Buying an Internet Business

Personally, I love the online business model. My company now does business in over 60 countries with 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 – although multiples for some 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 or casually (it's 3:00 pm now and I'm in Australia with my family on vacation looking at the famous Sydney Harbor and 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 90 minutes maximum each day to operate 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 although they really should not be much greater than an offline business. 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 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 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 bricks-and-mortar businesses.
  • 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 offenders.
  • 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, the best business model around. The key, of course, is to provide a profitable product or service in a sustainable business model.

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About the Author

Richard Parker, President of Diomo Corporation

Richard Parker is President of Diomo Corporation – The Business Buyer Resource Center™ (www.diomo.com) and has personally purchased eleven businesses since 1990. He is the author of the most widely used reference resources and strategy guides for buying a business for sale - the How To Buy A Good Business At A Great Price© series. His materials are used by prospective business buyers in over 80 countries.

The recommendations of reading, reference materials or links mentioned, are for general informational purposes only. The materials are intended as a public service and are not a substitute for obtaining professional advice from a qualified firm, person or corporation. Consult the appropriate professional advisor for complete and up-to-the-minute information. These materials do not constitute the rendering of any legal or professional services.

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