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Buying an online business

Discussion in 'General Business' started by Chris_blake1, Dec 27, 2019.

  1. #1
    Hi,

    I’m new here and to this side of investing so forgive me if I make any mistake in asking these questions. I’m young and could really just use some advice/direction from wiser more experienced people than myself. As of the end of this coming March I will be able to invest 50k into an online business of my choosing. I’d like to invest either in an existing e-commerce store(b2c) OR a content website utilizing typical sources of driving traffic for revenue such as ad sense, affiliating, lead gen, etc. Here are my questions...

    1. I’d like to either invest in content website and utilize that traffic to help kickstart a e-commerce store or invest in existing e-commerce store and start a content website to drive traffic to it over time. Which is the better strategy?

    Note: If I bought a content website that’s generating revenue/traffic the e-commerce store I’d start that I’d drive the traffic from the content website to would most likely sell product I make/design myself or have printed. Depending on which business model is quicker to scale and generate income is also a factor in which strategy I’d use to buy and which one to start one. If one takes significantly longer than the other to scale I’d probably want to utilize my money in buying the one model that takes longer to grow.

    2. With a 50k down payment and seller/other means of financing what price range should I roughly shoot for an online business? How much are sellers typically willing to finance?

    Note: I gross about 75k year with my current job credit score in the 700-750 range if that helps answer the question.

    3. Which model is more sustainable/profitable with my investment?

    4. Being my first online business investment I’d feel safer using a broker or professional to vet and do due diligence to the business I’d buy in addition to my own. Brokers such as Fe-International, empire flippers, etc. However, I see two problems in this approach...

    Problem A: The brokers are in the sellers pocket. Is there such thing or any recommendations of a buyers broker, or consultant? Need I be concerned about this or am I overthinking it? I do understand these brokers also rely on buyers satisfaction for reputation.

    Problem B: Unlike sites like Flippa where quality is less, but choices high other online brokers that do a good job vetting these businesses typically have a smaller list of options....with that said and with no affiliation to these brokerage firms would it be reasonable to search for more sellers online on social media, forums, communities, etc and request those I’m seriously inquiring about that they list there businesses on one of these brokerage sites? Are there personal consultants for hire I could use to vet these businesses I come across outside of a trusted brokerage instead?

    5. Depending on the strategy whether I buy the e-commerce store or start one instead of spending money on a consultant/advisor to help me run it I considered inquiring of someone with experience in managing these online businesses, but without the capital to buy/start one themselves to give them the opportunity to make an agreed commission off what they sell in return for their knowledge on how to run it and to make it more passive for myself. I’m not interested in partnering, but if anyone has advice on that idea or recommendations on where to look for in the future I’d be happy to hear your input.

    6. Can owners explain the basics in tax, license or any other requirements/things I need to have in place or be aware of to buy/transfer over an e-commerce or content web to myself?

    7. Do I need to formulate a team of specialists to pursue this investment? Lawyer, cpa, accountant, virtual assistance, online business consultant, etc? I’m a believer in you get what you pay for, but seeing that money doesn’t grow on trees could I get away with hiring someone with experience in running an online business as I previously suggested to negate the need for other expertise? Any suggestions?

    8. What are the safest platforms to use or look for in buying or starting an e-commerce business that have traffic. I understand selling on giants like eBay/amazon come with there own risks and it’s not wise to rely your business success solely on them.

    I by know means expect an answer for every question. Anything helps. To clarify, I’m not asking due to laziness in research, but because I’m having a difficult time finding it. Not only does there seem to be a limited amount of info online regarding online businesses in general the info there is deals mostly with starting in contrast to buying. If anyone has any recommendations on where to find this information please share it. Also, I cannot emphasize enough that I’m not affiliated or trying to solicit anyone. I’m only trying to educate myself better on the subject and I know Im not the only noob with these sort of questions so any answers I’m sure will be of gratitude to any other readers out there. I appreciate everyone’s time, thanks!
    SEMrush
     
    Chris_blake1, Dec 27, 2019 IP
    SEMrush
  2. Chris_blake1

    Chris_blake1 Greenhorn

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    #2
    Please DO NOT click the link within the original post as the site that’s attached was not attached by me and will not let me remove it.
     
    Last edited: Dec 27, 2019
    Chris_blake1, Dec 27, 2019 IP
  3. jrbiz

    jrbiz Illustrious Member

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    #3
    Wow, you are planning to invest a lot of money in a web venture. My initial comment is that for every legitimate website being sold by an honest owner, there are 999 bogus websites being sold by scamsters. You need to be extremely skeptical of all traffic and revenue numbers for these transactions and take all steps to protect yourself in this wild and unregulated arena. A corporate lawyer with strong experience in and solid references for online business purchases would be well worth the retainer fee.
     
    jrbiz, Dec 28, 2019 IP
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  4. Chris_blake1

    Chris_blake1 Greenhorn

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    #4
    Oh absolutely, I’d say one of the most important things in buying an online business that I’ve seen is the where and how you buy it. I believe empire flippers and other trusted brokers like Fe International are safe. However, like I said before they are working for the seller. I think what I need is good consultation, but to find one is difficult because most of them are sharks.
     
    Chris_blake1, Dec 28, 2019 IP
  5. NetStar

    NetStar Notable Member

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    #5
    I would consult with professional analysts. $50k isn't a lot of money for a site. When people talk about 2x revenue online business evaluations they are often talking through their ass. I have never seen a web site being sold for $50k that nets $25k/year. I would be very wealthy if I could find a bunch of suckers that would sell me a site that I could turn around and sell 1 year later with equity. You talk about putting $50k down and financing the rest. I am assuming you are looking for sites in the 6 figure range. You need to be very careful. I could have a web site proving $50k/year of revenue that is dependent on an ad budget of $48k/year and after hosting fees only netting $500 a year. I could have done this for years and it may look like a score being sold for $50k.

    In my humble opinion... I don't think you are buying anything significant and stable for that price. Most of the time owners are selling at that price point because they either 1. can't grow the business further 2. the business is failing and crumbling 3. the web site isn't their priority because they have found more success in other projects or 4. they are truly not netting what they claim.
     
    NetStar, Dec 29, 2019 IP
  6. giorgioarmani

    giorgioarmani Well-Known Member

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    #6
    giorgioarmani, Dec 29, 2019 IP
  7. heartnet02

    heartnet02 Notable Member

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    #7
    I suggest you start a business you are interested in. There is no point starting a business you yourself does not even like. You will encounter a lot of problems but if you like what you are doing, chances are you will not give up and make it happen. Save your money and start small, find something that works and then scale it up with your left over money.
     
    heartnet02, Jan 11, 2020 at 7:49 PM IP
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  8. JEET

    JEET Notable Member

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    #8
    When buying an online business, you are buying a couple of things at once.

    1. The domain
    2. Fan following of the domain, like social media accounts
    3. The client list, if any.
    4. The server softwares/script, if they are unique and have value because of uniqueness.
    5. The content blog,
    6. and product line.

    Since you are planning to get an ecommerce business, then there is a high chance that server software/script is a "free" open source ecommerce script, like magento or zen cart etc.

    You want to sell your own products, so existing products are also of no use to you.

    The other three things are of some value, the domain, the fan following, and the client list.
    May be some knowledge base articles or a blog, which serve as content.

    With a content website, domain, fan following, and content will be the things of interest.
    May be a database of registered members, if any, but not really a client list.

    So in your case, ecommerce store, or content website, both are pretty much the same thing, with minor difference.

    If you could tell which kind of products you want to sell, then it will be easier to decide if you should invest in a content website, or an ecommerce store.

    Question about brokers, a good one can help you pin point a couple of businesses that you might buy or be interested in, but other than that you do not really need one.
    The business consultant you wish to hire, let this person do the real evaluation of the business.
    Don't depend on what the broker said about the business.
    I have never hired one, and I don't know what they do or what value they provide.
    But I am thinking that these people should bring a list of 5-7 options (businesses) before you, their report about each, so that you can choose which one to finally buy.

    Your question 5, hiring a consultant etc, for this you can put an ad on a job website.
    That will be your best choice instead of looking here and there.
    From a job site, you will get someone who has proper references, proven experience and the like.


    Question 6, license etc, again this would depend on the type of business.

    Question 7, lawyers etc, you don't really need this, not in your case most likely.
    The consultant you will hire, that person will probably have enough knowledge about things involved in a venture like this one.

    For the tax part, you probably already have an accountant in place doing your personal taxes. They can handle this. This is not a big something.
    There will definitely be additional taxes, like sales tax or service tax etc, but these will need to be handled once you have the business and are the official owner.
    Business consultant cannot do this, but can certainly help during the transfer of the business itself.


    The important thing about any online business is, "traffic".
    Find out what the traffic sources are.
    Do not "at all" consider SEO traffic of any value.
    SEO traffic is very unstable. Its there in huge numbers today, can completely vanish tomorrow.
    If existing business owner is pitching their high SEO traffic as something wonderful, then don't fall for it.
    Like I said, its highly unstable, and you do not want to pay huge money for something unstable.

    Look for businesses which have better and more stable traffic sources, like social media fan following, paid advertising if any.
    If the business is paying for ads, then remember that you too will need to keep this payment going on to maintain traffic flow.

    Do not check just one month or one week traffic logs.
    Ask for last 3-5 months figures at least.
    Its very easy for a scammer to buy cheap and fake traffic online and boost their "recent" traffic numbers.

    Do not forget to take control of any social media accounts which are driving traffic to the website.
    Get full admin access of, facebook pages, facebook groups, youtube channels, twitter accounts, instagram accounts, any other social media activity the previous owner was involved in...
    Make sure that these are a part of the deal.

    Good luck
     
    JEET, Jan 12, 2020 at 4:59 AM IP
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  9. NetStar

    NetStar Notable Member

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    #9
    Web Sites for sale should not have a hard time producing traffic logs since launch. If the web site is 3 years old get 3 years of traffic data. 3-5 months of traffic data probably aligns with the scam or inconsistency. You need to go beyond that.
    I had a web site that received 300-400 regular daily visits consistently for years. Then google recrawled the web site and traffic went over 1,000 unique visits a day for a few months. It then went back to 300-400. If I sold the web site during the peak of traffic it would appear as if the web site received steady traffic at 1,000+/day however the long term traffic history paints a different picture.
    You also need to track where the traffic is coming from and the bounce rate.

    Odds are if the web site is for sale the owner finds it to be either 1. too expensive financially and physically to run 2. not enough return in profit for the financial and physical support 3. no clear vision of future. ie. web site traffic and profits have been drastically declining. In other words, most affordable web sites for sale are being sold because the owner doesn't deem the web site as being worth his or her time. Basically you are buying a high mileage car with a bad transmission that someone is scared to drive from point A to point B. What are you going to do with it?
     
    NetStar, Jan 12, 2020 at 10:33 AM IP
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  10. JEET

    JEET Notable Member

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    #10
    @NetStar
    I recently switched servers, so old logs, from 3 years etc are lost.
    All I got is logs of couple of months from the new server.
    So if I decide to sell a website of mine "today", then how will I produce those old logs?
    Be practical.

    A person who lists his/her website for sale, those people also cannot fake 3-6 months old logs. All they can do is, buy some cheap fake traffic and boost "current" logs only.
    3-6 months logs are more than enough to decide if traffic is faked or not.

    And like I already mentioned, do not even consider SEO traffic as sustainable traffic.
     
    JEET, Jan 12, 2020 at 7:39 PM IP
  11. NetStar

    NetStar Notable Member

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    #11
    Being smart is practical. You should have backed up your traffic logs when you switched servers. That would be the owners fault and a costly mistake. If i'm buying your web site I would have 100% expect you as the seller to value your traffic logs enough to save them. However mistakes happen, so the next I would ask for is your Google analytics logs. If you don't have them I would proceed with caution. Your comment is absurd. You label the buyer as impractical for requesting such a thing when in reality the buyer deems you as impractical for not saving them yet expecting a sale based on traffic.

    We aren't talking exclusively about scammers buying cheap traffic. You could potentially be spending $20k per month to drive relevant high quality traffic. However, if you produce $21k in profit you are netting $12k annually and NOT over $250k. The valuation would be VERY different. Also, if you showed me a steady stream of $1k/month net profit over the last 36 months that web site and return is worth MUCH more than a web site that has only seen $3k net in 3 months. It provides insight to the marketing strategy and consistency to the return. 3-6 months logs is only fair if the web site is 3-6 months old.
     
    NetStar, Jan 13, 2020 at 1:48 PM IP
  12. scu8a

    scu8a Greenhorn

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    #12
    What is your motivation in establishing this business? What is it that you're looking to achieve? Have you performed market analysis, or long-term outlook in this realm?

    I spent three years building an ecommerce web site back in 2009 and it hosted several million products, from 120,000 sellers, under 5,300 categories. It updated inventory once a day, and the search functionality was robust. I had investors lined up, but I was careful to research and keep on top of things. I came to the conclusion that to pursue the business at the time being to be too risky.

    If you just want to make money, I would recommend speaking with a professional financial advisor to evaluate what further opportunities may be available to you. You can be as risky, or as conservative as you choose, and you wouldn't have to go through all the work of setting up an e-commerce site.

    The area of e-commerce has matured and you're up against the top 3 retailers in the world. You must absolutely have something significant to set your business apart from all other e-commerce sites. Without that, you're wasting time and money.

    Would I consider a financial investment into an e-commerce site at this point in time? No. The risks are far too great and the potential payoff is far too modest to consider it.

    Content is a commodity. With time, the value of content diminishes. Content is something that must be original, new, and in demand. You're going to need to continually produce valuable content in order to maintain a profit. It's a lot of work. It take a lot in terms of resources.

    Whatever you do, I recommend that you start a company. When I say that, I'm saying that if you set up a company as a sole proprietorship, you take on liability for the business personally. Call up an attorney and ask questions. Forming a corporate business entity is the first thing you need to do. I set up an LLC, as well as a non-profit organization this way. Don't take any action without before addressing the legalities.

    In terms of establishing trust, there are privacy watchdogs who can certify your privacy policy to assist in establishing trust with customers. Speak with the Better Business Bureau and the SBA (Small Business Association) and establish a network of people who will help guide you through the process. It's important to do it correctly the first time, even though it may seem unnecessary.

    Don't set your budget to $50k. You'll need to think bigger. If you do have a solid business venture in the works that is economically viable, you will know it. When people around you ask if they can invest in your venture, and they see genuine opportunity, that's an indication that you may be on to something. If people don't show an interest in investment, you may want to figure out why. It could be that they know something that you may not.

    I would re-evaluate the idea after undertaking some extensive research if I were in your shoes. Having done this before, my gut says it would be good to evaluate other investment opportunities before jumping into e-commerce.

    Knowledge is power. Begin there. Acquire the knowledge, and put time into planning. The decisions you make early on in starting a business are the most critical. A mistake in the beginning can come back to haunt you, and even take you out of business. Keep asking for guidance as you are doing now. This isn't something you have to do alone. It's difficult, and you're going to have to decide what needs to be sacrificed in order to sustain this venture. Take some time for introspection and give it plenty of sleep. $50k is a lot of money. Be aware of your impulses, take your time, and get it started off the right way.

    I wish you great fortune and good luck!
     
    scu8a, Jan 13, 2020 at 2:41 PM IP
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  13. scu8a

    scu8a Greenhorn

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    #13
    I forgot to mention, acquire an SSL certificate to help with legitimacy. It's standardized nowadays, anyway. Just about all sites use HTTPS. When you decide to acquire an SSL certificate, go with an Extended validation (EV) SSL certificate (preferably a SAN cert IMO). You need to meet with an attorney who can verify the legitimacy of your identity. I'm not well-informed on the methodology, but I do know that it is a very good way to prove you're legit. It's money well-spent, and affordable IMO.
     
    scu8a, Jan 13, 2020 at 7:46 PM IP
  14. Chris_blake1

    Chris_blake1 Greenhorn

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    #14
    Sorry, getting back to some of you so late. I agree with most of you on the issue of how I was planning on utilizing the 50k. I’ve come to the conclusion that I’m leaning more towards starting than buying and investing some of the 50k strategically in marketing rather than dumping it into an existing site as I feel that has more potential and a better utilization of my capital. I appreciate and thank you all for your time!
     
    Chris_blake1, Jan 16, 2020 at 2:43 PM IP
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  15. Reichmng

    Reichmng Peon

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    #15
    Great stuff!
     
    Reichmng, Jan 17, 2020 at 5:39 AM IP
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