For new and seasoned buyers alike, there are a lot of questions that come up when learning about the process of finding, evaluating and closing on a internet business.
We asked several buyers what their top questions were and we’ve gone about answering them for you below.
I’m a first time buyer, what business models or niches do you recommend?
Whilst we have seen first time buyers acquire each and every business model available, it goes without saying that some are more suitable than others. Generally speaking, businesses that require development work (e.g. SaaS or software businesses) can be more challenging if there is no developer or team in place.
Content based businesses (e.g. AdSense or Amazon Affiliate based sites) usually require less time, are simple to run and much of the work can be outsourced fairly cheaply, making them attractive for first time buyers.
In terms of niche, this is completely down to the buyer. We would always recommend a niche that you are broadly interested in, regardless of competition.
What advice can you give for pursuing SBA successfully?
Three pieces of advice. One, start the process before you go looking for a business. Go and get pre-approval before you do anything. Second, check the eligibility criteria very carefully and make sure that the businesses you screen for match these rigorously. Finally, the business you want to buy is going to be looked at very carefully by the bank in question. Make sure it has at least 3 years of financial history with clear bank statements and tax returns underpinning the financials.
What is the best way to test a buy-side broker before hiring?
Do your own research first: speak with other buyers that have purchased before and speak with sell-side brokers to get an informed opinion. Then engage a buy-side broker and test their advice against what you’ve learnt yourself. Some red flags may include:
- No data to support their valuation
- Limited deal flow (both sold and current)
- Negative feedback from sell-side brokers
If you only have a short window, what is the most essential DD?
Hopefully you don’t find yourself in this position and if you do, it’s advisable to push back and get the time you need to conduct a full due diligence review. In general for a brokered listing you should expect 1-2 weeks for deals up to $500,000 and slightly longer for more complex businesses (e.g. SaaS).
That said, if you are facing a tight execution schedule, the three bare essentials are traffic, financials and operations.
Be sure to ask plenty of questions to the seller and make sure their responses back are satisfactory. If they are not that might spell a wider issue.
What are the 3 big red flags you see most often?
There are a few to look out for, the most common are:
- Consistently short, delayed or evasive responses from sellers
- Little or no willingness to negotiate on deal points where there is a rational case to do so (usually post-due diligence)
- Anyone looking to transact outside of a legal framework and/or dedicated escrow service
How can I guarantee what the seller is saying is true?
Whilst it is impossible to guarantee, due diligence and working with a respected broker are key first steps. At FE International for example we spend a lot of time developing a relationship with the seller during the on-boarding process, which can take several months and years.
During this time, we continuously validate statements/claims made ensuring that they are not misrepresented. As we work on a contingency basis, buyers should take comfort in the fact that if we have chosen to list a business, we are confident in the accuracy of the materials being presented.
That being said, if still unsure, it always helps to ask a broker to setup a call directly with the seller in order to ask questions that will provide the necessary reassurance.
What are the best terms to put in a contract?
Terms and seller representations are important but perhaps more so are the assets for transfer. A well written asset purchase agreement (APA) should feature a heavily documented and detailed list of all the assets for transfer.
This should include all accounts, relationships, intellectual property and tangible assets (where relevant). The more detailed the less room for ambiguity in the hopefully unlikely event of a dispute further down the road.
How can I protect myself in the transfer? How do I know when to release funds?
The APA and escrow ensures that the buyer is protected during transfer and post-sale. That said, buyers can protect themselves further by following some quick tips.
First, make sure that the seller transfers everything included in Exhibit A of the APA – do not confirm receipt or accept assets until you are comfortable that everything is accounted for and as described in the APA. Second, use the inspection period to check traffic flow against claims, also check incoming revenue, flag any concerns to your broker. Lastly, communicate any issues to your broker early and request a call with the seller if required to rectify any issues.
What are the top 3 things I should be doing post-sale?
We have plenty of resources available to help buyers post-sale, including our in-depth site audit case study. We recommend fixing any quick-wins identified during the sales process/due diligence. The seller may be able to help you with these during the training period post-sale.
Once complete, it is important to start formulating a strategy for how best to take the site forward. This will depend on the business model of the business and your budget and time allocated to growing the business. Surrounding yourself with experts to leverage experience and data is a good starting point.
Lastly, spend some time working out how the asset should be managed i.e. what activities need completing and when. Decide on a schedule and decide whether outsourcing is a viable option.
These three broad steps combined should help you fix, grow and maintain the business and lead to a successful exit in years to come.
What improves the value of a business quickly?
The best way of improving a site quickly is to fix anything that is broken. Sites that have managed passively may have broken external and internal links, outdated content, etc. Making changes such as these can quickly improve rankings, reduce bounce rates and increase a website’s appeal to its target audience.
Further, you can look to renegotiate commission rates, decreasing costs, enter new (foreign) markets, etc.
Not answered your question?
Add a comment below with your question and we will respond right away.