What to Look at When Buying an Online Business
Owning an online business seems like the ideal way to earn a living. After all, you can run the business from almost anywhere at any time and at a relatively low operating cost. It’s an ideal setup for anyone who likes to work from home and keep a flexible schedule.
Better yet, if you’re looking to grow the business, buying an established e-commerce business gives you a unique advantage. It’s already bringing in revenue, plus it already has customers and an established web presence, giving you something to build from and make your own.
However, not all internet businesses are created equal. There are a wide variety of online businesses for sale—from website businesses to lifestyle blogs. While some may be very lucrative, others may be more of a challenge to operate and make your own.
6 Things to Consider Before Buying an Online Business
Before you buy any online business, do your preliminary due diligence and see if it’s actually a wise investment.
1. Verify the Business’ Performance, Financials, and Future Potential
Just like any other business opportunity, a potential buyer should evaluate the business as a whole. The business should be well-established, at least 2-3 years, with a customer base and verifiable financial documents. Its annual revenue should trend upward, showing a history of success. If this isn’t the case, the owner should provide a reasonable explanation. Ask the owner specific questions to get a complete picture of how the business is performing.
2. Ensure Consistent Website Traffic and Lead Generation
An online business that depends on generating traffic should have a tracking system, such as Google Analytics, that shows a detailed overview of the site’s traffic. This data shows how many visitors the site receives, where users are from, what devices visitors are using, what channels drive the most traffic, among other important data points. The statistics should also show how traffic is generated. Is it mostly through paid advertising or another media channel, such as email or social?
3. Find Out the Website’s Search Engine Ranking
How high does the website rank against its competitors? If it’s not ranking high, it may have performance issues that are affecting its visibility, such as outdated coding and poor functionality. Websites that do not keep up with Google’s latest search engine optimization (SEO) best practices, such as poor page construction and low-quality content, also rank poorly.
4. Identify the Current Business Model, Operations, Products, and Services
Online businesses generate their revenue in a variety of ways. If it’s an online retailer, find out if it sells via drop shipping, wholesaling, or manufacturing. The business should have multiple streams of income and not rely on the sale of just one product or service. Does the business have multiple sales channels, such as online marketplaces, or is there also a physical store? How are the purchases handled? Does the business have an SSL certificate, which authenticates a website’s identity and enables an encrypted connection to handle credit cards? If the business is selling information in the form of a digital product, such as white papers or how-to guides, consider whether you have the knowledge and expertise to continue growing the business.
5. Determine What’s Included with the Purchase
If you’re purchasing an online business, verify whether you will have full ownership of the website’s digital assets, including photos and domain name. The domain name should be registered in the owner’s name for at least another 12 months, giving you ample time to transfer ownership. Find out all the tangible and intangible assets included with the purchase, including branding, intellectual property, inventory, client lists, contracts, etc. Verify how the website is being hosted. Many sites are created through website builders and hosted on their platforms. As the new owner, you should have the option to shop around and choose your own web hosting company.
6. Review Existing Reputation and Feedback
As you’re studying the online business, search online for reviews and complaints. If the business has a pattern of poor reviews and unhappy customers or if someone has reported it as a scam, it may not be worth pursuing. Ask the owner how they handle returns and charge backs. High return rates could be a red flag. On the other hand, the business may have received rave reviews and recommendations from well-known media sites and bloggers. It may even have a high rating from the Better Business Bureau.
Buying an online business can be a great investment opportunity. It’s a turnkey operation with proven sales, established products, and a customer base. But like all business opportunities, there’s the potential for risk. Make sure you verify as much information as possible during due diligence. Moreover, working with a reputable business broker who has experience selling online businesses can make everything from the search and selection to negotiating and closing the deal much smoother and less stressful.