Buying an Internet Business
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, A New Jersey Buying a Business Attorney
Perhaps the best part about an internet business is that you can buy into it inexpensively, or even start one from scratch on your own. Additionally, because an online business can be run from anywhere at any time, it is an ideal business to have if you are not yet ready to leave your full-time job.
However, just like a traditional brick and mortar business, it is not all fun and games. Rather, it is the kind of business where, if you put in the effort and continuously automate and innovate at every possible opportunity, it will pay you profits commensurate to the time expenditure – assuming that what you offer is what people want.
When buying an existing profitable internet venture, keep in mind that because there are many great benefits to internet businesses, the multiples may be higher than traditional business valuations. 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 conceive of a new business venture with just a few thousand dollars, you can start it by building a website and marketing the business.
Here is what you need to be aware of when buying an existing online business:
- Online businesses go far beyond building a website. It is 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 website. In other words, you need to properly market the business to get people to visit your website.
- Niche products work great online.
- You will need to do extensive research to learn about the competition, the industry, products, competition, etc. It is not as easy as finding out about a local bricks-and-mortar businesses. Remember, your competition can be viral.
- You need a bullet-proof non-compete clause with the seller since it is 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 will either 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 make no sense to someone else and can never be figured out.
- Get copies and ownership rights to all source code for the site.
- Meet with the webmaster and any other people who work on the site if you will not 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. Note that while there are numerous online businesses for sale on eBay, many are scams.
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 using a sustainable business model.
Interested in buying an internet business in NJ? You may call Fred Niemann toll-free at (855) 376-5291 or email him at email@example.com to schedule a low cost and convenient consultation.