of your financial limits and strategic goals will make sure you don’t get caught out in the heat of the moment.
- Build Rapport with the Seller: Establish a positive relationship with the seller. Understanding their position will help them to understand yours. That way there’s more chance of creating a deal that works for both parties.
- Highlight Strengths and Weaknesses: Use the information gathered to highlight the strengths and weaknesses of the business. This can justify your offer and help in negotiating a fair price.
- Be Ready to Negotiate: Negotiations are a two-way street. If you’re looking to negotiate you also have to be open to counteroffers. Don’t close down a deal because you’re not prepared to budge on your offer.
- Consider Creative Deal Structures: Explore various deal structures, such as earn-outs or seller financing. These can make your offer more attractive to the seller while mitigating your risk.
How to Get Financing?
Financing for online businesses is still a bit niche. While options are available, traditional financing options such as banks are more wary of digital assets. This means that entrepreneurs have to look elsewhere to finance purchases.
One option is SBA loans (Small Business Administration). These loans can be used to purchase online businesses but you should be aware that it can greatly slow down the process. Not every person or business is going to get the option for an SBA loan. It’s best to reach out to the SBA directly.
How Do You Transfer the Business?
Many people think that a deal ends when an offer is accepted. This just isn’t true. One of the most important parts of the deal is transferring the assets from seller to buyer.
To protect the buyer we offer an inspection period. This means that when an offer is accepted we change the banking information from the seller to the buyer. Doing so allows the buyer to verify that the business is generating the described revenue. When both parties agree, it’s time to transfer the assets.
The assets that are transferred are highly dependent on the business model. When buyers work with us, we will aid in the transfer process. Here’s a guide to some things that need to be transferred:
- Domains
- Hosting
- CMS
- Analytics
- Social media
- Advertising accounts
- Supplier contracts
- Intellectual property
The list could go on. It’s best to work with someone experienced to help you with the transfer.
Is Buying Existing Businesses Safe?
Buying a complete business by yourself carries much more risk; especially for those who are inexperienced. If you’re worried, working with a broker that verifies listings is best.
At Ecomswap, every business listed is vetted by our team of professionals. The best part is you get this service for free as a buyer. The commission comes from the seller so it’s a win-win for you. There’s also the benefit of having contracts drawn up on your behalf. This doesn’t mean you shouldn’t do your due diligence, but it gives you a safe base to start from.
Key Takeaways
When purchasing an established online business, thorough due diligence is essential. This means evaluating industry profitability, growth opportunities, and the reasons for sale.
Where you buy the business is also important. If you want to work with a broker that has vetted, profitable, turnkey businesses for sale, We are here for you!
