Last Updated on March 17, 2024 by Saira Farman
Buying an online business can be an incredibly savvy investment move – giving you a steady stream of income and a little more flexibility in terms of scheduling.
It is generally less risky than launching your own startup, too.
You’re buying an existing product or service in what should be a turnkey operation.
Here’s a brief overview of what it takes to buy an online business.
Why buy an online business?
One of the major advantages of buying an online business is that it offers a greater amount of flexibility than more traditional businesses.
You can work from anywhere in the world(usually), as long as you have an internet connection. You can work when you want to, giving you the flexibility to schedule your life around what works for you.
Online businesses are not restricted by any geographic boundaries and can sell goods and services around the world.
Because you’re buying an existing business, you’re able to get into something that has steady revenue. You already know that there is a market for the product or service the business provides.
You’re also getting an established brand when you buy an existing online brand. You might have to pay a little extra for that brand but it will come with an existing customer base and reputation.
This also means that you are getting the existing relationship with the businesses’ suppliers, no small feat given the supply chain issues still roiling global markets.
Types of businesses available online
There are countless ways to make money online so there are lots of online businesses that you should consider purchasing.
A quick list of the most popular and profitable businesses includes:
- Mobile app and web developers
- Affiliate partner sites
- Digital service providers
- Virtual training or education sites
- Block-chain business
- Online blogs
- E-commerce stores
- Holding and selling domain names
- Dropshipping
- Reseller
- Virtual assistants
- Survey providers
Think about what sort of business you want to buy and make sure it aligns with your interests and talents. Don’t be afraid to try something new but make sure it’s at least in your wheelhouse of skills.
Due Diligence
One of the most important steps when buying an online business is to conduct thorough due diligence on all aspects of the operation to make sure you know exactly what you’re buying.
This will include going over all of the business financials, including:
- Business tax returns
- Company balance sheets
- Cash flow statements
- Sales records
- Debt
You’ll also want to conduct a thorough search for any legal liabilities.
If the company relies on any specific government regulations or licenses, make sure you vet these too to make sure you won’t have any problems in the future.
You’ll also want to make sure you understand everything about how the business operates, including the responsibilities of all employees. Ask for a business organizational chart.
This can be a significant undertaking so don’t be afraid to ask for professional help. You can consider working with a business, for example.
Financing Options
Let’s take a look at your financing options for buying a business online.
Personal funds: If you’re able to simply purchase the business yourself, this is always a simple and straightforward option. Most people don’t have that kind of money lying around.
Debt financing: One of the most commonplace ways to raise funds for buying a business is through a loan. You can do this through a traditional lender like a bank or by going through the Small Business Administration (SBA) loan process.
You’ll want to have good credit if you hope to get approved. You’ll also have to gather a large number of financial documents, including personal and business tax returns, business plans, information on existing debts, and your credit score.
You can generally expect to put down about 20-25% on bank loans but as little as 10% on SBA loans.
Seller financing: It’s very common to agree on a certain percentage of seller financing when buying a business online. This is essentially a loan between you and the current owner. You’ll agree on terms and a payment schedule.
Third-party investors: Another extremely common way to raise capital for buying a business is by seeking out third-party investors who will provide you cash in exchange for a certain amount of equity in the business. You can also pair this option with an SBA loan.
Closing the deal
Once this process has been completed and you’re certain that it’s a worthwhile investment, it’s time to start talking numbers and settle on a price with the owner.
This can also be a fairly tricky operation.
You’ll want to get the price right and that will include looking at existing revenue, the value of the brand, SEO factors, etc.
You can value a business using any number of ways, whether that is calculating earnings before interest, taxes, depreciation, and amortization (EBITDA) or seller’s discretionary earnings (SDE).
This is also a process that can be greatly improved by relying on professional help.
Once you’ve settled on a number it’s time to present an offer and prepare to negotiate.
Don’t discount the personal at this stage. Many business owners have spent years or decades building their brands and many want to see the business successful in the future. Bear that in mind when you’re negotiating.
Post-purchase considerations
Once you’ve closed the deal, the business is yours.
You’re in charge so now is the time to apply your unique insights to grow the business even further.
Don’t try to implement too many changes too quickly or you can disenfranchise existing employees. Affect change at a pace that suits your needs but doesn’t rock the boat too much.
Conclusion
Buying an existing business online can be an attractive prospect for anyone looking for a new entrepreneurial adventure.
Think about what sort of business aligns with your particular skills and insights. Conduct thorough due diligence. Consider all of your financing options. Negotiate a price and close the deal.
Once the business is yours, apply your knowledge and drive to grow the business.
