As a buyer purchasing an online business, you expect to acquire an established business, complete with customers, products, proven search engine optimization practices, excellent marketing methods for generating leads, a social media presence, an email list, ongoing ad campaigns, and sometimes even contractors or virtual assistants.
You want a turnkey opportunity where you can simply step in and take charge. In other words, you should be able to start running the business immediately, applying changes to increase its profits. It’s not just the potential income that excites you — passion and interest in the niche are among your biggest motivators.
You’ve set your mind and heart on acquiring an online business. But your biggest question remains: What are the steps before buying an online business? We’ve simplified the process in today’s post into the ten steps below.
Firstly, you need to identify the type of buyer you are. Are you an acquisition entrepreneur looking to expand your current operations?
Or perhaps you’re a side hustler aiming to supplement your income? Do you prefer to invest to scale and aggregate multiple assets? Knowing who you are will help shape your goals before buying an online business.
Next, establish a budget that aligns with your comfort level. As always, with investments, there are no guarantees. The wisest choice is to only spend what you can afford.
Also, remember to keep some funds in reserve for reinvestment, such as marketing, inventory, or technical support.
Online business marketplaces are good places to start when searching for a range of ecommerce businesses in various niches. We’ve listed some of the prominent websites below:
Look closely at the business model to understand the responsibilities you’ll take on and to determine whether it’ll be a profitable online business. The following are some online businesses typically sold on the marketplaces listed above. With the range of variety, you’ll find something that fits your skills and interests.
Request a comprehensive prospectus from the seller or broker detailing operations, financials, and market trends. It should be done before sending the offer so you can ask the seller questions should anything seem unclear or incomplete.
This careful review process helps you decide whether it’s the right match for your specialties and goals. It also allows the chance to strengthen your offer and see if the appraised value is fair for you and the owner who intends to sell their business.
Leverage your position as a buyer by carefully assessing the company’s strengths and weaknesses. Sellers often have a set price in mind, but this can be adjusted, especially if the business has been on the market for some time. Use concrete data to support your case, such as showing that the asking price exceeds the typical industry valuation or highlighting any missing elements, like a lack of an email list, that could lower the business’s value.
According to most tips for buying an online business, emphasizing the growth potential you bring to the table can also be a powerful tool in reaching a mutually agreeable price. Once negotiations are underway, a Letter of Intent (LOI) should be sent.
This document outlines your serious interest and details the proposed purchase price, payment terms, and any contingencies. It also addresses confidentiality and exclusivity, ensuring that sensitive information remains secure. While the LOI isn’t binding, it serves as a clear guide between the buyer and seller, keeping both parties aligned on expectations as the deal progresses.
After an offer is accepted, the process moves into due diligence (DD). Online business DD differs from traditional businesses due to the absence of physical assets and different customer acquisition methods.
Buyers should investigate traffic sources, backlink profiles, and visit metrics to ensure accuracy, often utilizing tools like Google Analytics. Financial records might not be audited, which is common for online businesses, so reviewing provided documents and verifying details through live screen-shares with the seller is essential.
Additionally, since many online businesses are run by their owners, the buyer should evaluate the owner’s daily responsibilities to understand what might be needed for outsourcing or continuing these tasks. This process typically lasts between 1 to 10 days, focusing on the unique aspects of online operations.
Due diligence is performed using two approaches: soft and hard due diligence. The former qualitatively evaluates the company’s management, employees, and customers. The latter, on the other hand, is all about figures and interpretations to project future performance.
Hard due diligence digs into the numbers found in financial statements. They are analyzed using financial ratios to understand the company’s financial health and future potential. This approach often highlights red flags, such as accounting inconsistencies, that might not be immediately apparent. However, because it relies heavily on mathematical data, there’s a risk of misinterpretation by those eager to close the deal.
In M&A transactions, hard due diligence is where accountants, lawyers, and analysts focus their efforts. They scrutinize key financial metrics such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), assess cash flow, and review capital expenditures. In specialized industries like technology or manufacturing, additional attention is paid to intellectual property and physical assets. Other critical activities include auditing financial statements, examining market conditions, and evaluating ongoing or potential legal issues. One is not more important than the other. Creating a balance between the two methods establishes a fair and comprehensive business assessment.
You’ve finalized the negotiations, and you’re ready for the next step of the deal: preparing to buy the business. While some business owners are fully prepared to handle a new venture, others may not have the upfront cash required for the purchase.
A contract will be the most integral document of the deal, as it is legally binding between the new business owner and seller. It is a clear presentation of the entity that’s making the purchase, the sale price of the online business, and the conditions that both the buyer and seller must abide by.
It is part of the responsibilities of an M&A broker like Website Closers to prepare the major transaction’s asset purchase agreement for the individual buying a business. This document is frequently in a standard template with sections customized according to the requirements of both the buyer and seller. The general items included are the following:
The money may be transferred directly to the owner if there’s mutual trust between the buyer and seller or when the financial risk is low. Most “buying an online business tips” articles suggest using Escrow or a mediator is a good idea, especially for first-time buyers.
Once the deal is sealed, you now have the power to run the business.
During the takeover, the focus shifts to transferring all essential assets, such as login credentials, passwords, and contact information. This process isn’t just about getting access to the necessary tools. Rather, it’s also about understanding how to use them effectively.
Typically, a handover period includes a few weeks of training and support from the seller. This period allows the buyer to learn about daily operations and solve issues that might come up. It’s wise to negotiate this support beforehand and include it in the agreement to avoid relying solely on the seller’s goodwill. Sellers might be particularly involved if the deal includes contingent considerations or seller financing, as they have a vested interest in the continuity of the business.
Having access to the seller during this time can be invaluable. Their insights can save hours of troubleshooting and provide a smooth transition. Ensuring that this kind of support is part of the contract will help prevent any potential challenges during the handover.
Part of executing a post-acquisition strategy is to think long-term. The first step is to create a detailed integration plan that outlines how the acquired business will merge with your existing operations. This plan should address key areas like organizational structure, technology systems, customer relationships, and employee roles. Clear roles and responsibilities should be assigned, along with establishing effective communication channels to ensure the process runs smoothly.
It’s important to keep employees and stakeholders informed about the benefits of the acquisition and the vision for the future. Clarifying employees’ concerns during the handover creates a sense of ownership and commitment, which helps to build a motivated and unified workforce.
Cultural alignment is another critical factor in post-acquisition success. Understanding and respecting the acquired business’s culture while reinforcing your company’s core values is essential. Encourage collaboration between teams and promote an inclusive work environment that values diversity.
Let Website Closers be your trusted partner throughout the M&A process. We work with those who sell online businesses and match them with the most qualified buyers. Call us today for a consultation.
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