When a business owner makes the decision to sell a business their ultimate objective is to transfer ownership of that business to a new owner and to receive from that new owner the agreed to amount of consideration or dollars.  It’s simple, on a specific date the closing takes place and at that closing documents are signed, information is communicated, and money changes hands.  The seller’s objective is to insure payment of the purchase price resulting from the execution of the closing documents and the buyer’s objective is to insure transfer of the ownership as a result of the payment of the purchase price.  This is especially of a concern when an Internet business is sold given the need to transfer ownership of intellectual property: for example domain names, shopping engine accounts, hosting services contracts, telephone numbers, etc.

The seller’s mindset is usually “I want my money before I transfer ownership”.  The buyer’s mindset is usually “I want the ownership transferred before I transfer the money”.  This is a catch 22 situation.  In the vast majority of situations the seller and buyer are both honest, professional individuals and what comes first is of little consequence.  As we all know there are exceptions, there are individuals with character flows that we all need to protect ourselves from.  Will the seller receive funds and not transfer the ownership?  Will the buyer receive ownership of the business and not pay the owner?  Probably neither of these situations will take place but why take the chance when the solution is pretty simple.  Use an independent escrow agent to facilitate the close.  The cost for using these services is usually pretty inexpensive; usually less than $1,000 and the cost is usually split between the seller and buyer.

The independent escrow agent’s role is to facilitate the close via a written process that is documented in an escrow agreement that is agreed to and executed by both the seller and buyer. In that the agreement the following major activities are usually included and these activities are implemented by the seller, buyer, or independent escrow agent either before or during the day of the close:

1.    Execution of Bill of Sale by Seller and Buyer
2.    Execution of a Promissory Note by Buyer if a Seller take back is part of the transaction
3.    Transfer of ownership of the following:

• Domain Names
• Shopping Engine Accounts such as Amazon and eBay
• Hosting Services Contracts
• Request for transfer of telephone numbers

4.    Final accounting for inventory if an ecommerce business is purchased
5.    Communication of all account IDs and Passwords from Seller to Buyer; this is especially of importance for the transfer of an Internet business given that a high percent of the value of an ecommerce or information based Internet business is the technology that drives the operations of that business. Without access to that technology the new owner has little control over the operation of their new business.

A few days prior to the close the Buyer will transfer to the independent escrow agent the total required funds needed to close on the business.  Upon completion of the agreed to activities included in the escrow agreement, the escrow agent is legally required to transfer payment to the Seller.  We all know the name of the game in business is to minimize risk; the use of an independent escrow agent substantially minimizes both the seller’s and buyer’s risk resulting from the closing process.

During the seven years that Acquisitions Direct has exclusively focused on the sale of ecommerce and information based Internet businesses we more times than not hear the Seller and Buyer requesting to use their respective attorneys as the  third party responsible for  executing the close.  It’s true either the Seller’s or Buyer’s attorney can assume the role of an escrow agent but they do potentially have a conflict of interest, the Seller’s attorney works for the Seller and the Buyer’s attorney works for the Buyer.  A independent third party escrow agent works for both the Seller and the Buyer and as such is in a position to be impartial.  We all know the cost of litigation; everything should be done to avoid a serious legal issue.  When real estate is transferred generally a third party escrow agent is used to facilitate the close, do the same when you sell or buy an Internet business.  The small cost of employing an independent escrow agent is a well worth the cost!

Four-year old web based apartment and home vacation rental company provides highly automated booking services in the domestic and international marketplace. Clients can browse available apartments and vacation rental homes. Listing has large customer database with all contact info; excellent repeat business. Site provides photos and detailed descriptions of each property including descriptions of surrounding areas. Business has a strong Internet presence with excellent search engine rankings and can be can be relocated to any location . The seller will provide strong transitional support to the new owner. Owner is selling to pursue other business opportunities.

Five-year old eCommerce company markets a wide range of sports memorabilia including baseball, football, and hockey; 1,100 SKUs on website . Business utilizes a very efficient inventory control model . Customer database includes approximately 76,000 names with all contact info; approximately 15% of sales are from repeat customers . Business has a strong Internet presence with 50% sales from major shopping engines. Business can be relocated to any US location and all supplier contracts are transferable to a new owner . Strong transitional support will be provided. Owner is selling because of other business opportunities.

Three year old 5 Star Yahoo ecommerce business markets over 400 products via one website; products offered include a large selection of supplements, vitamins, personal care, pet care, and beauty products. 2009 Sales and Pre Tax Profit are up substantially vs. 2008. Currently inventory is approximately $15,000 . Approximately 20% products stocked in house and 80% are fulfilled via just in time delivery from major national distributors. Stocked items focus primarily on top sellers. Vendor contracts in place with top manufacturers in the industry and all accounts are in good standing. Business has solid search engine presence for key products driving a high volume of traffic organically to the websites. Average order size is $97 with sales in the U.S. and 34 other countries. Approximately 400 square feet and 1 person are necessary to run this business making the listing an ideal home based business. Major growth opportunities exist due to strong potential to expand product lines and expansion into paid and CPA marketing channels. Owner will provide strong transition support and is selling to focus efforts on other business interests.

In general, most online businesses usually sell for about 2.0 to 4.5 times the seller’s total discretionary income. But there is a certain section of the market—namely, businesses that provide common goods and services that command the higher range of these multiples. Why are these companies selling for so much? Here are a few reasons:

Wide customer base: Companies that sell everyday products and services like health and beauty products, sports and fitness products and service businesses such as online marketing companies, have an advantage of being appealing and easily understood by a wide range of potential customers. Most prospective buyers understand the basics of these products and services because they use them on a daily basis, which makes the idea of buying them more attractive.

Built-in revenue: If a company comes with an established revenue base, it will automatically generate a higher price. Companies with strong customer base create security for the business, unlike trend companies where the customers are one time buyers and the market may not be hot for long. Buyers of these companies know they have a customer base to work from everyday, which makes it easier to expand; it’s much more feasible to sell additional products or services to a customer who is already buying from you than to track down new business. However, reaching and establishing new customers is also enabled by having a strong financial foundation (Organic Optimization, Strong Paid Advertising or even a strong Affiliate Network). Exploring new marketing mediums to reach potential buyers is made possible when revenue streams are strong in other areas of the business.

Limited specialized knowledge: Any company that a potential buyer with general business knowledge can purchase and start running right away will command a higher price than a company that requires special knowledge. An office supply business, for example, will not require much experience or specialized knowledge; new buyers can easily take over and manage the product line with ease. With service industry companies, when there is a saturated market of companies offering the same service, it may take some specialized knowledge to stand out; however, it may only require basic knowledge to be competitive such as knowing basic marketing services for an online company or understand various facets of the IT business.

Customer loyalty: By virtue of the nature of some companies, it is easier to let go of an existing customer than to gain a new one. In the case of some service companies, for example, a website hosting company—it is more of a hassle for customers to switch to the competitor than it is for them to stick with their current company so it creates a great recurring revenue model. These types of businesses are very attractive to potential buyers, particularly the buyers with little business ownership or management experience.

Different prospective business owners want different things from a business. An entrepreneur with a degree in electrical engineering may be interested in a company that makes a particular type of computer chip, for example. But in general, companies that offer the above perks and sell products and/or services needed by a large base of customers command a higher price than companies with more of a specialized niche. If you’re currently shopping for a company, keep the above mentioned factors—and your individual experience and knowledge—in mind as you shop.

Acquisitions Direct is a business broker specializing in online business acquisitions. To receive a FREE business valuation from Acquisitions Direct, please CLICK HERE and fill in the required information. We will respond to your inquiry within 48 hours. There is no commitment on your part and all information sent and/or discussed is confidential.

It’s true: starting a business is a huge undertaking, intellectually, emotionally, and financially. Not to mention the risk—70 percent of startup companies will have failed after only five years. But there is a way you may be able to have the luxury of being your own boss and living your dream without having to start an online company from scratch; you can buy an existing online business. The advantages of purchasing an existing company are numerous. They include:

Elimination of the cards stacked against you. If you start your own business, you will have to take out a loan, shape your business concept, develop a strong customer base, and fight the bad luck that goes along with owning an early-stage company. If you buy an existing established company, on the other hand, it will already have stood the test of time. Successful businesses have proven track records that usually continue after they are sold. By purchasing an established company you are acquiring a business that has a successful sales model, marketing mediums in place, and search engine history that can not be bought. These things can take years to establish, and some start up businesses go under before they get a chance to see the fruits of their labor.

The opportunity to make the company yours . Many entrepreneurs dream of owning their own business because they envision shaping it to be exactly what they want. Although you may not have as much control over the skeleton of the company if you buy an existing one, you will still be able to apply your own ideas, expertise, and passion once you purchase it. Most successful businesses already have an infrastructure in place that works. In most cases it is much easier to make adjustments to an existing process, than to start one from scratch. Learning from the history of a business will allow you to customize it and make it your own.

Immediate cash flow. Because the company has already been making money for years, you can start earning cash immediately after you purchase an established business. Forget struggling to attract customers—you will already have a customer base you can use as a building block for future growth.

The chance to finance the cost. When you start a company from scratch, you need a sizable lump sum to get the business off the ground; when you buy an existing company, on the other hand, in many cases, you can finance the cost. By making payments instead of having to plunk down a large sum of cash, you will be able to maximize your buying potential.

This is not to discount the challenges associated with buying a business; there are many. To successfully manage the process, you should first do as much research as possible on how to go about buying a company. Next, you should realistically assess the cost of the type of business you are shopping for and what you can afford. You will then have to negotiate the price, arrange financing, and actually transfer ownership of the company. All these tasks can be made easier with the help of an intermediary, who will be able to guide you every step of the way.

In general, you will be much more likely to succeed if you purchase an existing company than if you try to build one from the ground up; many more purchased companies are profitable than start-up companies. And it makes total sense: An existing profitable business has already proven that it can work; it has already defied the odds. So as long as you continue to run the company wisely, you should be as successful as the previous owner.

When you start the actual process of shopping for an online company, you should strongly consider using a business broker. Buying a company is a complex activity that requires a third party to coordinate the activities of the buyer and seller; business brokers have the knowledge and expertise to assume that role. A business broker is not a sales person, but a business professional that facilitates the transaction to the benefit of his or her client. Many transactions fail when the buyer tries to exclude a business broker from the sale process.

Also keep in mind that buying an online business is very different from buying a brick and mortar business. The internet channel utilizes very different skill sets for customer lead generation, order fulfillment, and customer service. The business broker you choose must have a detailed understanding of these unique skill sets in order to effectively facilitate the transaction.

Acquisitions Direct is a business broker specializing in online business acquisitions. To receive a FREE business valuation from Acquisitions Direct, please CLICK HERE and fill in the required information. We will respond to your inquiry within 48 hours. There is no commitment on your part and all information sent and/or discussed is confidential.

Buying or selling a company is a complex activity that requires one unbiased party to coordinate the activities of the buyer and seller; a business broker has the expertise and training to assume that role. A business broker is not a sales person, but a business professional that facilitates the transaction to the benefit of his or her client, be it the buyer or seller. Many transactions fail when the buyer and/or seller try to conduct the sale of a business without the aid of a business broker.

In order to help you sell your online company, maximize the selling price, terms, and net proceeds, and handle all the details, there are some things an intermediary needs from you. The better you understand these expectations, the more smoothly the sale of your company will go. Here are some of the things an intermediary will expect from you:

Your time. In addition to continuing to run your business while it is on the market, you will need to spend some time with the intermediary to assist with the sale. This will involve returning his or her phone calls and being readily available to handle any questions, requests, and details.

Communication with your top employees. If you are planning to sell your company, you shouldn’t keep it a secret from your key executives and legal advisors. In fact, these people can provide crucial information and therefore should be working with both you and the intermediary from the time the company first goes up for sale through the transaction closing.

Networking. Developing a list of possible acquirers for your company will ultimately be the responsibility of the intermediary, but he or she can certainly use your help and suggestions. If you supply names of potential candidates and provide the intermediary with industry magazines and directories, it will speed up the selling process by increasing the number of possible purchasers. Plus, these extra tools will help educate the intermediary on the nature of your company.

Constant information. During the three to twelve months that it may take your company to sell, things will be changing within the business. As the seller, it is your responsibility to keep the intermediary informed of any changes that take place.

An open mind. Because it is your business, you may have a specific type of buyer in mind. But you may be limiting yourself. Your intermediary may have some suggestions of buyer types that you may not have thought of; keep an open mind and trust that the intermediary knows what he or she is doing given that the intermediary has facilitated the sale of many businesses like yours.

Your patience. It takes three months to a year or more to sell most companies, so you can’t expect your business to sell overnight.

Cooperation. When the company is actively for sale, the intermediary will schedule visits and conference calls with prospective acquirers. You may need to act as the middle man to communicate to management exactly what the intermediary requires and expects from such visits. For example, for an ecommerce business, a visit will most likely consist of a visit to the production and fulfillment areas of the business.

Updates. Once the deal is turned over to your lawyer, you may assume the intermediary’s job is done. But taking the deal out of the hands of an intermediary at this point can be a huge mistake, as he or she can be a huge asset as the final details are being worked out. After all, the intermediary is familiar with the business, the buyer, and all that led up to the sale, so he or she can help with final negotiations.

Keep in mind that selling an internet related business is very different from selling a brick and mortar business. The internet channel utilizes very different skill sets for customer lead generation, order fulfillment, and customer service. The business broker you choose to help you sell your online business must have a detailed understanding of these unique skill sets in order to effectively facilitate the transaction.

Acquisitions Direct is a business broker specializing in online business acquisitions. To receive a FREE business valuation from Acquisitions Direct, please CLICK HERE and fill in the required information. We will respond to your inquiry within 48 hours. There is no commitment on your part and all information sent and/or discussed is confidential.