If you’re debating about buying an Internet company, it’s extremely important for you to know what you’re getting involved with. This means asking questions and analyzing the answers you get to make an informed decision. Is the investment you are making a sound one?
7 Smart Questions To Ask Yourself Before The Purchase Of An Internet Business
How Reputable Is The Internet Business?
Owning an established Internet business compared to a brick-and-mortar location tends to reduce the risk of loss. After all, there’s very little overhead (if any), and there’s already some digital trail you can follow to determine just how reputable the company is. Believe it or not, an Internet business with a large social media following and an eye-appealing website can still be not what you expect.
So, how can you know if an Internet business is what it seems? How do you know if it’s legit or not? For your answer, you need to do your homework. Look at the industry trends, the upkeep costs, profit margins, etc.
What Should You Know About Running An Internet Business?
Many people think that owning an Internet business means you need to have a technology background. Not so! There’s no need to be a computer programmer or technological guru. You should, however, understand the company’s industry and the tools available within that market.
You don’t need to be a computer whiz, but you should have some basic knowledge. Still, you can always leave the website development, content creation, SEO, advertising and backend coding to professionals. Multiple freelancing sites will let you hire others to do this job for you. The only thing you need to have an interest in is running the business and understand the market that the business operates in.
What Will The Sale Include?
When you approach an Internet business owner about buying their company, you want to negotiate terms and conditions that are in your favor. Therefore, find out what the sale will include. Any deal should include more than just the website and domain name. You want the company’s email lists, generated leads, social media platforms, marketing techniques, etc. You also want virtual commodities the company owns such as software services.
Whatever that company has, you want to get as much of it as you can in the deal.
Why Is The Business Owner Selling His/Her Internet Business?
You may think this is a personal question, and the circumstances surrounding the sale could be personal, but it’s one you need to know. Many owners will tell you that they’re retiring or they have health problems. They may even tell you that they’re feeling burnt out and need to take a step back or they’re looking at other business opportunities.
Is The Business Facing Any Legal Issues?
Just because the business is online doesn’t mean it can’t get into legal “hot water.” Therefore, you need to learn if the business is currently or has ever faced legal issues. If there is a current lawsuit, find out what it’s for. Same with previous ones. You need to learn what happened to bring about the lawsuit and what the ultimate outcome was.
It’s always best to have an attorney look over any contracts the business currently has in place. You want to make sure that everything is legit before buying the business. After all, you don’t want to get stuck in a lawsuit right when you purchase the company.
Are The Business’ Taxes Up-To-Date?
The last thing you want to do is purchase a company where there are unfiled business taxes or they haven’t been correctly filed. Would you want to contend with a tax collector right after you purchase the company? How do you find out if the taxes are current? You need to get the business owner’s records for at least the last three years. After all, do your research to find out if what they’re saying is true.
Yes, you’re going to spend a fair amount of time and money on this step, but it’ll insure that you’re not stuck with the penalties that are assessed after you buy the company.
How Was The Asking Price Determined?
Once you’ve learned what you can (and more), you need to ask the business owner how they came up with their asking price. Successful Internet business owners often sell the business for up to 3x multiple on EBITA for businesses that have under $750,000 in profitability. While there are multiple ways in which to determine the business’ overall value, you may still have some negotiating room with everything you learned about the company including its yearly revenue.
One Last Thing…
If you’d like to learn more about purchasing an online business, give us a call. We are currently representing business owners with an array of online business types and can help you explore your needs and provide you with options that will be a good match for you.