The Advanced Guide To Buying An Online Business

There are two options when you want to enter into the ecommerce world: build a business from scratch or purchase an established brand. Purchasing an established brand may seem like an easy feat but, just like any other business decision, it needs to be approached from a position of knowledge and precision. The following is the advanced guide to buying an online business.

Identification of needs  and goals

Once you have decided that you will purchase an online business, you need to articulate all your needs and list them in order of priority.  This gives you direction on the best business to purchase. Without adequate knowledge on your needs, you may purchase the wrong business which is not only a waste of money but also time and energy.  You must also identify the end goal or goals in purchasing the online business.

Identify potential online  businesses

Once your needs and goals are clear, you can now identify potential online businesses that you can purchase. At this point, it does not matter whether the business has been put up for sale or not. But how do you go about this? What parameters should you look at? The first and most important goal is the level of relevant traffic. Online businesses thrive when they have a constant flow of potential clients. The higher the flow, the higher the likelihood of success.

Next, you need to determine whether the business has been operating within the confines of the law. Does the online business have the licenses and permits to operate within the areas their current areas of operation? Are they compliant with the taxation guidelines? Are they compliant with different international financial standards, in the case of international businesses? What about the labour laws? A business that is non-compliant may result in negative legal consequences and should not be purchased.

How has the business been operating? Do they have a structured mode of operation? While it is easy to introduce structure, its uptake and implementation may give the impression of starting a business from scratch. Therefore, the lack of structure should be evaluated thoroughly before any contracts are entered into.

The profitability of the business is extremely important. In most cases, entrepreneurs wish to purchase online businesses that are already profitable. When the businesses identified have been facing financial turmoils, in depth analysis must be carried out to ensure that the purchase is not a waste of resources. Some businesses may maintain a separate set of doctored accounts and financial statements to impress investors. As such, you must be vigilant and thorough in your analysis to identify businesses with a sound financial track record.

You must also query the ownership of the business for a number of reasons. First, to eliminate or minimise the chances of falling into the traps of con people. Secondly, to ensure that you are dealing with reputable individuals and therefore eliminate the risk of poor brand reputation. Third, you must ascertain you are dealing with the people who have power to transact on behalf of the business and its owners  and therefore acquiring the business in a legal way.

The actual purchase

Once you are satisfied with the information you have gathered on all potential online businesses,  and are certain that they have the potential to meet the needs and goals identified, you can now make your move. A good way to do this is to structure your offer to be irresistible. The terms and conditions of the deal, the financial offer and even the roles of different parties during the transition period should be ideal but not too good to be true. An irresistible deal may change the minds of people who did not have the intention of selling their online businesses in the first place.

Through out the process, it is ideal to enlist the services of financial analysts, market analyst and legal experts such that they guide you in asking the right questions, analysing data correctly and ultimately making the right decisions using the available information. Legal experts will ensure that the contracts entered into are in your best interest.

If you are thinking about buying an online business, it is normal to feel a bit of apprehension. When purchasing a traditional brick and mortar business, you are able to visit the office, the warehouse, meet the employees, and touch base with the customers who walk through the door. Online businesses are digital, which makes it more challenging to see exactly what you are buying.

If you are thinking about buying an online business, and you want to be sure that you are making the right decision, there are a few important things to look at. Here are the 3 most important things to look for when buying an online business.

#1 Online Traffic

With a brick and mortar business, you can see how many people walk past the store and how many walk in. With an online business, you need to focus on the site’s traffic. There is more to looking at the traffic than just checking how many people visit the site.

• Diversity: A successful online business will have online traffic from more than one source. The traffic should be a mix of search, social, direct, and paid. If the company relies too heavily on just one source, it can be very risky. Due to Google’s algorithm updates, 50 percent of search traffic can be wiped out. This can cause the business’ profits to take a huge hit. This is why diversity is essential.
• Backlinks: All search engines value relevant and natural backlinks. This can successfully link one site to another. If the website owner has chosen poor backlinks trying to work the system, they have set themselves up for loss. If you purchase the business, you will be the one taking the hit.
• Performance history: Doing your research on the website’s performance history is essential. You should check things like did the site get hit negatively by a Google update? Has the site’s traffic declined recently? Are there traffic sources that the current owner has failed to pursue? These are all critical questions to ask before buying an online business.

#2 Business Financials

It is always important to check the business’ financials before buying. This is true with both online and offline businesses. However, with an online business, there is more to dig into than the books. Before buying the company, you should look into the following.

• Trends: It is essential to look into the trends in revenue over the life of the business. Did the company really peak in the first few months and then start to die down? Does most of the income come during the holidays, but not the rest of the year? Looking into the revenue trends is essential when buying a business.
• Business expenses: It is best to purchase a business with low business expenses. You should look at the cost for domain renewals, website hosting, marketing, and web content. If the business owner’s expenses are very high, you should first look into reducing these expenses. If you don’t think it is possible, buying the business might not be the wisest business decision.
• Growth potential: The goal of a successful business is growth. You should look at the long-term trends and the competition. To get a good look at the growth potential, you can hire a Conversion Rate Organization, who can give you an accurate look at how the company can grow after you acquire it.

#3 Personal Fit

When you own a business, you need to be passionate about it. If you don’t have that passion, you will never be successful. You also need to make sure that the business will be a good fit for you. To do this, there are a few questions that you should ask yourself.

• Can you see yourself working on the site?
• Do you have the time necessary to make the website successful?
• Do you have the money in your budget to take a minor financial loss when you are first starting out and learning about the business?

Before buying an online business, you need to do your research. Doing your due diligence is essential in purchasing an online company that has the potential of being incredibly lucrative.

To achieve success as a website investor, there are sets of skills that you must acquire. These skills ensure that you make the right decisions in all departments of your business and therefore enhancing success. The following are skills needed to be a successful website investor.

Analytical skills

Every investor needs to identify market trends and use existing data to predict such variables as expected levels of traffic, expected cash flows and the future value of your investment. Analysis is also important in gauging how far you have come in terms of growth of traffic and thee increase in value. Investors could make use of different automated tools to carry out the analysis but they will still be expected to understand the end result of the analysis.

Master at least one skill related to website investments

SEO, analytics, content creation, coding and development skills are all important in website investments. As an investor in this sectors, you must learn and master at least one of these skills. However, nothing limits the investor from learning all these skills but they should ensure that they have at least one area of specialisation.

Ability to Keep learning

The technology and systems keep getting better with each passing day. In order to remain successful as a website investor, you have to keep an open mind. You must learn new skills, improve your knowledge base on different technological topics and apply these consistently in order to remain a top investor.

Ability to recognise opportunities

Successful investors in all fields have perfected the art of identifying opportunities in their field and exploring them before everyone else. They also have the ability to recognise when time has come to change their field of operation when it has reached a stagnation point. Opportunities come in all forms including those to specialise and pursue a niche market.

Team management skills

To run any successful venture, the investor will need to collaborate with different people in the field. Website developers, content managers, SEO experts and advertising experts are some of the team members that will require to be management. In addition, the investor may have different clients and therefore the need to give them sufficient attention. Team management skills can be acquired over time through experience but there are also formal classes that can teach the investor the basics of team management.

Financial management

How does the investor manage the resources acquired from his investments? Are there funds that have been set aside for emergency business situations? Financial management involves learning how to manage funds well in the present period such that the business has enough funds to cater for operations even in low business seasons in future. In the absence of proper financial management skills, there will be no funds to invest in new opportunities as they arise.

Strategic planning

Strategic planning skills are important in retaining the profitability of any venture and website investments are not an exception. Strategic planning includes both short term and long term investment plans that will increase the value of the website and therefore your investments.

Marketing skills

An investor is constantly marketing themselves to clients and other stakeholders. Marketing skills ensure that they can successfully identify the marketing strategies that will generate the most favourable outcome with respect to different stakeholders. If marketing is outsourced, then it gives the entrepreneur the ability to understand the information and data presented to them accurately.

The valuation of any business is usually a depiction of how the business owner views their business.  It is a representation of the owner’s interpretation of how different forces in the market affect their business. The value of the business therefore communicates more than just the financial outlook of the business as investors can use it to understand the business owner. This is why you need to take your time developing your business narrative and valuing your business. This article analyses SaaS Valuations: How to Value a SaaS Business.

What is SaaS?

Software as a service (SaaS) is a type of business where the entrepreneur provides and hosts applications for a fee. The business therefore involves the development of software, maintenance of databases and servers that then allow clients to access the applications over the internet. Most SaaS companies operate on a subscription basis which charge annual, quarterly, weekly, monthly or even daily subscription fees on the target clientele. But how do you value such a business?

How to value a Saas Business

The Multiple Method

In this method, the revenues of the business are calculated and then multiplied by a predetermined number, usually called the multiple. This method is ideal for small businesses and is usually guided by the age of the business, stability of the business revenues, client base expansion and trend, the quality of the content used, the revenue drivers and the monthly or yearly growth of the business. The owner’s involvement in the business may also have a great effect on the multiple. On average, the business multiples usually fall between 3 and 4.5.

The sellers discretionally method

This is usually calculated as the total revenue collected over a period of time, less the cost of goods sold and the total cost of operations, then you add back any remuneration paid to the owners as well as personal expenses covered by the business. This method is also ideal for small businesses that employ a few people.

Earnings before interest, taxes, depreciation and amortization

This method can be used to value larger SaaS businesses with many employees, clients and costs of operations. This method is usually taken as the most accurate business valuation method for these businesses. Experienced and skilled valuation experts may be called upon to enhance accuracy when this method is used. This method can also be used to predict with a certain degree of certainty the business trajectory for the next few years.

Incremental value

The aim of every business owner is to grow their business over time. As a business person, you need to value your business often in order to determine the growth trends, identify the areas where you need to put in more effort and the areas where you need to keep up the good work. Therefore, business valuation should not only be conducted when there is an imminent sale but on a regular basis. This also helps you develop data that could be used to market your business when you decide to sell.

Given the increased interest in SaaS businesses and e-commerce, it is essential to build a solid business from the beginning. It is also good to have in depth understanding of the value of your business in order to avoid embarrassing yourself in front of your investors or employees. If this is not possible, then you should at least understand the basics.

A business that is seeking to expand its operations can purchase an existing profitable business to drive the expansion. In addition, brick and mortar businesses can purchase successful online businesses in order to debut into the e-commerce world.  To do this, one must understand how sellers value their businesses and how to go about identifying the most suitable business. We take a look at How to Value and Sell an E-commerce Business How to Find an Online Business for Sale – Guide.

Valuing an e-commerce business for sale

The value of online businesses could range from a few dollars to millions of dollars. This valuation is usually based on the niche market the business operates in, the level of traffic generated by the business per unit of time, the level of conversion of the traffic into paying clients for the business, the presentation of the business and the quality of the back-end of its websites and online resources. The value can also be increased by the demand of such business vis a vis their supply at a particular period of time.

When set out to value an online business with the intent to sell, it is paramount you get your facts right such that you make the best out of the sale. You can begin by identifying the critical factors that make your business valuable or successful- the critical success factors. You should also question the factors that could be deemed the weak areas of your online business. The next step is to identify how much value the success factors add on to your business and how much the weaknesses take away. In cases, where the weaknesses are weighing down the value of the business, you ought to work on improving them before you can sell the business.

What factors in the external market have an effect on the current value of your business? These can be divided into two categories; those that increase value and those that minimize the value. Will these factors still matter in a few months or years? You need to factor their overall effects in the business valuation such that the value does not mislead the buyers.

The valuation of a business is technical and could therefore require the services of an online business valuation consultant.  You can work closely with one in order to arrive at the correct value of your business. However, you ought to work closely with them since they need to understand your business well in order to come up with the correct valuation parameters.

Selling an online business

The joy of any seller is to identify a suitable buyer who sees the value of the business and is willing to pay the price. As a seller, you must advertise your business to potential buyers. You must also be willing to indulge the buyers in the quest to understand your business and its value.  Besides this, you must ensure that you have a team of legal experts who can guide you through the process to ensure that you not only sell to the best buyer but that also the transactions are done in accordance with the law, and therefore averting any legal implications in future.

How to find an online business for sale

There are websites that list different online business that are up for sale. This should be your first stop when you want to purchase a business.  You can also search on all major search engines using the keywords of the business you intend to purchase.  In addition to this, there is an easier option; find a broker who will assist you in identifying the businesses you can purchase and in overseeing the purchase.

The valuation of a website or an ecommerce business is important in determining the sale value of the business or website. However, many people, especially those without technical knowledge on how websites or ecommerce businesses work have no idea how these assets are valued. We take a look at how to value a website or internet business how to sell my niche website or blog with a website broker.

Why do you need a broker?

A broker has a deep understanding of how this kind of transactions occurs. Understanding the process enhances better utilisation of time by concentrating on the core business. The experience gained through brokerage of different deals enhances their negotiation skills and therefore, they are likely to get you a better deal than you would get. Brokers have developed a network of clients and other stakeholders in this market which may be fundamental in getting you the best deal for your website or niche blog.

How to value your online business or website

The first method uses discounted cash flows to calculate the current value of the business, website or blog. This method involves forecasting the future cash flows from the business or website and then discounting them using the weighted average cost of capital to attain the current value. This method can be affected by the unpredictability of future market trends hence the cash flows expected to be generated in future, the variations in monthly business income as well as the changes in the business model.

Online businesses can also be valued through the multiples method where the current discretionary cash flows of the business are multiplied by a certain number. The multiple used needs to be appropriate for the business in question for the figure arrived at to make sense. This method is preferred by many people given its simplicity and ease of understanding.

The other method uses the level of traffic to determine the value of the blog, website or online business. This is usually used when the online business, blog or the website has a substantial amount of traffic per unit of time but has not been monetised yet. To you this method, you will require the key phrases that drive traffic to the site, the number of visitors brought in by each word and the cost per click of the site. In most cases, the sites are valued using different methods and the values compared in order to attain a certain level of accuracy.

Selling a niche website, blog or online business

Such sites will only make sense to individuals in the niche market and therefore, to sell it at a good price, you need to market the site to the appropriate audience. For example, a site that discusses high end motorbikes can be advertised to those who manufacture their parts, those whose job or hobby is to review motorbikes or people who sell them. Working with a specialised broker ensures that you have access to such markets.

The broker will also assist you in valuing your site or business appropriately such that you get the best value for your hard work building and maintaining the site or business. Niche blogs and sites are known for fetching a higher return on investment and therefore should be sold at a higher price than normal sites. When setting your price, you should allow room for negotiation and therefore, you should mark up the value of the site accordingly. However, the price should not be extravagant as this could chase away potential buyers.

How to Sell Your Online Business With FE International Buying an Internet Business – Advanced Legal I Want to Sell My Website: Are you Ready?

Are you considering to sell your website? First of all, you need to understand if your online asset is marketable.

The first thing to keep in mind is age. Buyers of a higher level demand at least 12 months of existing history and proven sustainability. The website also needs to be profitable.

If you are planning to sell your website but are not quite at these levels yet, you can certainly get started to increase your website valuation.

One easy win is to make sure the mobile version of your website is properly optimized. You can work on increasing your revenue.

You could also place your website as a good reference within a growing subniche within your industry. As a consequence, you will end up gathering a wide variety of backlinks coming from trustworthy websites in your industry, which also helps increase your valuation.

Another area to focus on is updating your website frequently and adding more content. If you have engaged social media profiles or, better yet, an active mailing list, that is yet another powerful asset. The more diverse your traffic sources are, the higher valuation you will receive.

You should also streamline and document all internal processes in your site, so any new owner can scale all processes very easily. The greatest benefit of doing all these things is that you will likely have a very hands off operation, with minimal owner input, while the website isn’t sold. That, coincidentally, is also a great way to increase your website value.

Once you are at a point where your business is optimized for new ownership, then it is time for you to prepare for the sale, so the sale process can be smooth and stress-free.

One important aspect is to hire good legal counsel. Nowadays there are lawyers specialized in website sales and purchases. If you can’t find any in your local area, you can always search for lawyers specialized in small business acquisitions – the skill set is very similar.

Finding, selecting, and hiring good counsel makes a world of difference. Selling or acquiring a digital assets brings unique challenges and having prior experience in a similar transaction is a definite advantage. This experience can immediately translate into understanding the different components of the business, such as domain names, intellectual property, contract assignability, and so on.

You should also understand that the contract writing phase will only happen after conference calls, due diligence, negotiation, and a ton of effort made both by the seller and the buyer. A reasonable attorney will, therefore, promote collaboration and avoid creating  hassle and making unreasonable demands.

An easy red flag made by unreasonable attorneys is to insist on drawing an asset purchase agreement from scratch. That means they are interested in accumulating more billable hours. Customizing an existing template to the specific deal terms is more than enough.

All you need to ensure in your APA is to map all elements of the business, such as assets, accounts, contracts, and so on. Each asset should be properly identified, and the APA has to ensure ownership and transferability of the asset – domains, hosting, content, social media and email accounts, licences, subscriptions, and also map out all third-party associations – if any. A good APA should include a non-compete term, as well as a period for training and transition support.

You have built your website audience and feel like you have hit a plateau, or perhaps you would like to venture into a different area altogether? This is the ideal time to sell your website. Whatever the reason for selling the website is, you need to understand the fundamentals of selling it before you proceed. Do you know how to sell a website?

The valuation

Before you can identify the market for the website, you need to know its value. This can be determined using the level of traffic the website has, the amount of revenue the website has been generating on average, the expected revenues from the business in future, the quality of the existing audience and many other variables. Valuation can be carried out by a professional in the financial field since it may require financial analysis, trend analysis and discounting cash flows.

Links to other online resources

In most cases, websites are linked to social media pages and other online business assets. Before you can list your website anywhere, you must decide whether you are selling the site together with all the linked resources or independently. When sold as a package, the site may attract a higher number of interested buyers and will essentially fetch a higher price in the market. However, you may also decide to eliminate these links and keep other resources if you intend to use them in future. This should be done in a professional way to eliminate loss of clients or traffic.

Selling through third party sites

If you have no idea where to advertise your website or where to get your target market, there are different sites that specialise in this. They enhance your chances of finding the right buyer within the shortest time possible.  However, the turnaround time may also be determined by the size of the website, the asking price, the quality of existing clients or traffic and even the industry of operation.

If you choose this route, you ought to ensure that you list your website in trusted and verified sites to minimise the risk of losing it to malicious individuals. The sites will charge a fee based on the sale value of the website which is deducted from your funds before they are remitted to you.

Selling through a broker

There are brokers who specialise in selling websites. The brokers operate in different industries and have a wide network of clients that you can take advantage of.  Brokers may also assist with such things as the valuation of the website, negotiation of the deal and drawing up the terms of the engagement. The broker will charge a fee based on the work performed and this may increase the cost of the sale.

Choosing the buyer

While it is none of your business how the website is used after you have relinquished its ownership, it is good to ensure that your hard work and time do not go to waste by choosing the best buyer. Ideally the buyer should be someone who shares in your beliefs and enthusiasm for the work you have been doing in order to ensure that your former clients are in good hands.

When choosing the buyer, most people will choose the one with the highest bid. However, you must also identify people who are at a good standing in society as links to people with poor reputations may have negative effects on your reputation. The opportunity cost of this can be devastating.

So you wish to sell your SaaS business! Perhaps, you’re out of time to commit to your venture. Maybe, you found a better, more profitable business. No matter the reason, there are buyers looking to acquire your venture. All you should do is list your venture for sale on an ideal platform that brings sellers and buyers together. However, before you do that, you should take concerted steps to entice a buyer and land a favorable deal. So, how to make your SaaS business more attractive for acquisition?

Tips to make your SaaS business more appealing for acquisition

When you list your SaaS company for sale on a reputed platform, you’ll definitely land a buyer. However, you can’t be sure of a better deal. You need to present your business in such a manner that it looks profitable for the buyer. If a potential buyer doesn’t see any probability of growth and profits, he won’t buy your business. It’s that simple. Here’s a list of things you may want to do to enhance the value of your SaaS company.

Product life-cycle

Before listing your SaaS business for sale, have your product at its high point of development. In simple words, your product shouldn’t require any major updates soon. That gives the potential buyer some runaway ahead of major developments. It also provides the new owner some comfort that the vendor hasn’t given up on the venture and is passing over the thread at a time when the product demands care and attention.

Revenue model

Most of the SaaS businesses operate on a monthly subscription model, which offers predictable cash flow each month. Buyers are mostly interested in the revenue model of the business. They wish to make profits from their investment.

The better the revenue model, the higher the chances of acquisition. So, before you plan to sell off your business, increase the revenue of your business. Also, make suitable changes that will yield better profits in the future. A little bit of labor on your end will get you a higher sale price.

Growth potential

Any potential buyer would want to own a business model that has immense growth potential. So, see to it that your existing business has the potency to grow and flourish amidst competition and changes. Make a thorough, unbiased assessment of your venture. Do you think that your venture will deliver profits to the new owner? Can your business model survive in the long run?

If yes, you’re better off listing your business right away. If no, you may want to expend time on these things. Upgrade your software, make changes in your service, and assure that your business trends modestly upward.

Popularity of your brand

A stand-alone, popular brand is more likely to be considered by a potential buyer. It helps if you’ve put in dedicated efforts into generating good brand recognition. Are you generating enough engagements on social sites? Is your SaaS model featured on the right media outlets? Consider strategies that generate substantial brand recognition in such a way that the potential owner could easily pick up.

Closing words

The selling process of your SaaS venture starts way ahead of your listing in the market. Consider the viewpoint of your buyer and figure out how to make your SaaS business more attractive for acquisition. With simple tweaks and amendments, you can easily find a more profitable deal in a lot less time.

There is big money online and this is why it makes sense to buy an online business. Now, before you buy an online business, it makes sense to learn all there is to know about the business you want to buy. However, learning is a continuous process and there are things you can never know about a business until you start running it. This is why it pays to be open to learning and learn new ways of doing things.

You have just bought an online business. Congratulations are definitely in order here but buying the business is not the end of the story. One question you should ask yourself is; “What happens after I buy an online business?” If you are able to answer these questions correctly, your business will grow and thrive. Below are some things you should do after you buy the business.

Meet the Staff

The first thing you should do after you buy any business is to meet the staff. These people have been working here before you got involved in the business so they probably know some things you do not know. Meet the staff and just learn from them. Ask them questions and insist they give you honest answers. At this point, you should let them know you are not here to find fault. Make them know that your objective is for the new owner (you) and the employers to work together in the interest of the business.

Get in Touch With Customers

The customers are the most important part of any business. These are the people who give you turnover, sales figures and a nice profit margin. Your customers also make it possible for you to expand your business and get a larger market share. For this reason, you should not take them for granted. Send out emails and let them know you value their patronage. Connect with the customers on social media and keep them informed. This way, they will know you and buy into your vision for the company.

Give Customers a Bonanza

One smart way to announce your presence as the new owner is to give your customers a bonanza as soon as you have completed the all the modalities of buying the firm. The purpose of this innovative move is to create a bit of excitement in the company from day one. A bonanza also helps you increase sales. You get the old customers to buy more products and you even target new customers.

Upgrade Your Website

Buying a business should come with some positive changes. Your website is your mobile office so it pays to make it customer-friendly. Upgrade your website by creating a better design and adding innovative features. Add relevant content and send out press releases of current developments in your company. You should also create a blog or post new content on the existing company blog. These are smart ways to make your site more visible to customers and would-be clients.

Employ an SEO Guru

You cannot make money online if your website is not taking advantage of SEO principles. Employ an SEO guru and work with this expert to create a perfect SEO strategy. Once you apply the right SEO strategies, your business will grow.

Final Word

Buying an online business is an excellent idea. Invest in an industry you are familiar with and work with expert to make your business boom. This way, your online business will grow and thrive.