Buying an Internet Business

2misi.com

http://www.2misi.com/article/2012/07/buying-an-internet-business

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.

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.

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.

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. You need to figure out how to get people to the store (the website). In other words, you need to market your website.
• Niche products work great.
• You'll need to do extensive research to learn about the competition, the industry, products, competition, etc.
• 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.
• 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.

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.