How to Buy an Online Business and Turn a Profit
Many would-be entrepreneurs dream of owning a successful online business, but don’t have the resources, expertise or time to build a business up from scratch and guide it through its growing pains.
That doesn’t mean you can’t have a business of your own, though. If you can’t build a business up, then you can buy an existing business instead. It’s a perfectly viable way of getting into the game, and may, in fact, be better for you than starting from the beginning.
Why buy an online business instead of starting one?
When you start a business from scratch, you have to work for months before you can even see your first sale. You will have to think of a business concept, register a domain name, source inventory, build the website, introduce the brand to the market, and a host of other tasks.
And that assumes everything is going to go right. If the business struggles, you’ll have to pour even more time and personal financial resources into course-correcting and putting out fires. It’s stressful both physically and mentally. Many entrepreneurs don’t want to go through that kind of gauntlet, and you don’t have to either.
When you buy an existing business, you’ll skip all the early-stage predicaments that other entrepreneurs encounter. Most of the hard, early decisions will have already been made, and the infrastructure will already be in place. If you choose the right opportunity, the only thing you will have to do after transferring ownership is to just maintain the status quo.
However, that doesn’t mean that you should never start a business from scratch, nor that you should always buy. You need to consider both the upsides and downsides of purchasing a business before making any sort of commitment.
Pros of buying an online business
Buying an existing online business can offer several distinct advantages:
The business idea is already proven. Coming up with a viable idea can be the hardest part of starting a new venture. But when you purchase a business, the idea has already been proven for you. As you perform your due diligence, you’ll be able to see how big the demand is and whether or not the business is sustainable in the long-term.
Established customer base. No need to flail around for your first customers. The business you’re buying will have its own (hopefully loyal) customer base. From here, you can opt to either maintain the status quo by serving existing needs or attract more customers.
Standard operating procedures. Half the work in setting up a business is figuring out procedures and workflows. Buying an existing business means that you skip the experimental stage with all of its false starts. Instead, all you need to do is familiarize yourself with the current process.
Knowledgeable employees. If the online business you’re purchasing already has employees, take the opportunity to talk to them. They will be able to ease your transition into ownership by teaching you how their aspect of the business works. You may also want to get their opinion on how the business can be further improved or streamlined, and incorporate that feedback into your own plans.
Pre-existing business assets. Entrepreneurs growing a business have to source, compare and test everything they buy for the business: from physical assets and products to software tools and licenses. You don’t have to do that when you buy a business, because you’re joining at a stage where all of those assets are already in place.
Supplier partnerships. The business you’re buying will likely already have existing supplier relationships, which is fantastic because you don’t have to go through the ordeal of reaching out to different suppliers and negotiating contracts. You simply take it over and work from there.
Easier financing. If you need to go to a lender to finance your business venture, you’ll have a much easier time getting approved for buying an existing business than starting your own. This is because banks will be able to review the existing business’ financial history and be confident that it’s a good investment. The alternative is much riskier and therefore less appealing.
Intellectual property. Whether it’s technology patents or creative assets, taking over a company means you get ownership of any intellectual property it owns, too. You now have the freedom to use or modify the company’s IP in whatever way you see fit–hopefully in ways that benefit the business.
Cons of buying an online business
Purchasing a business isn’t a perfect situation. There are some trade-offs you will have to consider that may affect your final decision.
Higher up-front investment. Existing businesses might be easier to finance, but they also require a much higher up-front cash investment. When starting a business, you can pace your business’ growth based on your available funds. When purchasing, you have to fork over the cash all at once.
Existing systems may be hard to change. While pre-existing systems might be an upside, it can also be a downside if you don’t like how things are being done. The business might be so entrenched in the old system that you can’t modify it without disrupting operations.
Employees might not stay. Your purchasing contract only covers the business and its assets, not its employees. The team might not be willing to stick around after the transfer of ownership, which will place you in a difficult position as you scramble to replace them while maintaining current operations.
No influence or control over development. You’re entering the business late in the game, all of the important development decisions have already been made. So that could mean being forced to run with the decisions that the previous owner made, even if you would’ve chosen a different path had you been in their shoes.
Owner withholds information. One of the biggest risks of buying an online business is that the whole transaction takes place at a distance. It’s easier for the original business owner to hide important information, which means you purchase without knowing the whole picture.
Previous mistakes catching up to you. You don’t know what kind of mistakes the previous business owner made–you only have the information he gave you. That could mean nasty surprises such as a defective product, predatory supplier relationships or a slew of customer complaints.
The business might be on a downward spiral. If you don’t do your due diligence, or if the owner isn’t forthcoming, you may end up boarding a sinking ship. You can try to course-correct, but how successful you are depends a lot on how much additional work it will take to fix the business and your own skill/willingness to do so.
No backing out. Once you’re in, you’re in deep. There are no returns or refunds when you buy an online business, whether you were sold a lemon or you realized that running a business isn’t your thing after all. The only option you have in this case is to keep the business afloat until you can hand it off to another buyer.
Who should buy an online business?
Entrepreneurship isn’t for everyone, and neither is buying an online business. It takes a special breed of entrepreneur to take over someone else’s business and make it succeed. Buying an online business might be right for you if you are:
Able to access capital. You need access to enough funds to purchase the business, whether that’s from your own pocket or through a lender. Don’t break the bank to force the transaction, because you will need an emergency reserve in case the business needs additional investment.
Able to evaluate businesses. Don’t just look at the price tag when buying a business. A smart entrepreneur takes everything into consideration: the size of the customer base, costs, potential opportunities, and more. You should look at how easy or difficult the business is to operate and whether that aligns with your own goals.
A visionary. Know what you want your new business to achieve, both for its own sake and for your own personal life. Having this understanding will make it easier for you to develop a strategy and choose which tactics to employ.
Strategic. Every business needs a roadmap to success, and the better you are at developing a strategy, the better the results you will get. This strategy can either maintain and grow the business’ current direction or be a drastic shift in direction. Either approach works as long as you know where you’re going and have a plan for getting there.
Skilled in multiple things. Owning an online business means you will have to do many things on your own, even if you have employees. You need to be good at marketing, accounting, business strategy, customer service, product development, crisis management, and a host of other tasks.
A fast learner. You’re going to be thrust into a situation where everything is new and already in motion. Any interruption will cost you money, so you need to learn fast: whether it’s a new process, a new market, or a new skill. The previous owner might stick around long enough to show you the ropes, but then again, he might not.
In good health. Entrepreneurship is a stressful job and requires long hours. It will help your physical and mental well-being to be in good health and exercise and have positive ways of relieving stress.
Able to devote the time. Many would-be entrepreneurs expect the online business to be a part-time commitment, only to have it consume most of their schedule. The reality is that if you buy someone else’s business, you may have to devote many hours into fixing broken systems or fulfilling orders–at least until you can find a way to streamline operations to fit your own schedule.
Self-disciplined and motivated. This is a trait all entrepreneurs should have, but solo entrepreneurs need it the most. If you don’t work, you don’t make money. Being lazy or unable to focus will hurt your business’ success, even if the business you buy comes with employees. Those employees will not be able to make decisions for the company.
Do any of the above qualities sound like you? If so, then great! You’ve just increased your chances of success.
What to look for when buying an online business
It’s one thing to know you’ve got what it takes to be an entrepreneur, but it’s quite another to find the right opportunity. “Perfect” online businesses for sale are difficult to find. Part of the challenge is that people have their own definition of what “perfect” means.
You might want a business that requires little onboarding and intervention; just hand over the keys and go. Or you might enjoy the challenge of buying a “fixer-upper” and setting it back on its feet.
Whatever your plan or motivation, you still need to examine the business closely to make sure it’s right for you. Here are the main things you should be looking for in an online business:
Business size. Are you looking for a business you can run on your own, or do you want a larger business with employees with many assets? What size of customer base are you comfortable with handling? Larger customer bases mean more work fulfilling orders or performing customer service. Figure out your own threshold before reviewing options.
Consistent revenue. A consistent monthly revenue is a sign of good business health and of a loyal customer base. The actual amount will give you a quick insight into how many customers you have and how much they’re buying.
Profit margins. Revenue is all well and good, but how much money is the business making per sale? Why is the profit margin the way it is, and where is the money going? Know the ideal profit margin for that type of business so you can gauge how well it’s doing.
Business model. How is the business making its money? Does it rely on ad revenue, product sales, or some other means? Pick the business model that is easiest for you to work with. For example, businesses that rely on ad revenue often need content to attract visitors, which means hiring writers or being one yourself.
Risk. Businesses that rely on one income stream or rely on another company to operate are high risk. If an online retail business only sells on Amazon, for instance, then it will be in a difficult position if Amazon decides to change its rates or de-list the product.
Growth potential. Growth potential is a major consideration when buying an online business. As the new owner, you could expand into new market segments or improve the product line. You could also grow the business by changing the way it advertises itself–for example, getting on social media or improving its SEO.
Existing assets and systems. Is the business properly equipped to function? Does it have a functioning website and e-commerce store? What relationships does the business have with suppliers and other business partners? How many employees does it have and how committed are they? The more existing assets a business has, the less legwork you’ll have to do to plug the gaps.
Business niche. You could go into business in any niche you want, of course. But ideally, you should pick a niche you’re actually interested in. It will help you stay motivated and at the same time increases your chance of success due to your knowledge of the niche and the people in it (i.e. your customers).
Marketing systems. How is the business currently marketing itself? A profitable business that doesn’t do much marketing could experience explosive growth once you start marketing it properly. This, of course, requires that you know how to market a business or can hire someone who does.
You’re rarely going to get a business that is perfect in all respects. You will have to compromise based on whether its upsides outweigh its downsides, and which you value.
Where to find online businesses for sale
There are many places to find online businesses for sale, depending on how you want the transaction to be conducted.
Auction sites. An auction site works by putting an online business up for sale, and buyers place bids to see who gets it. The highest bidder gets to buy the business.
Brokers. A broker functions a lot like a real estate agent. They work on your behalf to find good online businesses to buy and help you through the evaluation, negotiation, and purchase process. They are paid on commission, but you benefit greatly from their experience and assistance.
Direct to business owner. You could, of course, skip the middle-man entirely and go directly to the owner of a website you would like to buy. But you will need to conduct all of your research before reaching out to the business owner and be prepared to negotiate.
Marketplace. In a marketplace, the business owner himself is the one that lists their business for sale. It’s up to you and the seller to connect and work out the terms, but some marketplaces help by helping facilitate payment and administrating turnover.
Let’s cover some of the more popular examples of each type.
Flippa has been around so long it’s practically an institution. As of 2015, this popular online business auction site has helped facilitate over $140 million worth of transactions involving websites, mobile apps, and internet domain names.
Flippa has had plenty of time to streamline their marketplace with powerful filtering and search tools, and provide you with helpful categories like “Built for Beginners,” “Apps for the Masses,” and “eCommerce Heavy Hitters.”
Prices for online businesses on Flippa range from $1 to $100,000 and up. The website has escrow and valuation tools to help you facilitate transactions.
Shopify Exchange Marketplace
Shopify doesn’t just help businesses sell; Shopify also helps sell businesses!
Most of the businesses being sold on the Shopify Exchange Marketplace are eCommerce businesses. Can you guess what platform those businesses are using?
This emphasis on Shopify online retailers can either be a good thing or a bad thing, depending on how you view the Shopify brand. But there’s no denying that you can find some pretty good deals on the Exchange Marketplace.
The Exchange Marketplace has partnered with an escrow service to facilitate funds transfers, and a valuation tool to help you judge the worth of any site on offer.
Businesses for sale
BusinessesForSale.com is a global business marketplace. The marketplace’s website is divided regionally, with you, the site visitor, automatically redirected to view businesses in your country.
While it caters primarily to businesses with physical locations and physical assets, it also has a strong online business section. You’ll just have to weed your way through the category filters to find it.
Entrepreneurs who need assistance are able to use the site’s search tools to find brokers, accountants, lawyers, and other specialized services that can help you purchase or run an online business.
Online business brokers
Here’s a brief list of online business brokers you can approach:
- Acquisitions Direct
- Digital Exits
- FE International
- Sunbelt Business Brokers
- Quiet Light Brokerage
- Website Closers
Taking the plunge
By now, you should know everything you need at this point to start moving towards your new opportunity. You know what to look for in an online business, where to find one, and how to hit the ground running. You are now aware of why you should–and shouldn’t–buy a new business, and what personal qualities will help you succeed.
All that’s left to do now is to put all that knowledge to practical use. So let’s turn that dream of owning a business into reality!
Ready to start your business? Ownr has helped over 15,000+ entrepreneurs hit the ground running quickly – and affordably. If you have questions about how to register or incorporate your business, give us a call at 1-800-766-6302, Monday through Friday from 9 am to 5 pm EST, or email us firstname.lastname@example.org
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.