Mr. Richard Parker is the author of the “How To Buy A Good Business At A Great Price” series which is sold in over 80 countries. He is the founder of Diomo Corporation and has personally purchased eleven businesses. Learn more about Richard and his materials at diomo.com (www.diomo.com)
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. However, 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 orcasually (it’s 3:00 pm now and I’m in Australia with my family on vacation, looking out at the spectacular Sydney Harbor and famous 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 two hours each day to handle the operational side 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
- § 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
- § 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.