Should I Buy a Business? Is it Cheating?

[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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[jimmeboy]

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

Thanks @ZeroTo100, great info there!

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

 

[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]

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.

 

[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

What has your experience been like with previous companies you've bought? Have you had success in growing them?

 

[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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[JAVB]

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

 

[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).

 

[racyred09]

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?

I haven't heard these particular names but I will look into them. Thanks for the recommendations! Most of my information comes from podcasts and articles/blogs!

 

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[MJ DeMarco]

@racyred09 great to see you again!

 

[PRO2018]

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).

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?

 

[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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[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!

 

[samuraijack]

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?

 

[racyred09]

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!

You are so right! Thanks a lot!

 

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[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.

 

[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.

 

[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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[Late Bloomer]

I just wonder what level of protection you do get from a non compete agreement

Any contract could be broken, but I would guess that someone who sells their business and hands it over to the buyer, really does want to move on to other things. If they wanted to continue in the same type of work, why not refinance the business, or sell only part of it, as their best opportunity to do their new thing that's more of their old thing?

 

[Late Bloomer]

. 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.

This is exactly why I wanted to learn about it too. There is a risk of mismanaging an already successful business. But that seems lower risk, than the risk of not successfully launching a brand new product or service, to brand new customers, in a brand new business.

 

[PRO2018]

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?

Yes it would be hard to figure out who is behind such a sabotage, let alone do anything in such a situation, hence my musing. But its a good thing you have a good rapport with the seller and know that he is moving onto something else, that's always a good sign.

 

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[PRO2018]

Any contract could be broken, but I would guess that someone who sells their business and hands it over to the buyer, really does want to move on to other things. If they wanted to continue in the same type of work, why not refinance the business, or sell only part of it, as their best opportunity to do their new thing that's more of their old thing?

Sure, the buyer can guess or hope that that's the case. But guess and hope are not plans or actions that you can take if things turned sour. Everyone, well mostly, want a fair transaction, but unfortunately bad apples do exist. Hence the question.

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?

 

[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.

 

[Eli Cohen]

Wonder how this went OP?

 

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[ShamanKing]

I read a great on here. Once upon a time, a man was going to write a check for a super exotic car. But instead used that money to purchase an existing business. That business paid for his car instead. The End.

 

[ZeroTo100]

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).

I’m not sure I would feel comfortable buying an online business such as a content site/e-commerce/other site with a loan. I understand you’re seeing more and more of this but I just don’t like the idea of it. Too much risk.

I rather buy with cash, grow it over the next 2 years, then sell it.

I’m curious to know how things are going.

 

[PizzaOnTheRoof]

I work about 10 miles away from home so I cheated by buying a car

 

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[gloriusubiquity]

Was wondering if there were any updates to this?

I was also thinking about buying an online business but heard that it's pretty risky if you don't understand much or have an edge in the industry that you're buying into.

I was reading a post where someone said people that sell are usually selling for a reason that they're not telling you. e.g., they say they want to "focus on another project" but the real reason is that the industry is declining and they want to jump ship before it sinks.

Does anyone have any thoughts on this?