- March 10, 2021
- Mark Elwes
What Should You Consider Before Buying an Online Business?
Table of Contents
Becoming an entrepreneur by buying an online business seems like an easy task; however, it incorporates many factors. Over the years, many enterprises have been flourishing in various marketplaces.
Therefore, finding the proper organization that meets your experience and targets becomes very challenging. Moreover, if you have limited funds but have expertise in more than a field, it becomes even more difficult.
So, you need to follow numerous guidelines to find the proper organization. Some of these steps include the type of company, website traffic, the reason for selling, accounting, etc. Without analyzing these factors and the store seller, it can lead to re-selling, closure in the future, or government issues.
9 Factors to Consider Before Buying an Online Business
● Website Traffic
Before buying or funding a new online business, it is crucial to determine the website traffic. It will help to determine the average potential customers. So, analyze the traffic using various extensions.
Also, inquire about traffic sources like paid, social media, and direct landing. Find if the website is dependent more on a single source compared to others. It is necessary as a slight change in the search engine algorithm can alter the numbers.
The easiest method of estimating the traffic is viewing the declining or inconsistent traffic in the website history. Besides this, also consider repeat traffic or customers on the online platform.
Receiving repeat customers doesn’t necessarily mean that there aren’t unhappy or unsatisfied people in the market. Therefore, it is crucial to go through the testimonials, feedback, reviews, etc., on various platforms with the enlisted company.
By digging into these factors, buyers can incorporate the support logs and ticket requests. Therefore, you can view submitted requests, average response time, unanswered feedback, and customer responses to the resolutions.
Therefore, you can view whether buying an online business would also include enormous refunds or chargebacks through customer issues. These inclusions can help to estimate the average monthly profit through the organization.
Buying an online business is similar to purchasing real estate. It requires going through different channels to find any existing debt and avoiding repercussion through word of mouth. Therefore, it is necessary to uncover the financial problems of the company by viewing the accounts.
The best way to conduct a financial inquiry of the organization is by verifying the last twelve-month data. Recheck through bank statements and payment processor after receiving the account details from the company’s present owner.
Request expense reports of software subscription, hosting, advertising costs, employee wages, payment processor charges, and others that you might require. Ask your financial advisors to pay close attention to the details so that even a minimal SEO contract expense doesn’t skip.
A thorough review of accounts, especially the expenses, can help to avoid unnecessary charges for you. However, minimal costs can get easily covered through unsecured loans for bad credit with no guarantor.
● Deals and Suppliers
Supplier agreement plays a vital role, similar to account expenses. Sitting down with the present owner of the organization can help to understand the supplier relationship. After that, you can decide whether to replace or continue the existing contract.
Besides this, it is also essential to perceive the relationship term to ascertain the scope of making new deals. The ideal situation consists of the suppliers’ future utility, single-person deliverables, favorable relationships, etc.
Understanding the existing relationship of the supplier can help to deal with them quickly. Moreover, unfavorable, new, or not following previously conceived deals in an online business can lead to many damages.
Some of these include finding new contracts, building relationships, untimely delivery, etc. So, assure that existing or negotiable deals with suppliers follow through to avoid unnecessary business costs.
The letter of intent (LOI) or term sheet consists of sales conditions between the seller and buyer. It is often two or three pages long and includes purchase price, selling the asset, non-compete term agreement, etc.
● Monetary Growth
The financial growth of an online business would determine whether it remains stable, grow, or collapse. As a new investor and entrepreneur, the burden of the organization would fall on your shoulders.
Therefore, while viewing company accounts, check the reported facts stated by the existing owner. If you are like most business people, the organization’s track records will become the most compelling factor in buying it.
Determine the company’s business revenue since its launch, average profit during dire times, declining seasons, and existing costs. Also, find whether the business areas with a scope of cutbacks.
Besides this, it is also crucial to find new avenues for business revenue. It would help to foster the organization from its existing state. Additionally, it can increase the customers, website traffic and avoid fallbacks during trend changes or unpredictable times.
● Sales and Payroll Taxes
Going deep into the expense report would also uncover sales and payroll taxes. It is necessary to get a clearance letter from the state authority to avoid them from coming after you for purchasing a business asset.
The state’s clearance letter primarily determines that the existing sellers don’t owe business, sales, and payroll taxes. It also ascertains that the seller is continuing with current sales and incorporates taxes on the closing date.
The process of attaining the letter might take time from the authorities; however, it can avoid unnecessary government measures. Additionally, it helps to safeguard the sovereignty of the online business you want to purchase.
● Meet the Employees
Although some businessmen might not consider this an essential step, it comes with many benefits. As an entrepreneur buying a new online business, it is crucial to connect with the staff to understand the production process, working scenario, average salary, etc.
Additionally, meeting the employees helps to review undisclosed factors during the purchase of an online business. Furthermore, it discloses the status of the workforce in place of the upcoming changes in the company.
Therefore, it would determine whether you require loans for very bad credit people with no credit check to recover from re-hiring. Often the seller and buyer inform the workforce forty-eight hours before the transfer, referred to as the closing period.
During this time, you can meet the employees and determine whether they wish to continue their jobs. As stated before, it would require re-hiring and might lead to downsizing.
Independently wealthy investors would have no issues with purchasing an existing online business or an e-commerce platform, except for the laid-out problems. However, others might require finding adequate funding sources after deciding on the acquisition.
Therefore, there are a few useful options open for the buyers. These include seller financing, angel investors, venture capitalists, and business loans. The last three might sound familiar to most online business purchasers.
Seller financing provides an option to the buyer to make installments repayments over a stated tenure. However, it comes with an interest rate determined by the seller. It is a better option for people with a bad credit history but willing to make changes.
Therefore, it might not involve the seller as a business partner in the company. On the other hand, angel investors or venture capitalists would become partners of the organization. Likewise, business loans may offer better interest rates to entrepreneurs with an excellent report.
However, the choices of availing a business loan become considerably low with a bad credit rating. Also, direct lenders may offer interest rates that may lead to higher business expenses and lower profit tenures.
● Sales Agreement Draft
The sales agreement draft is often the last step before acquiring an online or offline business. It includes negotiated terms, funding scenarios, and other essential details. Therefore, it is crucial for you and your lawyer to review the terms before signing the document.
Avoiding a reputable attorney can lead to lawsuits; company sales closure issues, or ongoing term negotiations. Therefore, the best practice involves thoroughly reading each point covered in the draft. Also, inquire about any confusing details that may cause problems even after the sale.
The sales agreement draft is often read carefully by new entrepreneurs. However, as they become flourishing businessmen in the market, they leave the details to the lawyers. Depending on the law firm is crucial; however, self-reviewing the agreement’s terms is also necessary.
The main reason for self-analyzing the sales agreement draft is that it should incorporate the negotiated terms. These should consist of discussed points with the existing board of directors and the owners and should not include discrepancies.
Any scope of error can also lead to drastic results. Furthermore, if you are interested in self-funding a company and low funding requirements, 12-month loans can prove useful. However, do mention all the required details in the draft.
A few other considerable factors before buying an online business include business broker consideration, similar organizations on sale, personal interest, etc.
Mark Elwes is the Editor-in-Chief at Extramilefinance. He is a notable member of the content strategy team since his joining in 2017. Driven by his fondness for the finance industry, he has spent years gathering as much knowledge as possible about various financial products that include loans also. Previously, Mark worked as a senior journalist writer with experience in writing blogs and articles.