Should I Buy a Business? Is it Cheating?

[MJ DeMarco]

but also because something feels like it's a bit of a shortcut.

Not cheating at all.

It's almost like buying a house that needs updating and you remodel it. Now it's worth 25% more.

Maybe @DaveC can chime in, he does this all day long.

 

[racyred09]

I started selling on Amazon a few months ago, in the US and now in Europe and soon in Canada. I have sold 1000 units and counting of my first product, and my second product just hit the market a couple days ago so I've only sold 5, but I imagine that'll pick up too. I've got a few others on their way to the warehouse, one that's already in Amazon but available for sale in a couple days, and I have a pretty solid plan for expanding my niche (I think). I am just breaking even on my first product, but that's because with the packaging my product is oversized and I pay $3.50 extra per unit to Amazon, but soon that will be remedied and that will be profit.

I've also got a website and hope to move away from Amazon, and I haven't sold anything outside Amazon yet but I've been blogging and building my social media presence so here's hoping eventually I will! My products aren't unique by any means (well a couple of the ones in progress are), but the things I've done on my website that I thought were pretty obvious no competitor has: helpful blog posts, a shop with a cart, products all in the same niche, and a way to reach me.

Anyway, now that you know where my business stands, I want to tell you about my idea and would really appreciate if you could tell me if it's supremely stupid. I want to buy another eCommerce business that's already established. I've been looking into the ones for sale a lot and it's amazing to me that they sell for sometimes just double their annual cash flow. I could purchase one that would pay the purchase price off within two years, hopefully grow the business (for example, now that I'm already operating in Europe there a lot of US-based ones I could easily expand there), and possibly merge it with my current business at some point. I would be doing the same thing I'm already doing and could reinvest the cash flow into expanding my business more, while paying off the financing I would need to buy it.

I've held off on doing this not only because I haven't yet found a business where I'm totally happy with the numbers once I dig into the businesses for sale, but also because something feels like it's a bit of a shortcut. I didn't do the work to set up the business, so I feel like I'm skipping over the "process" part. It feels like cheating. However, my gut instinct is often wrong (there are plenty of products I thought would be a big hit, and there turned out to be negligible demand). And then I think about the fact that like many people I have rental properties where the rent is paying for the mortgage, and how is that any different, really? Except that I wouldn't call that entrepreneurship, and maybe this isn't either.

If you read all that, thank you! Please share with me your thoughts, and if you've bought a business, I would LOVE to hear your feedback on how that went for you and if you recommend it.

 

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[DaveC]

Not cheating at all.

It's almost like buying a house that needs updating and you remodel it. Now it's worth 25% more.

Maybe @DaveC can chime in, he does this all day long.

Its a risk profile. You need to do your due diligence. You can buy a house that will appreciate or you can buy a house with a cracked foundation. E-commerce especially with Amazon can be risky especially when you don't have a unique product. If I was looking to launch a product though, the first thing I would do would be to see who else is selling and see if they are looking to sell their business. Or if I wanted to expand, who is selling a complementary product? Empire Flippers is a decent source for Amazon FBA businesses.

Also regarding SBA, they are dropping down payment minimums as of Jan 1, 2018. I'll try to find a link but they are now as low as 5% down according to the bankers I talked to this week.

 

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[ZeroTo100]

Ultimitly, financials come from sales which essentially come from buyers. Buyers come from traffic...

If you’re buying a web business, you really have to understand where their traffic is coming from.

Make sure you take a deep look into their entire backlink profile. Don’t touch anything that utilizes a PBN. There’s plenty of reasons why and it’s not worth the risk.

If they’re doing paid ads, be sure they are including their FB ad setups with the sale and get them to sign a non-compete.

For ecommerce businesses, find out what their top 5 products are and determine how much your margins would go up if you fulfilled those products yourself vs a drop shipper.

Just a couple of golden nuggets I use. I’m shopping a site right now actually.

Good luck

 

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[Anon1351z]

I was reading an article published by Business Development Canada a couple weeks ago that talks about the opportunities coming up in the next few years regarding buying businesses. I'm sure it translates to the U.S. as well:

"The baby-boom generation of entrepreneurs is heading toward retirement and an increasing number of businesses are coming up for sale.

A BDC survey found that roughly 40% of small business owners are planning to exit their businesses in the next five years. About half of those businesses will be available to outside buyers (the remainder will be either wound down or transferred to family members). This translates into about $150 billion worth of economic value coming to market."

"With an increase in businesses for sale over the next few years, valuations are likely to be driven down. This presents an opportunity for entrepreneurs to scale up their businesses by making acquisitions."

Wave of business sales is coming

 

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[racyred09]

It took us (my husband and I) some time to find the right one but...we made an offer on a fantastic company, and now in the process of due diligence! If anyone, like @jimmeboy wants to know what things we are checking I would be happy to keep updating this thread with things we check as we check them.

Currently checking: all the seller's contacts. I asked for the emails and contact person for every supplier and the price for the items he sources from them, as well as the go-to photographer, logistics person, and anyone else he does business with regularly so I can contact them and ensure they'd work with me too. Also want to make sure the unit cost he tells me is accurate.

 

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[racyred09]

I would be interested in what things you are checking and anything you learn through the process. I am also constantly on the lookout. Most I see though are not very 'defensible'. Meaning there are not many barriers to someone else potentially competing quite easily and stealing market share. Basically most are selling re-branded 'me too' products.

The ones in the 7 figure+ range seem to be different, but right now I don't have the experience to take that sort of risk!

So please share whatever you learn.

I agree with you, it's really hard to find ones that have something special, like a patent or something else that isn't easy to copy. This one isn't necessarily something revolutionary, but the seller has a HUGE fan base due to his excellent branding and social media marketing so I think it'll be just fine. And yes, the 7 figure+ ones are very intimidating! There was one we looked at in that range that had 20 full-time employees!

Anyway, here is a list of things I'm currently requesting (or checking myself) and why:

• Google analytics: checking acquisition/behavior/conversions data. I also used something called SEMrush to look at traffic, sources, search terms, competitors, backlinks. Want to make sure the backlinks are good (not spammy etc.) and traffic is mostly organic (it is). Asking him if spikes in traffic corresponded to something in particular, and if they increased revenue.
• Amazon reports: advertising, returns, payments, to check against the reported numbers, also making sure returns not too high
• Reports for the same things from all other sales sources (especially the website)
• Paypal statements
• Bank statements
• Tax returns (this and the four above mostly just to make sure all figures add up)
• Customer query log and response times to see volume, if it matches time requirements stated
• Time breakdown for all tasks performed for the same reason
• Email list report: subscriber growth, open and click-through rates, bounce rates, broadcast frequency (he doesn't use his list much though)- to see quality of email list as this is one of the first things I plan to do, is to set up an email sequence and start an opt-in offer
• Trademark certificate- just to make sure

 

[racyred09]

Its a risk profile. You need to do your due diligence. You can buy a house that will appreciate or you can buy a house with a cracked foundation. E-commerce especially with Amazon can be risky especially when you don't have a unique product. If I was looking to launch a product though, the first thing I would do would be to see who else is selling and see if they are looking to sell their business. Or if I wanted to expand, who is selling a complementary product? Empire Flippers is a decent source for Amazon FBA businesses.

Also regarding SBA, they are dropping down payment minimums as of Jan 1, 2018. I'll try to find a link but they are now as low as 5% down according to the bankers I talked to this week.

Thanks DaveC, I've been trying to go the complementary product route, but so far due diligence has indeed revealed some cracked business foundations. Thanks for the tip about Empire Flippers. Have been looking only on BizBuySell so far.

Did you use SBA when you started buying businesses? I am getting a line of credit on my house (it's paid off) which is what I was probably going to use, but I need to compare the rates.

Do you "flip" businesses that are struggling, or choose ones that are already doing well and just try to make a marginal improvement? Has it usually gone pretty well for you or have you had some disasters that you would't mind sharing a bit about? I'll search the forums to see if you've already talked about it.

 

[ZeroTo100]

Thanks @ZeroTo100, great info there!

Where do you search, and what is your process, when looking for new opportunities to buy web businesses?

I use Empire Flippers, Acquisitions Direct, Centurica, Quiet Light Brokers, Latona's, sometimes ill look at flippa. I never mess with Exchange on shopify but I'll use it for ideas for sites..that sort of thing. For domains I'm using Sedo, Godaddy, and NameJet. If you're looking for expired domains, check out dom cop.

For looking into businesses...I recommend hiring the guys at Centurica if you really don't know what your doing or buy on EF.

 

[Mr.Brandtastic]

I didn't do the work to set up the business, so I feel like I'm skipping over the "process" part. It feels like cheating.

Forget about "cheating" by buying a business. Google didn't worry when they bought Youtube. Ray Kroc didn't fret when he bought out the McDonald's brothers. Facebook wasn't anxious when they acquired Instagram.

People who say these companies "cheat" is just sour grapes. It's the cheap seats complaining about the skybox. It's actually in many ways far superior to buy an already profitable and well-liked business then one you have to build from the ground up. Leg work is hard. But you have to be confident that you can run the business, that's for sure.

 

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[racyred09]

@racyred09 I wonder how is the due diligence process going?

Hi Joel, thanks for checking in on me!

Due diligence phase ended a while ago, and it is a truly solid company. Now it's been a matter of "hurry up and wait" with the SBA loan- going on 3 months of waiting for the loan approval! I wish I had known how long that takes, but I believe we are in the very final few days before we get a commitment letter. If anyone is thinking of getting an SBA loan right now, apparently all the lenders and especially the underwriters are heavily backed up at the moment so things are taking about twice as long as usual (not just my experience- that is according to our broker).

Anyways, the time has been put to good use as we have done plenty of Skype training with the seller. I didn't update because I didn't feel like I've got a lot of info that's terribly useful to other people, but if I can say one more thing to look for, it's the willingness of the seller to truly train you in his or her business. They will probably all say they would, but look for someone who babies the business and is heavily invested in its success- I think it's easy to tell (trust your gut).

 

[Y.B.]

Assuming you're buying a good business, I think it's a great way to go.
I've been looking into this recently as well. I can get an SBA loan and buy it for 10% down, then use the revenue to pay back the loan and still make a profit.

 

[racyred09]

Thanks for the update. Congratulations on reaching this far. Purchasing a business can be a drawn out process as you have a experienced.

Did you use a 3rd party to perform the due diligence or did you do it yourself? Which broker site did you end up purchasing from? (only if you are comfortable answering)
Just wondering if you were completely satisfied with the broker you used and are there any things that you would recommend watching for when dealing with a broker?

Thanks, PRO2018. We did the due diligence ourselves. The thing about an SBA loan is they do due diligence as well to approve the loan, so it would be excessive to hire our own third party IMO. I've also heard horror stories of deals breaking down because of the due diligence company eroding the trust between buyer and seller unnecessarily, so I decided to forego that and just be thorough in looking into everything.

We bought through Website Closers and I have nothing but good things to say about the experience with the broker. On the buyer end I guess we cast our net as wide as possible by subscribing to the listings of several brokerages so we didn't care too much about which broker in particular was selling the business, it was more about the business itself. TBH it's not something I thought too much about!

 

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[racyred09]

By the way, I imagine that you would have got the seller to sign a non compete. But I just wonder what level of protection you do get from a non compete agreement in a scenario where the seller is unscrupulous and goes about setting up a new business in direct competition, particularly as he knows the suppliers and the other nuances in operating the business. Would you have a solid case in a court of law, without having to spend too much time and financial resources fighting this which takes you away from the business? What did your legal advice say?
Not that this would happen, but I'm curious to know what was put into place to avoid such an occurrence apart from hoping that the seller has some intergrity and would not entertain breaching the non compete agreement.

Yes, he signed a non-compete agreement. I haven't spent any time investigating what we would do if he violated the agreement. It's not something I am worried about happening (we have a lot of goodwill between us plus he's moving onto things he's more excited about) and if it did, I'm not sure I would even be aware. Who knows who is behind most of the physical product businesses online?

 

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[jimmeboy]

Thanks DaveC, I've been trying to go the complementary product route, but so far due diligence has indeed revealed some cracked business foundations.

You can buy a house that will appreciate or you can buy a house with a cracked foundation.

Very interesting discussion. I recently sold my business and am now looking at finding a new project. Tossing up between starting from scratch again (which I absolutely loved), or buying an existing business and getting a jump-start.

What are some typical checks you do during due diligence when looking at buying an ecommerce business?

I'm sure your answers will be very helpful to alot of people!

 

[Patrickg]

I was reading an article published by Business Development Canada a couple weeks ago that talks about the opportunities coming up in the next few years regarding buying businesses. I'm sure it translates to the U.S. as well:

"The baby-boom generation of entrepreneurs is heading toward retirement and an increasing number of businesses are coming up for sale.

A BDC survey found that roughly 40% of small business owners are planning to exit their businesses in the next five years. About half of those businesses will be available to outside buyers (the remainder will be either wound down or transferred to family members). This translates into about $150 billion worth of economic value coming to market."

"With an increase in businesses for sale over the next few years, valuations are likely to be driven down. This presents an opportunity for entrepreneurs to scale up their businesses by making acquisitions."

Wave of business sales is coming

Great topic.

My business is pending currently waiting for wire transfer. I used empire flippers. Great experience, they do all the heavy lifting when your selling.

My only caution is being on the seller side for the first time is. If somebody was trying to cheat the system they could. So just be careful and make sure you do your due diligence.

Not saying don't do it. I think most people are legit and just want a fair transaction.

 

[Y.B.]

I've requested a number of prospectuses for various types of online businesses. I'd say about close to 50% of the ones I looked at were complete garbage - really bad deals for the buyers...and the sad part is, they're going to get sold.

 

[racyred09]

I'm probably telling you more than you wanna know, but you should do the same type and depth of analysis on any business that you purchase.

Not at all! That was very helpful, thanks.

Very interesting discussion. I recently sold my business and am now looking at finding a new project. Tossing up between starting from scratch again (which I absolutely loved), or buying an existing business and getting a jump-start.

What are some typical checks you do during due diligence when looking at buying an ecommerce business?

I'm sure your answers will be very helpful to alot of people!

Someone like DaveC who's actually bought a business would probably have a better answer than me, but here are the things I've been looking for so far. I think if I found one that seemed like a winner, I would dig even further into the financial stuff, asking for actual tax returns and/or bank statements. I would also talk to the suppliers, make sure they would work with me, and give me the same prices.

-Are the month-to-month sales consistent, or better yet, growing? Some sellers will quote annual growth patterns then you look at the monthly statistics and they've been going down, so I worry that maybe the demand is waning and they're trying to get rid of it quickly.
-Are the products well-rated? I would rather buy a company with one good product, than one with 20 3.5-star products (I'm not really interested in improving the actual product, because in that case I'd just launch my own).
-How much organic traffic does their non-Amazon website get? I would love to get one with a crappy website that gets a ton of organic traffic and redirects to Amazon (because I want to become independent of Amazon and that's easy room for improvement). The dream!!
-Do they have employees or outsource part of the job and why? I don't really want to mess with a business where the owner can't handle everything him or herself. Sounds like I'm getting myself into a mess.
-Do they depend on a lot of advertising, discount sites, etc. for sales? Something about that raises red flags for me, because these are established businesses, so I feel like they shouldn't be so dependent on that.

Anyway that's all I can really think of. Most of the businesses I've looked at are Amazon-based but maybe I won't even go for those. I hope that's helpful insight into a potential buyer's mind!

 

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[Maxboost]

I don't have much to offer but back in the day I met a retired businessman who made a FORTUNE buying and selling businesses. He explained a lot of businesses are mis-managed and are inefficient.

 

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[racyred09]

Great list thanks for that. Did you look specifically for a business that in your opinion wasn't being run effectively or there were obvious opportunities for growth? Two me there are a few options. Buy one that produces steady cash-flow with no intent other than keeping it a stable asset or buy one where you see problems to fix that allow me to grow cash flow and sell for profit.

Definitely looked for one where there were obvious opportunities for growth- but by no means a "fixer-upper".

The two biggest things I looked for in terms of opportunities for growth I would say, were built-in growth opportunities (recently-launched SKUs or recent expansion to new markets- ours has the latter) and untapped potential that's just sitting there (in this case not using the huge mailing list nor having an opt-in offer are biggies). I think if you buy the right company you can hope for a lot better than it staying stable. Guess I'll find out for myself, soon!

To contrast that, another business we looked into at the same time as this one, the seller had sort of mentally moved on, so he had hardly looked at it for 9 months and the numbers reflected that. But how do you verify it's actually because of neglect or whatever excuses, and not because the market got too saturated?

 

[MJ DeMarco]

@racyred09 great to see you again!

 

[racyred09]

Besides selling on Amazon that you talked about in your first post, did you have any other experience in growing a business?

I ask because I'm curious about your thought process and how it went from a few months into your business to wanting to buy an existing one?

I don't have anything against it. I personally could not have made that decision if it was my first business. Currently I'm growing my first business and there's still tons of relatively basic things I don't know (outside of Amazon). But I'm profitable and learning. And starting costs was around $7000.

Maybe you just have a higher risk tolerance?

I know, it sounds a bit crazy! The few months is now a year and I guess the answer is that I had it in the back of my mind all along that I would like to buy a more established business. In a way it seems lower-risk to me, as there is already such a strong foundation and the products have been proven over a few years plus the bad ideas already weeded out for the most part.

I certainly have a lot to learn as well! However, I know we all learn best by diving into things and I have heard many stories of people who don't have any business experience buying a business and managing to double, triple the growth after a bit of mentorship from the seller. Knowing that it's been done bolstered my confidence a lot.

 

[WJK]

Well, what I meant was the same product, but with their brand on it. I imagine they would be doing better than I am, or it wouldn't be worth buying - I've only been selling for a few months! That's why it would be best for me to buy now, if I do at all, while I'm still a fledgling seller.

Seasoned business buy other businesses all the time.

Many times it's purpose is to get market share advantages by absorbing their competition, obtaining the rights to an on-going purchase contracts (both the purchase and sale of materials and finished goods), and/or consolidating a client base. By buying going concerns, they can scale their overhead, thereby reducing their cost percentages -- while at the same time making them a bigger fish in their target market, which makes it easier to set their product price points with a lot less discounting. The combination of the two can really positive effect on the profit margins.

Other times, the reason to buy a business is that it is related to buyer's core business. Many times they are buying a leg-up on different or new technology; an existing business system or process that compliments, or can be added to their core business; a product/patent that they want to add; and/or they are obtaining new expertise (or limiting competition) by absorbing the purchased company's staff and staffing contracts. The staffing issues get interesting since many current key people in a company, and past employees, have employment contracts to lock them into very specific agreements. Many contracts also include non-competition clauses.

All these are issues that can negotiated within the purchase of a business. When I'm shopping, I'm always looking for good deals. They're always out there IF you look for them.

 

[BrooklynHustle]

I started selling on Amazon a few months ago, in the US and now in Europe and soon in Canada. I have sold 1000 units and counting of my first product, and my second product just hit the market a couple days ago so I've only sold 5, but I imagine that'll pick up too. I've got a few others on their way to the warehouse, one that's already in Amazon but available for sale in a couple days, and I have a pretty solid plan for expanding my niche (I think). I am just breaking even on my first product, but that's because with the packaging my product is oversized and I pay $3.50 extra per unit to Amazon, but soon that will be remedied and that will be profit.

I've also got a website and hope to move away from Amazon, and I haven't sold anything outside Amazon yet but I've been blogging and building my social media presence so here's hoping eventually I will! My products aren't unique by any means (well a couple of the ones in progress are), but the things I've done on my website that I thought were pretty obvious no competitor has: helpful blog posts, a shop with a cart, products all in the same niche, and a way to reach me.

Anyway, now that you know where my business stands, I want to tell you about my idea and would really appreciate if you could tell me if it's supremely stupid. I want to buy another eCommerce business that's already established. I've been looking into the ones for sale a lot and it's amazing to me that they sell for sometimes just double their annual cash flow. I could purchase one that would pay the purchase price off within two years, hopefully grow the business (for example, now that I'm already operating in Europe there a lot of US-based ones I could easily expand there), and possibly merge it with my current business at some point. I would be doing the same thing I'm already doing and could reinvest the cash flow into expanding my business more, while paying off the financing I would need to buy it.

I've held off on doing this not only because I haven't yet found a business where I'm totally happy with the numbers once I dig into the businesses for sale, but also because something feels like it's a bit of a shortcut. I didn't do the work to set up the business, so I feel like I'm skipping over the "process" part. It feels like cheating. However, my gut instinct is often wrong (there are plenty of products I thought would be a big hit, and there turned out to be negligible demand). And then I think about the fact that like many people I have rental properties where the rent is paying for the mortgage, and how is that any different, really? Except that I wouldn't call that entrepreneurship, and maybe this isn't either.

If you read all that, thank you! Please share with me your thoughts, and if you've bought a business, I would LOVE to hear your feedback on how that went for you and if you recommend it.

I don't see it as cheating by any means. You still need to apply your process to grow, scale, and make it successful. And then there is the matter of due diligence. It's just an alternate route that is available to you. You may want to check out the "Freedom Fastlane" podcast, as the host is starting to apply this model a lot with physical products businesses.

 

[Late Bloomer]

I want to buy another eCommerce business that's already established.

Expansion by acquisition can be a great way to take a huge step forward in business... or a way to over extend yourself to a collapse that makes you lose everything. It all depends on how you do it! Have you looked at business acquisition information from people who've been there and guided others through the process, like Gordon Bizar and Dan Pena?

 

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[PRO2018]

Thanks, PRO2018. We did the due diligence ourselves. The thing about an SBA loan is they do due diligence as well to approve the loan, so it would be excessive to hire our own third party IMO. I've also heard horror stories of deals breaking down because of the due diligence company eroding the trust between buyer and seller unnecessarily, so I decided to forego that and just be thorough in looking into everything.

We bought through Website Closers and I have nothing but good things to say about the experience with the broker. On the buyer end I guess we cast our net as wide as possible by subscribing to the listings of several brokerages so we didn't care too much about which broker in particular was selling the business, it was more about the business itself. TBH it's not something I thought too much about!

Dealing with a lender can be annoying, with having to provide financials and other documents etc not to mention the delays, like you are experiencing, but they do add an extra layer of security in terms of due diligence.

I bet you can't wait to get your hands on the steering wheel and drive the business yourself! All the best!

 

[PRO2018]

Thanks, PRO2018. We did the due diligence ourselves. The thing about an SBA loan is they do due diligence as well to approve the loan, so it would be excessive to hire our own third party IMO. I've also heard horror stories of deals breaking down because of the due diligence company eroding the trust between buyer and seller unnecessarily, so I decided to forego that and just be thorough in looking into everything.

We bought through Website Closers and I have nothing but good things to say about the experience with the broker. On the buyer end I guess we cast our net as wide as possible by subscribing to the listings of several brokerages so we didn't care too much about which broker in particular was selling the business, it was more about the business itself. TBH it's not something I thought too much about!

By the way, I imagine that you would have got the seller to sign a non compete. But I just wonder what level of protection you do get from a non compete agreement in a scenario where the seller is unscrupulous and goes about setting up a new business in direct competition, particularly as he knows the suppliers and the other nuances in operating the business. Would you have a solid case in a court of law, without having to spend too much time and financial resources fighting this which takes you away from the business? What did your legal advice say?
Not that this would happen, but I'm curious to know what was put into place to avoid such an occurrence apart from hoping that the seller has some intergrity and would not entertain breaching the non compete agreement.

 

[Late Bloomer]

Apart from due diligence, building goodwill/rapport with seller and getting them to sign a non-compete, is there anything else a buyer can do to minimize their risk?

As you mentioned, an attorney may be a good resource to come up with a list of hypothetical problems in any deal. The attorney should be able to give an estimate of what it would likely to cost to discover if there seller reneges on the non-compete agreement, to send nasty letters, and if that fails, to take the seller to court.

With this information, the buyer would be able to quantify the cost of trying to overcome any damage suffered from the seller's failure to honor the terms of the deal. This could be compared to the potential profit the buyer could get from the deal, even if the seller is sleazy, as well as the potential loss if a sleazy seller stole back the customers the buyer thought they'd be able to keep inside the business.

Perhaps the contract to buy the business could be written so that if the seller breaks the non-compete agreement, not only does the buyer not have to pay another penny of any installment payment, but the seller has to refund the entire purchase price they took in bad faith.

The buyer could then decide if the financial risks, plus their own intuition and their own taste for confrontation or for peace, tell them to go ahead or to be cautious.

I think the best solution may be the simplest: as a condition of the sale, the seller introduces the existing customer base to the buyer, praising the buyer as a wonderful choice to take over the business and continue to serve the customers well, while the seller moves on to their golf game or whatever's next for them. Perhaps the sale agreement could say that if the seller doesn't reasonably help the buyer to get this letter edited and sent within 30 days of close, the buyer may go ahead and send their own version including the seller's name and signature. A seller who really wants to hand over the business would want to introduce the buyer. A seller who planned to steal away the buyers and recreate the business on their own, would fight against this plan.

But I think the due diligence and rapport are the important parts, way beyond anything on the legal front. Business owners and managers need to make judgment calls about what's happening and who people really are. If they don't feel comfortable with making this decision at the start, then owning this business probably won't be right for them.

 

[WJK]

Please share with me your thoughts, and if you've bought a business, I would LOVE to hear your feedback on how that went for you and if you recommend it.

I love you idea. It's not cheating. It's being smart. Yes, sometimes you'll make a mistake and not make a good buy -- BUT a good buy will put you instantly be down the road, without going through the start-up phase. Your watch word should be CAREFUL. Do you homework and then do some more. Why are they selling? Can you identify the mistakes they are making and correct them without breaking your own piggy bank? You are taking a calculated risk, so make sure that your odds are good. Set yourself some standards and don't stray from those bench marks.

Yes, I do buy additional assets on a regular basis. One of things I buy is owner-will-carry trust deeds (mortgages), secured by real estate. Yes, I do have to vet them to make sure the terms of the note and the real estate property are good security for my investment dollars. Past understanding the paperwork and the real estate market for different types and classes of properties, I have to negotiate the price and terms of the assignment of each trust deeds with the beneficiary (property seller) that owns the note. My purchase price determines my yield and my investment risk exposure. In other words, it's balance between the yearly interest rate return, the loan-to-value-ratio (LTV -- the percentage of the amount of the note verses the property value), and my risk of loss for that particular property. I have different standard yields that I have set for each types and classes of properties. I can sell, or have my bank finance (hypothecate), some of my trust deeds in a heart beat. Others are more difficult and they have to be held in my portfolio for the life of the trust deed. I can afford to make less return on the former due to them being more "liquid" and less risky. I have to make more return on the ones that I have to hold. Each one that I buy is another calculated risk analysis exercise.

I'm probably telling you more than you wanna know, but you should do the same type and depth of analysis on any business that you purchase.

 

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[racyred09]

Ultimitly, financials come from sales which essentially come from buyers. Buyers come from traffic...

If you’re buying a web business, you really have to understand where their traffic is coming from.

Make sure you take a deep look into their entire backlink profile. Don’t touch anything that utilizes a PBN. There’s plenty of reasons why and it’s not worth the risk.

If they’re doing paid ads, be sure they are including their FB ad setups with the sale and get them to sign a non-compete.

For ecommerce businesses, find out what their top 5 products are and determine how much your margins would go up if you fulfilled those products yourself vs a drop shipper.

Just a couple of golden nuggets I use. I’m shopping a site right now actually.

Good luck

Thanks ZeroTo100! Great advice. Some of it is thankfully not applicable since his traffic is almost entirely due to social media and not paid ads (like YouTube videos with 100's of thousands of views), and the process he uses to make those popular posts is very straightforward. He uses 5 or 6 sales channels but they're all fulfilled by Amazon, but you gave me some great food for thought about looking into another means of fulfillment.