Posts By: WeBuy Websites

7 Risks to Avoid When Buying an Online Business

Posted on March 20, 2019 by - Blog

online business

Taking risks is definitely mandatory when it comes to business. Whether you are new to the business world or a businessman with years of experience, you will often find yourself in situations that demand some risk if you want to profit. That is the “good” kind of risk-taking.

On the other hand, there are situations that you should absolutely avoid, where risking it all just isn’t worth it. If you still can’t distinguish those situations from the other ones, don’t worry. We know that digital acquisitions require knowledge and that’s where this article will go over some of the risks that you’ll want to avoid when buying an online business.

Buying an Online Business That’s Completely Wrong for You

The first risk that you need to avoid, when buying an online business, is buying something that doesn’t match your interests. It doesn’t matter if you want to hire a manager to do most of the work or if you are planning to do it yourself, this mistake is likely to curtail the company’s growth.

You need to find an online business that you can be passionate about. After all, one of the things that entrepreneurs cherish is the choice to work on something that appeals to them. With that in mind, find a company that you share interests with and that matches your personality.

Not Researching the Seller

This mistake is incredibly common when new entrepreneurs decide to buy online businesses. They see an offer that looks simply delicious to them as it fits their budget and/or other goals, not realizing what actually lays ahead.

If an interesting offer catches your eye, be sure to research the seller as much as you can. Maybe the seller just wants to get out of a business that’s broken beyond repair and that’s currently in some stage of going under. Once you become the captain of that ship, you will realize what you’ve got yourself into.

Another risk is that you will end up competing against your seller after the sale. The seller could just be selling in order to start something even bigger. Since the seller knows what they are selling, he could be a potential mountain you will have to climb in order for your new online business to succeed.

Not Processing and Analyzing Chargebacks or Disputes

Every online company has found itself in this situation multiple times since its existence. Errors, shipping delay, carrier delay that’s out of the company’s control, customer change of mind, you name it. Many things can go wrong when it comes to shipping, especially if you are shipping all across the world.

That will result in dissatisfied customers and bad company reviews. Since we already discussed that becoming a captain of a sinking ship is a fool’s errand, you need to do a little bit more research.

This time you will be researching the reviews that previous customers left about the company’s website. Take your time and go through as many as possible. Once you’ve done that, you should be able to get a full picture of the company you are trying to buy.

High Website Maintenance

There are unavoidable website maintenance routines and procedures that have to be done every day for a site to work properly. What you should do before buying an online business is contact its current owner and ask them about their current maintenance routines.

That way you will be able to figure out the amount of resources you will need to dedicate to the website’s maintenance on a weekly basis. If it is too much for you to shoulder, you might have to figure out if you can afford to hire a team the job for you, or simply choose a different online business.

Going Over Your Budget

Before you do anything, you have to know precisely what your budget is and just how much money you are willing to pay for a specific online business. Many entrepreneurs make the mistake of going over budget.

They see an interesting online business offer that suits their intentions, but at a price that’s way over their budget. What do they do? They decide to risk it thinking that it will work out later. The most usual scenario is that it never does.

Avoid going into debt, potential bankruptcy, and risking your entire team’s work and simply either wait until you have sufficient funds or move on to the next online business offer.

Not Having a Good Purchase Contract

Once you find the perfect online business that you would like to purchase, it is time to sign the purchase contract. Before signing, you need to talk with the current owner and lay out your own terms. You should be concerned about the property, assets, stock, bills, etc.

It would be wise that you hire a corporate lawyer with years of experience and first consult with them or let them oversee the entire process.

Not Knowing the Value of an Online Business

This step will prevent you from losing extra money when in reality, you don’t have to. There are business owners who could trick you into buying their online business at a price that’s more than what business is actually worth.

In order to avoid that mistake, you should consider doing a detailed evaluation and financial analysis of the business that you would like to buy.

With that being said, you will need to look up or request the company’s profit and loss statement, key assets, balance sheets, cash flow statements, etc.

If accounting isn’t one of your strong suits, you can hire an account or let your broker boil it all down. Only then will you get to know just how much this online business actually costs.

Conclusion

Here at Digital Acquisitions, we make sure that you learn everything that you need in order to prepare yourself for the world of business. Now that you know the 7 risks you should avoid when it comes to buying a new online business, you should be ready to go.

 

5 Common Mistakes When Buying an Online Business

Posted on February 21, 2019 by - Blog

buying online business

Buying an established online business can be a lot easier than starting a new company from scratch. For one, most of the start-up kinks have likely been ironed out, and an already-existing supply chain means you can hit the ground running. Plus, an established business already has a customer base, and much of the digital marketing like SEO may already be in place.

But what if you’ve overlooked a key factor in how the business operates? Have you done due diligence to ensure you can afford to run the company (and that the company you’re buying is right for you)? Without proper checks, you could be walking into bankruptcy.
Thankfully, there are steps you can take to avoid disaster. Read on to learn about the top five mistakes made when buying an online business and how you can avoid these common pitfalls.

Due Diligence

As the adage goes, if something looks too good to be true, it probably is. Not everything described by a site owner may be as it seems, so the first step that must be taken when buying an online business is to complete due diligence. Without proper checks of the company’s history, revenue, and operations, you won’t know what you could be potentially buying.

Even though you’re excited to get started with your new digital acquisition, there could be a reason why the current owner is selling. While not an exhaustive list, due diligence should at a minimum include:

Background

To help project future growth, collect information like click conversion, customer traffic, marketing campaigns, and the current SDE or EBITDA value.

Profitability

You need to know what potential income (or loss) you’re buying. Ensure revenue breakdown listed on any reports can be tied directly to the business.

Costs

Overheads can quickly eat away at your profit. A detailed P&L statement should include all business expenses including current marketing and advertising costs. Services like SEMrush can be useful to ensure there aren’t any unreported paid traffic sources.

Assets

If the business sells goods and not just services, check what stock you will be inheriting. If possible, physically visit the site where the stock is held or at least request a video of the goods. Pictures can be more easily manipulated (and video shouldn’t be hard to get).

Ensuring you gather as much information as possible before entering into an agreement is the first step in avoiding buying the wrong online business.

Buying the Wrong Website

There are literally thousands of websites for sale at any given time, with many of these being sold by unscrupulous owners trying to offload a bad investment. Completing due diligence will help safeguard against many of these scammers,. However, to further protect your time and money, it’s important to take a careful approach with any new digital acquisition.

To ensure you’re buying the best business for you, ask yourself the following questions:

What is the seller’s motivation?

Are they selling to get away from a financial catastrophe or is the sale genuine? Is the seller getting out because the business has run its course? Look at trends in the market you’re wanting to enter to ensure the business is future-proof.

What is the business’s reputation?

It can be near impossible to improve the reputation of a tainted business. Check the Better Business Bureau for complaints against the site.

How does the business rank on search engines?

Search engine traffic helps drive business to your site. If you buy the business, will you need to employ an SEO expert or does the site rank well enough as is?

Does the business fit your interests and goals?

Establish some criteria to help narrow the scope of your search. Setting profit, maintenance time, and sale price parameters is a great start.

Will the business grow?

There’s no point buying a business if there’s no chance for growth. Setting up a realistic, time-based business plan with achievable goals can help lead you in the right direction.

With careful consideration, you can ensure you’re buying a business that will last the test of time.

Paying Over Market Value

Prices for online businesses vary greatly, from a few hundred or thousands of dollars to many hundreds of thousands of dollars. When buying an online business, many new owners overestimate the value of a business they’re buying and end up paying too much.

To avoid this, it helps to know how online businesses are valued. A general rule of thumb is to multiply the business profits by a factor of two to three. While this is a good guide, a more accurate measure often employed is to work out the Seller’s Discretionary Earnings, or SDE.

Generally used for selling businesses under $1,000,000, SDE is based on the owner’s total cash flow rather than being based solely on profit. The basic formula to work out the SDE is:

Total Profit – Cost of Goods Sold – Expenses + Owners Compensation

While SDE is the main method used to price online businesses, this is only part of the equation. The final sale price will be influenced by a number of additional factors, including:

• Profit
• Brand recognition
• Domain name
• Web traffic
• Social media presence
• Customer database
• Physical assets

Overextending Finances

A common mistake of many new business owners is going into debt. While it can sometimes be hard to avoid, running any business requires capital so you need to know how much you have to work with. If you have a business loan to cover as well as general expenses, will you be able to offset these costs with only the cash flow from the digital acquisition?

One of the easiest ways you can avoid going into debt is to wait until you have sufficient funds to cover the cost of buying the business. Even with low profit, it will be easier to run the business without a monthly loan payment looming over your head.

Another option is to look for investors. Giving up partial ownership of the business may seem drastic, but it can also provide the necessary funds to make the purchase. Investors don’t just provide capital in return for a percentage of the profit; as they’re buying a piece of the business, they also share in any losses, thus mitigating your risk.

Not Using a Broker

One of the easiest ways you can avoid these mistakes is to enlist the services of a reputable broker. As brokers only work with reputable business owners, they can ensure your new digital acquisition isn’t on its last legs.

Brokers can help with due diligence and negotiations and as experts, they can field any questions you might have.

Final Word

Buying an online business for the first time can be a daunting experience. There are so many sites for sale and even more business types to look through, so it’s easy to make mistakes.

To help safeguard your time and money, carry out due diligence and learn as much as you can about the business that you want to buy. Investigate the motivation for sale, and ensure you pay a fair and reasonable price by using the SDE formula. If you are unsure about anything, speak to a professional advisor. They will not only protect you from buying a failing business, but they can lead you through the process and ensure you pay a fair price.