How do I buy an online business?
If you are thinking of buying an internet or online based business for the first time, here are a few pointers which I hope you find useful. They are just a few of the things I have picked up over the years from my own experience however whilst I think there are certain factors that need to be considered in almost all purchase transactions ….no two deals will ever be exactly the same – so always be aware of the “special wrinkles” that might affect your own particular circumstances.
I have in mind especially small and medium sized situations and although many of the same principles would apply to much larger deal sizes… these larger deals will usually attract a small army of professional advisers to keep you on track!
Tips for buying a website or web business
“Look before you leap” is not a bad maxim here. Start your research early and you will be able to act quickly – and with more certainty – when a good opportunity presents itself.
My Top Tips for buying a web business:
- Identify relevant research tools and spend some time understanding your market…not just a quick snapshot … but over a period of time e.g.
- similar sites and businesses on markets like Flippa
- identify closest competitors and spend time studying their websites, social media and even mobile sites. Look for reviews about them, customer feedback…what are they good at? Where are they weak?
- Is there really a market for your idea …what size could it be? (Despite what a lot of people would have you believe there are not many genuinely unique concepts out there… there is usually an equivalent or something close to it out there already) Don’t make the mistake of thinking your idea has to be unique or “the first”… after all, every successful business needs to satisfy a customer demand… and if there is a demand is it not likely that other people are already trying to meet it? … Markets that are already established (and you can service smarter) or are young and growing are often the best place to be
- Sites that claim to be able to value a website business based just on you entering a URL – if you find an accurate one – let me know!
- If you are buying a web based business that is already trading – demand their analytics*! I have seen many instances of sellers being less than forthcoming about supplying full access to analytics. If the seller is honest then why wouldn’t they “pull back the curtain” and let you have a look. Google analytics (and similar) enable you to check on traffic levels , source of traffic (paid for, organic search, referral etc) and very importantly key words and phrases that have brought the traffic to relevant landing pages. (*assuming of course the buyer is serious and if necessary signs non disclosures etc)
- Legality and originality
- Most genuine and successful web businesses nowadays will have at their core original, useful and legal content – relate the content back to the information gathered on top keywords and landing page content – is this all consistent?
- Ensure that content is original by sampling key text (tools like copyscape.com) can help
- Remember to include seller guarantees in your deal paperwork to protect you on issues such as original content, copyright (images and text), ownership of database lists and any restrictions on use for marketing purposes (e.g. has data been collected legally in all operating geographies and were privacy statements and terms and conditions displayed etc?)
- Backlinks, relevance and site authority – These are fundamental building blocks to a strong search engine ranking performance
- Imagine buying a trading website…e.g. selling sports clothing – you buy the business, take control of the high traffic sales focussed website, purchase the sellers stock, relocate it all to your own premises….And wait for the orders to pour in at the same rate as the seller enjoyed!….But there seems to be a problem…Within weeks the site traffic is down 40%!… If only you had identified in advance that a huge slice of the traffic to the site was referred by another site…(that the seller also owns!) and is now being redirected somewhere else! (a bit of an extreme case but you get the message?)
- Social sites – check them out…what is being said and what is the activity and sentiment?
- In my pre-internet days I had experience of buying and selling businesses with stock in trade part of the deal. Slow moving, damaged, obsolete, missing and overly expensive stock is the same…whether internet or not. Always ensure your contract allows for a full and fair valuation of stock, plant and equipment.
- Reasons for the sale – This is an interesting one – Personally I wish sellers would be a bit more honest and say things like “This is too much like hard work, I have found it difficult to make much money from it and the thought of a cash lump sum is appealing…” The reasons given are at times quite funny, other times would bring a tear to your eye… but the bottom line is you are looking for potential, try to understand why they are struggling and you can do better.
- Technical – This is the area which perhaps makes buying and selling web businesses a little but special. Technical considerations are of course “played down” by the seller. Technical could mean everything from hosting to stock control systems and digital marketing. Almost every web business of any size requires a mix of technical and marketing skills to support it – and to make it worse, these are skills which need to be constantly updated.
- Don’t just accept seller statements like “minimal maintenance required” – ask a few pertinent questions
- What are the softwares and platforms? Are they owned or under licence?. How easy will this be to maintain and develop? Be aware of bespoke software or even heavily adapted versions of common or opensource platforms
- Usually sellers will say things like “free support and help for the first x months”…Maybe that is true… Maybe they will disappear after receiving your money! (keeping a retainer % of the price for a period of time might help here)
- If you are not technical yourself then take advice. Site maintenance often takes up more time and money than even the seller realises.
- There will be a load of passwords for servers, email, social sites, commercial accounts etc etc…grab them all
The list above is certainly not comprehensive and as I started writing it I realised just how long it could be!
I realise that some of the list above might seem a bit off-putting however the opposite is my intention. You need to balance the personal attitude to risk with the potential reward. I guess many people start small to learn and then (with the benefit of a few scars!) progress to greater things however most of the above points can be taken on board by you quickly and for minimal cost. The better prepared you are the more likely you are to feel confident about what you are buying and the price you should pay.
Legal contracts and Escrow
Remember that taking good advice and professional help should always be considered – it could be false economy not to.
I am a big fan of having some kind of contract in place and the use of a financial escrow arrangement (e.g. escrow.com) can help hugely to build mutual trust (especially since many of these smaller transactions will be completed at distance and without comprehensive legal representation)
I have seen some very fair contracts (fair to both buyers and sellers) available as part of an escrow service on auction sites. You don’t need to be a lawyer to understand them. Sometimes there is a temptation to save a few dollars on fees for this sort of thing at the end of the process – but I would say “buyer beware!”
Buying and selling websites can be as much about fun as commercial interest. Even the research can become a bit addictive! I hope you found the list useful but we would very much welcome your own thoughts and experiences.