Buy A Business: Get The Best Deal When Buying An Online Business

Buy A Business: Get The Best Deal When Buying An Online Business
on September 13, 2012 by in Blog

EcommerceThere is a lot to like about an online business model. For starters, your company may have access to a much broader market, including in other countries. Some online businesses can also be run with no inventory, few to no employees, and without the hassle of accounts receivables when online payment is required at the time of purchase. Additionally, most key support functions can be outsourced, with the exception of marketing and customer service. Finally, if you’re armed with the right set of tools, you can even setup and run a business like this with little to no technical expertise.

Here are a few other characteristics about online business models that make them attractive:

  • you can launch or buy one really fast and at at low cost
  • An online business can be run from anywhere at anytime
  • You can run it on the side without giving up your “day job”
  • You can run it while traveling or work remotely from wherever you choose

However, we don’t want to give you the impression that starting or buying an online business is a cake walk. If you’re starting from scratch, it can take many years — yes, that’s years — and considerable effort and expense to achieve online awareness for your business. You will likely have a lengthy learning curve as you seek to become proficient at bringing traffic to the website, converting leads and customers, upselling and cross-selling, building community among your customers, and automating and personalizing the customer relationship. Assuming you do these things correctly, an online business can pay tremendous dividends for you, over time, as your customer base expands and you drive greater volume through an automated process.

If you would rather buy an existing online business, in order to benefit from the inftrastructure and process, and profits, that the original founder has developed, then you should also be prepared for the reality that online / software driven business models often command higher multiples than their offline equivalents due to the many attractive features and benefits of them that were mentioned above. Performing due diligence on an online business for sale can often be simpler than for bricks and mortar businesses due to the audit trail that 100% electronic payment generates.

If you find the notion of running an online business attractive, remember that in all other respects purchasing an online business is the same as any other business buy/sell transaction, and that a licensed business broker is a great asset to have on your side as you negotiate the deal.

Here are a few additional things to keep in mind when considering buying an online business:

  • There is a lot more involved than simply building and launching a website. You’ll need to have an online marketing strategy in place, supported by the requisite skills and tools, in order to attract traffic to that website, convert leads and sales.
  • Often, due to the highly competitive nature of competing for traffic online, tightly focused niche products will work best.
  • Try to avoid products that are very trendy, for which the lifespan of the business you’re going to build will be limited.
  • Make sure you’re aware of all government regulation that pertains to the business model and product type you choose to pursue. Avoid highly regulated industries, or those at risk of becoming so in the near future.
  • You will have other online competition, and you’ll need to know who they are and have the skills to outmaneuver them
  • If you’re buying an existing business, you will need to take extreme care to ensure that you have a bulletproof non-compete agreement in place that covers the broadest possible geography while being highly specific about the niches to be protected. That’s because it would be easy for the seller to launch a competing online business, located almost anywhere and even in another legal jurisdiction.
  • Before launching your business, or buying an existing one, ensure that you have solid supplier agreements in place for the products you’ll be distributing, unless your business will sell proprietary products.
  • Know who your target customers are and how to find them. An existing business should come with an email list. It’s also possible to purchase highly target lists of prospects from list vendors. Whatever your approach, comply with all CAN-spam regulations with regard to your email marketing.
  • Understand your exposure to any current or past warranties, product performance guarantees, customer service promises, or accrued liabilities such as loyalty points. Either obtain an indemnification from the Seller against such unquantifiable future claims, or have a mechansim in place in your contract that allows you to offset their cost against the balance of sale.
  • Protect the security and integrity of the online business you purchase by requesting archived file copies of previous site versions from the Seller. Some sites began by offering 1-2-or 5-year guarantees on their product.
  • Make sure that you are provided all passwords for the website and all related online tools, and immediately reset the passwords for all of them. Require that the Seller provide you with a list and contact information for all persons, including family members, former employees or third party vendors who had access to any of the accounts in the event you discover tampering or unauthorized access after the acquisition.
  • If the Seller was also the developer or programmer of the computer code that causes the business to run, make sure to bring in a qualified expert to perform a “code audit” as part of the due diligence. Oftentimes, the coding that underpins an online business has been developed over time. It could be that the coding is elegant, and efficient, and clearly intelligible by you or any developer professional you might bring in in the future. On the other hand, it could be a real patchwork of code, a complete mess that anyone but its original developer would have a hard time understanding. In the latter case, you’ll want to make allowance for this in your offer price.
  • As part of the sale, make sure that you receive copies and ownership to all source code for any and all websites and related applications.
  • Ask the Seller to arrange for you to speak or meet with any third party webmasters or related vendors, and any other people who work on the site to make sure that these relationships can continue seamlessly going forward. Unless you’re able to do all aspects of the work yourself, not having continuity of service providers could place you at risk.
  • Dig into the details of the agreements with your shopping cart provider, credit card processor, and merchant services provider, as applicable, to understand the conditions and criteria you’ll need to meet in order to set up identical or similar services in your name. You will want to know if you qualify, for starters, and, if so, what kind of personal guarantees you may have to make in order to process credit cards.

There are plenty of online services apparently dedicated to buying and selling online businesses, including many listed on Ebay, of all places. Keep in mind, however, that the process of buying and selling a business is exactly the same whether that business be online or offline. Would you buy a restaurant or franchise online, without any outside consultation or specialized advice?

As members of the IBBA, and the AZBBA, Allen & Young is part of a national and international network of certified business broker professionals. We can assist you with the purchase or sale of an online business, no matter where you are situated.

There are many advantages to an online business, but don’t be confused by what may appear to be their relative simplcity. They are in every regard businesses, and you will have to be equally capable and focused around a profitable product offering and sustainable, scalable business model if you want to make them work.
If you’d like more information on this subject, please Contact Us.

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