What to look for when purchasing a business

What to look for when purchasing a business

Everyone wants to be successful online, but some want to just purchase a business instead of starting one and trying to make it successful.  People sell businesses all the time, you've probably even seen some exchange hands and get better or worse after the ownership switch.  There have been big billion dollar business buyouts and there have been other thousand dollar business buyouts, which makes this type of interaction extremely diverse since there are small and large corporations switching hands!

When you decide you want to purchase a business, you will need to go over a few things so you know what you're getting yourself into.  If you're purchasing a digital corporation you'll want to know if there has been any traffic drop or a drop in sales, what the main revenue sources are, is there any debt that hasn't been paid that will carry over to you, have the taxes been paid and are they up today, and what are the gross and net sales over the past 3 years.  If you can get all of that information, you'll understand exactly what you're getting yourself into, but let's get into more detail about all those points.


Drastic drop in traffic and sales
If there has been a recent drop in traffic and sales it's likely due to something negative happening to the business and they're trying to unload it before it's worthless.  Something like this happens all the time, and the main business will try to sell off everything so they can make a lot of money right before the business dies off.  It's a shady tactic, but after all the papers are signed, it's not the original business owners problem and they are not associated with it at all. 

If you want to be sure nothing negative is happening with the traffic and sales, you need to get access to all tracking software and sales reports to see what the traffic naturally is and what the profits have looked like.  It's normal to see a drop in sales and traffic around holidays, but if it stays down, that's not normal.  If it's a simple Google penalty, you can bring that up with the business owner and likely get a reduced price for everything.  After you make the purchase, you can then get the penalty removed and watch the sales go back up   But it's not usually that easy.

Main revenue sources
You will always want to know what the main revenue sources are because you want to know where the money is coming from.  Usually, you'll have to sign an NDA (nondisclosure agreement) before you start to see anything on the backend of a business, especially the revenue sources, so have a pen ready to sign your name lol.

Knowing where the money is coming from will show you what can be improved and what is already working extremely well.  If the business relies 100% on paid ads, you know that you can add massive amounts of quality content and boost your rankings for everything, and get more traffic and sales that way  

Figure out the revenue sources and you'll have a great idea of how the entire marketing plan works, which is what will boost or drop your sales.

Are there any debts to be paid
This is a big one and needs to be researched extremely well because if the business has a ton of debt it will carry over to the new owners after the purchase.  Some businesses will sell everything in order to relieve themselves of their business debt, and the new owners will have to deal with it, which is a shady business practice but is rampant. 

If a business has any debt, they likely don't make enough to cover what they need to, so you might want to avoid the business in mind.  If the business has promise and has a little bit of debt, you can likely get a nice discount on the purchase and cover the debt yourself with increased sales or your own money.

Are taxes paid and up to date
If a business hasn't been paying its taxes, it will get audited and have to pay some massive fees.  If the company is being sold, the taxes travel with the business and not the owner, so be sure there aren't any outstanding taxes. 

If you really want to purchase the business that has outstanding taxes, you will need to figure out how much it will cost to pay them and the fees, and factor that into the sale.  Let's say the business is listed to sell for $300,000 and has $100,000 in back taxes.  Instead of paying $400,000+ for the business, because of the taxes, you'll want to buy it for $200,000 since you'll have to pay back taxes and also the fees.  The business owner shouldn't get off the hook for screwing up and getting paid in full when offloading their company.  They will need to take the hit and accept a lesser amount for their business, which is a normal thing to do.

What are the gross and net sales over the last 3 years
Some businesses don't have a long credit history or history at all, so you'll want to avoid anything that is less than a year old.  This is because businesses that are young can still blow up and fail as soon as the handoff is made, which you won't want to be a part of for obvious reasons.  If a company can't show you the last 3 years of gross and net sales, you need to stop dealing with them because they're either not organized and could result in a bad venture, or they are too young to know where their business actually stands.

Young websites get sold all the time on websites like Flippa, and it's crazy that some people actually buy them.  A website owner will list their "profitable" site for $50,000 and it's been making $25,000 a month for the last 6 months according to their own words.  Now, if this was all net income I would have jumped on it immediately because it would be a $250,000+ a year website, but it's not.  People tend to offload websites like this on flippa when they get a penalty or when something horrible happened and their sales are not slipping.  Essentially, you're investing in a website that was good, but now you'll be lucky to make your investment back.


In conclusion
Purchasing a business isn't a new method to start making money online, but not as many people do it because they don't know what to look for.  If you've read everything above, you now have a pretty good idea of what to look for and what questions to ask when you have the idea to purchase a business.  If there are any red flags at all, you will want to research and get every piece of data you can to understand what happened.  Sometimes a red flag isn't a deal breaker, but it will drop the price the seller is asking, which is a great thing for you   Always be on your toes when purchasing a business, and know why they're selling in the first place so you don't get swindled.  Not many people sell a profitable business because they "want to seek other ventures" but it does happen and I actually know people that have done it, so know everything before you buy


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Tommy Carey