In this article I’m going to tell you how to buy a business.

I’m George Moulos from Ecommerce Brokers, I’m an online business broker that has been helping people build, buy, and sell online businesses for over a decade. We also have videos about building, buying and selling online businesses on YouTube coming out every week and you can Subscribe Here!

I’m going to take you through how to buy a business, what the best practices are for sourcing deals, doing due diligence and closing deals and at the end of this article I’ll share my 3 tips for buying businesses.

1. How Do You Buy A Business? 2. Which Online Business Can I Invest In? 3. How Do I Get Started With An Online Business?> 4. How Much Does an Online Business Cost? 5. Where To Buy An Online Business? 6. What should I look for in an online business? 7. How Do You Write A Sales Agreement? 8. How Do You Pay? 9. 3 Tips When Buying A Business 10. Is buying an online business worth it?

1. How Do You Buy A Business?

The short answer is that you buy a business after the process of sourcing, due diligence and drafting legal documents by paying for it upfront and/or over a period of time. But lets dive into all the steps involved with a business acquisition.

2. Which Online Business Can I Invest In?

The first step to buying a business is defining what your acquisition criteria is and what you can and can’t take on as a new business owner. The first big question you need to ask when defining your acquisition criteria is “Do I want an online business or a brick and mortar business?”. Once you know this you can determine where you should look to find businesses to buy. For this article we are going to focus on the online business option.

3. How Do I Get Started With An Online Business?

Okay, so you want to buy an online business. How can we further narrow down your decision? The first step is to take stock of your existing knowledge, experience or at least interests. If you have experience with a certain business model such as Amazon FBA or ecommerce DTC then your first acquisition should be of a business like that. If you don’t have experience with a specific business you might want to narrow down your selection by a niche that you know relatively well. For example you might be an avid runner but have no ecommerce experience. This would be a good niche to find a business in as you likely have a keen sense for what is and isn’t a good product in the running niche. 

4. How Much Does an Online Business Cost? 

So you want to buy an online business of a specific model, for example physical product ecommerce DTC (direct to consumer) in the running niche. The next step is to identify what your budget is for your acquisition. You can define this number one of two ways. 1. Start with a set budget 2. Start with an amount of profit you’d like to be making per month from the business for example $20,000 USD. Then you can multiply that by 12 and then by 3 to get an idea of what a business with that sort of cash flow costs. So $20,000 x 12 equals $240,000 and at a 3X multiple which is an average multiple would come to a valuation of $720,000 USD.

This is what you can expect to pay for a business that produces that sort of cash flow. Now if you take advantage of seller financing and or earn out you can further reduce the upfront expense to almost half of the valuation. If you’re interested in how you can pay as little as 50 to 10% on a business upfront subscribe below as I’ll be releasing an article on how to do just that!

5. Where To Buy An Online Business?

Now that you know your budget and you know the type of business you want to buy it’s time to start your sourcing process. The first thing you need to do is decide whether you’d like a professional to aid in this process. For a first time buyer this is a popular choice as an advisor will bring experience and expertise to the table and massively reduce the risk involved in a transaction for a first time buyer. 

Ecommerce Brokers provides a service just like this called Elite Acquirers Gold. This service helps first time and even veteran buyers source up to 5 businesses a week with specialized broker analysis that allows buyers to quickly find a business that works for them. Ecommerce Brokers buy side service also helps in the communication and negotiation process of buying an online business and the final due diligence and closing of a deal. Follow this link to learn more: https://ecommerce-brokers.com/gold/

So you’ve got a buy side advisor or you’re going to source on your own. Where do you and or your advisor look? Marketplaces are the first place to look for businesses to buy and then brokerages themselves. A brokerage like Ecommerce Brokers will have multiple listings at any one time that you can review. A good step is to sign up to the email lists of these brokerages and marketplaces so you can keep updated on new listings. However, listings that are publicly available on brokerage websites are usually the deals that their private buyers passed on already. For this reason a buy side advisor can be highly effective in getting you the best deals.

6. What should I look for in an online business?

So you’re looking at 20 to 30 businesses a week from reputable brokers and marketplaces, how do you analyze the businesses and make a decision on which to buy? 

Well the first step is to see if they are profitable. Unless you’re looking for a distressed asset that you’d like to turn around and make profitable, something that can be hard for even experienced entrepreneurs, you want to focus on profitable businesses. The next step is that you want to confirm that it is at least a year old. A minimum of 12 months is the industry benchmark mainly because a brand needs at least 12 months to establish some brand equity and stability. The next step is to see what trends are happening within the business. Have sales dipped unexpectedly? Is the business in a downturn? Did the business do only 2 good months of sales and now it’s dead? What is the story of the sale is the real question that we are asking ourselves when we look at the trend of the business as this can massively affect the valuation. If the business has declining sales for 6 months leading up to their exit then the valuation will go from an average 3-4X down to as low as 1-2X. 

The next few sourcing steps include vetted and official financials and statistics that you can verify with platforms like Shopify’s backend, Amazons backend, Stripe, Google Analytics and on the expenses side you can confirm this with invoices, bank statements and tax returns.

This deeper analysis is usually completed during the due diligence process which comes after you’ve chosen a business to buy or at least further analyze and have signed a Letter of Intent to give you a period of time to complete this diligence. 

7. How Do You Write A Sales Agreement?

You’ve confirmed through due diligence, perhaps using a third party service provider to do this, that the business is as expected that you want to move forward with the acquisition. During the due diligence period you as the buyer will be expected to start the drafting of the sales agreement or asset purchase agreement depending on how you want to structure the deal. After sending this agreement draft to the seller’s attorney there will be some back and forth on small items.

Come the end of the due diligence period you’ll have a completion day where the transaction will occur, documents will be signed and you’ll have bought your business!

8. How Do You Pay?

The big day has come. You’re going to buy a business. How do you pay? 

The most common method is to use an escrow service. This can be provided by your buy side broker or the sell side broker. If both buyer and seller are independent they can use a service like escrow.com or an attorney’s escrow service. This means that your funds for the transaction will be kept in escrow until the assets have been transferred into your possession and you have signed the sales agreement.

9. 3 Tips When Buying A Business:

Now here are my 3 tips for buying a business:

  1. Start In A Familiar Space:
    1. I can’t stress this enough. Start with something you know. When buying a business there is a lot that you will need to learn and if you can start with at least some familiarity with a business model or niche, or at the very least being an avid consumer and customer of a niche you can start somewhere that has some familiarity. 
  1. Focus On Due Diligence:
    1. It is very easy for first time buyers to not dig too deep when it comes to the due diligence process of buying a business and this can prove to be devastating. You need to not only verify every expense and sale recorded on the profit and loss sheet but you need to confirm and fully understand the entire operations of the business, because after the completion day this is your operation and although some of the team may stay on you are the person in charge now.
  1. Take Advantage of Buy-Side Experts:
    1. There is a growing pool of highly experienced useful buy side experts that can take the stress out of buying a business. Ecommerce Brokers buy side service does just this and more than anything they will negotiate a lower price for your acquisition and be an extra, experience set of eyes when reviewing your business. Follow this link to learn more: https://ecommerce-brokers.com/gold/

Here’s what a customer of Ecommerce Brokers Elite Acquirers Gold service has said about his experience:

10. Is buying an online business worth it?

If you are looking for a buy side business broker look no further as Ecommerce Brokers is here for you. We can show you 5 relevant listings that match your acquisition criteria every week and help you acquire and close deals consistently. Follow this link to learn more: https://ecommerce-brokers.com/gold/

We also have videos about building, buying and selling online businesses on YouTube coming out every week and you can Subscribe Here!

Now I have a question for you. Do you prefer online or offline businesses? Let me know in the comments below