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What to look for when purchasing a business



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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 What to look for when purchasing a business  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 What to look for when purchasing a business 

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 What to look for when purchasing a business  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 What to look for when purchasing a business


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Thanks!

Tommy Carey

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Kakashi2020

That was a very informative article and I agree with you.
In any business takeover or acquisition a business structure report with the latest detailed financials should be submitted and would be investigated thoroughly the resulting validated report will become the core and basis of a viability study which is composed of several parts inclusive of competitors data, market testing, benchmarking data, operations flow and manpower, sales and marketing, income and expenditures etc. After all these the final Viability Report will now be the basis for the Acquisition.




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kgord

If I was going to start a business, I would consult with my cousin's husband who has run many successful businesses in his day, and is a multi million it is fair to say. He has a knack for operating businesses, and I would like to learn his secrets. I know he always takes responsibility for his successes and failures and is grateful for what he has, beyond that, not sure.




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Corzhens

You are talking of an offline business, right? But for an offline business I don’t think you can get the same set of information regarding the business particularly the financial papers. My take on online businesses particularly the entrepreneurship type is an informal business in terms of protocol and procedures that all you can have is the word of the owner. Correct me if I’m wrong on this opinion.




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Barida

Understanding everything that got to do with the taxes to be paid and whether they are up to date is very important when we are talking about buying a new business. This is one thing many investors and business owners don't check and when the year reports comes, they will be angry how things are up.

Another important thing we need to understand about some business is how much debt the new business owed and ways that it can be settled. This is necessary for no one will want to inherit the high cost of any business no matter how good the prospects look like.




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overcast

I think recurring revenue capacity is what people should look for. Because that way they are not going to be in loss if they choose to buy it. If the business is going down every minute of the way. Then they have to focus on other means for buying. Because business that loses the money is not a good business from what I have seen so far.




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Barida

This is very important and it's pathetic that many of the investors that want to buy new businesses don't even talk of taking a closer look at it since they believe that once the business got potentials, it can really be able to pay up the bills not knowing that sometimes, the business environment can change everything within a short period of time.




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overcast

Potential does not mean business makes money. Snapchat has potential but it does not make money like facebook. Instagram earns more revenue than snapchat. You see? Potential does not means money. Paying money and earning money is business. Rest of the glitter is fake.




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aeon

That's right. If the plan is to buy business, we should be more aware about the records of that company for the last three years, and if taxes are fully paid, we should also know if there's some pending cases about this company. We should know the reviews or feedback of the previous customers if they're happy to comeback again.




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vinaya

I have never purchased a business and I may never purchase a business. I will rather prefer to launch a business and sell it for profits.
However, I appreciate the tips mentioned by the OP.
If you are buying an online business, you need to check the sales figure and traffic. Since sales figure and traffic can be easily manipulated, you will have to ask for real proof such as adsense report, google analytic reports etc. The data you receive should show the stat for at least 6 months.




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overcast

I am in same line as you are thinking. I don't want to purchase business something I have not build.Because I may miss out on lot of details. And that's something I don't want to happen. And also there are some of the things that may affect in many ways to the mindset. I guess we learn from experience of building.




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vinaya

Buying a business cost more than building a business by yourself. if you start your own business, you can start small and then gradually increase investment. I have a cattle farm. I started this business about 4 years ago. I started with one cattle. When I was sure that there is money to be made, I gradually increased the number of cattle. Currently, I have 20 cattle. I will be adding more cattle in the coming days. One of the good things about starting your own business is you will not have a financial burden.




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centurion

Thanks for the important article and notification. These types of information's are available when domain selling marketplace try to sell any business domain. Any business domain contains this information so that the person who had been trying to buy the business.

Thanks
Centurion




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vinaya

When I want a domain, I always register a new domain instead of buying a registered domain. I can get a dot com for $10, however, if I am to buy a dot com, I might have to pay a lot of money. If you want to buy an old domain you need to check whether it is blacklisted by Google or not. You should also check whether the domain was used to do illegal activities.




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Cristian

Drastic drop in traffic and sales - I actually have seen failed business purchasing because of the buyer's inability to properly understand that a website's traffic that is failing for the last few months isn't a great signal.

I'm not saying you shouldn't go and buy a website that has potential but is losing traffic, but you need to be prepared to improve that traffic, you need to be pretty sure you can turn things around for that site.
And doing this for a website that is losing traffic month after month ain't easy. It may involve a redesign, having mobile-friendly architecture and updating all the content. All of this involves money and time. Take this into consideration when buying a website that is losing traffic.

Personally, I won't go near a website that is losing traffic, especially organic traffic. It would involve much of a pain to update everything and get it in the current year.




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kgord

Yes, I would think that a website that is losing traffic is defintely going in the wrong direction. I wouldn't blame you for not using it either. I think it would be a losing battle and one that would cause much more trouble than it was worth.




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treecko142

Always look at the company's financial statements for the previous years because they give a lot of information that the owners might not be willing to tell you when selling their business. Looking at the assets and liabilities of the business and their trends over the years will greatly help you decide if a business is worth buying.




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aeon

Right, and also the reason why the owner want to sell the business, and if there're previous case maybe. maybe the last 5 years of of business transaction is enough to know about that business, but it's really hard to do that.




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treecko142

Yeah, always find out the real reason why the business is being sold, and it won't always come from the owner. You can ask employees or former customers. You can also take a look at the potential competition, because even if the business has a good income, there may be a more established brand about to open near the area which will make your business less profitable by the time you bought it.




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Martinsx1

If you can get your hands on the company's financial records, it's going to be like a gold mine of resources for you in finding all you need to know about the progress of the business and the direction its heading at the moment in time when you are considering buying the business. If the debts far outweigh the potentials of the business, then it's definitely not worth investing in.




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treecko142

Most registered companies have their financial statements readily available to the public, either through their site or through the government's.




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flyinwashi682

i will definitly look myself into that and use your tips for my business sir




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Kakashi2020

If a website is being sold because there's a drastic drop in online sales, this means he has poor content and if that is the only problem then it would be a wise decision to make a low buying offer reasoning out the business is not making money anymore. This would be a good site to rehabilitate and flip for a profit.




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aeon

Right, and if they will sell that and I'm the buyer, the price should be one third of the total asset of that company is enough price. In that way, I still have enough funds to rehabilitate that business and find some solution on my own.




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treecko142

Yeah, if the business used to have a good profit before the drop in sales, you need to find out if it was due to increased competition, change in market trend/demand, or if it is simply just a case of a drop in the product quality and the previous owner not managing properly.




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jaymish2

I don't think it's a good idea to purchase a business that's in the 'red', unless you can clearly see why. It maybe that the business is outdated, then you will go at a loss. The most profitable investors buy things when they are cheap and when a business is not doing well it's owner is likely to sell it very cheaply. Buying a business that is making a profit is not a smart business move, you may buy it at a much higher price and may not be able to maintain the sales, management is a personal strategy.




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kgord

Some great things to look for. I think that most people about to purchase a business know some of these things but not all of them. This is just one of the options that we might be looking for either now or in the future and it certainly would help to keep some of these things in mind.




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Martinsx1

In my opinion, in as much as it's good to make a quick decision in either buying a new business or not buying, a hasty decision shouldn't be made in a rush because it's only going leave so many stones unturned, thereby leaving you exposed and vulnerable. It's always important to take your time and handle the decision making using a wise approach.




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keen2write

Great advice and excellent article. There are many online businesses to plan and to also buy which can work to your advantage. If your planning on buying websites to flip always check there background first, use tools like semrush to check there backlinks and also check if it as been banned on Google or AdSense. Some times people who sell websites give us fake information so they sell quickly, like they may say they get over 5000 views a day which may not be true but there are ways out there to check.




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Tronia

Thanks for the advice. I can admit that I have never purchased a business before but my friend did and he got burned a bit. He wasn't too careful about the reason why the person was selling it in the first place. The points you've listed summarize everything that's important. Buying a business is never an easy decision so we should always consider several factors before doing so.




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Martinsx1

Thanks for the good article with impressive tips on things to look out for when looking to purchasing a business. It's definitely going to be very helpful for me should I be looking at buying an already established business. I find the tip about checking the tax records of the business because if that isn't paid up, it might put one into trouble with the tax agency.




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DenisP

"…the main business will try to sell off everything so they can make a lot of money right before the business dies off."

This is totally something that you can see happen even in physical, walk-in businesses. I can't count the number of times
I went to a mall, and noted the shops that had crazy sales like "50%-80% discounts on all items!"

What significance does this have, you might ask? Well more often than not, those are the stores that had a "for rent" sign placed on their property within a few months.

Basic economics says that an item's value is going to go way down when there is a high supply and low demand. Low demand is never a good thing with online businesses.




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edencaga

This article is so helpful for those who want to purchase business. I myself is planning to purchase also a business but I really don't know what's the first thing to do and what are the following things I should have or do. Maybe It might be helpful for me to follow your tips hopefully. Thank you so much for your informative articles. It's really hard to sell and to purchase a business of course since you still don't know how will it be going if you were to purchase that business. Would it be a good decision or not.




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Kakashi2020

A logical thing to look for when looking for a business to buy is the uniqueness of the products or services being offered by the business. This has a direct correlation to its market and profitability. It's best if you look for a business that offers niche items or services. Doing this makes it easier to identify and target specific segments of society as your prospective buyers.

Some examples would be businesses that sells newly invented items with specific uses and unique artisan made items. These I think would be good businesses to buy.




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Martinsx1

As a result of duplication in lots of products and services being offered in the open market both online and offline, it's always important when looking at purchasing a new business that the product and service content uniqueness is put under the microscope because it's the only way you would be guaranteed of having your target audience patronize anything you offer them.




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Corzhens

The financial statement is the key to the personality of the business. For the past 3 years, you can evaluate the operations regarding revenue vis-à-vis profitability. Just take note that not all businesses that are for sale are losing. There are business that are profiting which the owner is selling for some other reasons. As with the operation, the best person to talk to is the manager or the assistant. Of course, a business for sale should be transparent in the data which means there are no hidden debts.




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Judas2018

Before you purchase a business from someone you need to properly and thoroughly evaluate its value and legal history. Everything else is negotiable, but if the site is tied up in lawsuits or legal issues, or is somehow blacklisted or cannot turn a profit for some reason - it's a bad investment.




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Kakashi2020

I think knowing that the business is still profitable in relation to its present products and services and it's profitability in the next 4 to 5 years is a good way to gauge a business. Because if your going to buy a company which has products and services which are going to be obsolete soon then you would just be wasting your money.




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DarthHazard

Definitely. Of course, this doesn't mean that people don't buy businesses that are not making a profit because there are businesses out there with a good base but need someone that knows what to do next to make a proper profit and that might be you. But it's also important to ensure that you know that this business you are buying can be profitable now or even in the future.




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Kakashi2020

A business has many components and some of its components are worth a lot more than the others, I think another good thing to look for when buying a business is a business that can be broken into its components and that could be sold individually for a good profit.




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Bravosi

Hey there!
This was a very informative thread, but I honestly don't understand the mentality of people who prefer to purchase a business rather than starting one. I believe having a business from scratch is a superior choice in terms of finances. Buying a business could end up succesfully, as there are numerous cases people would sell their business and change owners, and those new owners would make that business booming. I think the most important aspect is obviously the debts and the traffic.




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