Many people consider an online business to be a fast-track to business success. With consumers spending more time online thanks to the ever-growing use of smartphones and tablets, eCommerce is exploding. According to a report by technology and market research firm Forrester, eCommerce in the U.S. will outpace sales growth of brick-and-mortar stores over the next couple of years, reaching a total of $370 billion in annual sales by 2017.
This outlook isn’t going unnoticed, and aspiring entrepreneurs are targeting online business opportunities. The advantages of buying an existing business seem to outweigh the risks of starting your own, including instant customers, traffic and revenues. And while an internet business sale may follow the same process of selling a brick-and-mortar company (i.e., working with a broker, business valuation, business listing, etc.), there are some unique risks.
Here are five things to consider when buying an online business:
Search for the Right Business
Scour the web for sites that match your criteria and contact the owners in hopes they are willing to sell. This can be a lot of work, so make use of online marketplaces such as BusinessesforSale.com. There are also website specific marketplaces where you can compare and contrast sites based on revenue, traffic, age and niche.
Consider Your Budget
While you are searching, consider the pricing of a potential web investment. Website buyers typically pay between 12 and 24 months revenue. That means if an online business is generating $100,000 a year, you can expect to pay between $100,000 and $200,000 for it.
Conduct an Inspection
Think of the website itself as a storefront. Does it lure customers in just as a brick-and-mortar business would? Verify the seller’s claims regarding financials and traffic data. Arrange a time to do a screen share with the seller so that you can see site analytics and accounting systems live. Be sure to evaluate traffic sources for issues that could threaten search rankings and reduce the number of users who visit the site.
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If you don’t have the technical know-how for this process, hire a contractor or online due diligence firm to evaluate the site. They will look for red flags such as black hat SEO tactics, traffic numbers that have tampered with and other potential issues.
Consider Maintenance
Online businesses require normal site maintenance routines. Discuss the amount of time needed to devote to site maintenance and whether you can maintain the site yourself without assistance. If not, be sure to include the cost of outsourcing or hiring someone to manage this in your budget.
Draw Up an Agreement
Once you’ve found your dream internet business and agreed upon a sale price, a contract will need to be created that outlines the buyer’s and seller’s obligations. Consider asking the seller to perform consulting services for a period of time after the sale to ensure a smooth transition.
Website marketplaces offer templates for these types of agreements, but depending on the size and complexity of the transaction, you may want to hire an attorney to draw up the contract. A professional can help ensure a legal agreement reflects your intentions and is understood by all parties.
This agreement will likely contain some type of non-compete agreement for the seller. However, beware that these clauses can be difficult to enforce, especially oversees, so you’ll want to make sure there is no possibility of competing with the seller after the sale.
Buying an online business can be more difficult than buying a traditional company but when done right, an internet-based business is an ideal model. To help rule out the possibility of scam operations run by sellers trying to sell you a worthless entity, use a reputable online marketplace.
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