How to Buy a Business: DO's and DON'Ts

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Hello Fastlaners!

Although starting your own business from the ground up is in many cases the best choice (especially for beginners), sometimes you can get a head start by buying someone else's business. This way you might be able to completely avoid some of the obstacles that many businesses face when starting out.

There are thousands of great businesses for sale that are simply waiting for the right buyer. Before proceeding and purchasing one, there are certain things you need to consider and many warning sings you should watch out for.

To make things easier, let’s divide this subject into two distinct parts: Online Businesses and Offline Businesses. For the former, I'll discuss purchases made through Flippa and for the latter I'll use BizBuySell. Although there are many other methods of finding businesses for sale, these two websites have a great reputation associated with them and are fairly easy to use and understand.

Online Businesses on Flippa

Flippa is the number one marketplace for buying and selling websites in the world with over half a million users. This means that there’s lots of websites for sale to choose from! But it also means there are many individuals trying to rip others off! Crooks are everywhere so it’s important to keep your eyes wide open all the time. In order to avoid problems and help you make the right choices, I have come up with a list of suggestions when buying websites on Flippa.

• If the deal seems too good to be true, walk away. When somebody claims they make $10 000 monthly profit but they’re selling the website for $5000, there’s something really fishy going on. They are either lying, you’re missing something obvious or their website income source is temporary and will disappear in the near future. Save yourself the trouble and move on to another website.
• No profit? Don’t buy! If the site isn’t making a profit, don’t buy it. Just because the seller says the website has the “potential” of making X amount of dollars a month doesn’t mean it’s true! Don’t believe a single word he says! He could be trying to trick you. Look at the facts. Ask for the facts. Don’t be afraid to ask the seller tons of questions and ask him to show evidence on his claims. NEVER BELIEVE THE SELLER WITHOUT PROOF and stay away from “potential” profits! Sure, you could turn the site around and start making profit, but the chances are slim, especially if you’re a beginner. You'd be much better off starting a new business on your own rather than spending money on one that is bound to fail.
  
• Avoid sketchy sellers. If the seller is new to Flippa and has a very disorganized auction, stay away from him. Also, when a seller is deleting a lot of the asked questions or is simply not responding to them this is a clear sign that you should hit the back button on your browser. Try to look for sellers with past transactions on Flippa and who are very responsive to people’s questions and concerns. Transparency is very important. If you’re getting the impression that the seller is trying to hide something, he probably is. Pick your sellers very carefully.
• Only “trust” verified data. The more data, the better. A good seller should provide as much evidence as possible. This will include long term revenue proof, traffic, keywords and other forms of supporting data. Use SEMrush.com to check if the seller is lying about his Google rankings. SEMrush will show you the top 10 keywords a site is ranking for and some traffic approximations. Also, request for access to their Google Analytics so that you can verify the data provided is accurate. Don’t hesitate to ask the seller questions! You want to know everything there is to know about the website you’re buying. You can even request video proof since videos are significantly more difficult to fake compared to screen shots, or better yet, set up a remote connection between you and the seller using Teamviewer.
• Transition and technical support after the sale. Is the seller willing to assist you after the sale is finalized? A good seller will offer weeks or even months of technical support to ensure that you are happy with your purchase and that everything is working well. Also, ask in advance how the site will be transferred to your hosting account so you know what to expect.

If you carefully follow this advice, your chances of having a great Flippa experience increase dramatically.

Offline Businesses on BizBuySell

BizBuySell is a great online resource for finding businesses for sale in your city. Keep in mind that the risks when buying a business are extremely high so make sure you thoroughly research the subject and talk to an expert in order to make an informed decision. The tips below do not apply in all circumstances. Use them only as a general guideline.

• Stick to your city. It’s hard enough managing a business in your city so don’t make your job even tougher by buying a businesses in a different city and managing it remotely. You need to be involved for the business to grow and prosper and that’s extremely hard to do when you’re 1000 miles away.
• Stay away from uncharted waters. If you can’t hit a nail, don’t buy a one-man maintenance and repair business. Stick to the fields you know best. This isn’t the time to venture into unknown fields and learn as you go along. You can do that on your own without paying thousands of dollars for someone's business.
  
• Meet with the owner. Meet with him and ask him all the questions you can think of. Make sure you know what you’re getting into when buying his business. Go and see how the business is run. Spy on it and see how many customers they get per day. Talk to the employees (if there are any). Talk to some of the customers. Don’t be afraid to get out of your comfort zone. Your hard earned money will go into this business so you need to know exactly what you’re buying.
• Negotiate! Always negotiate! Read a book on negotiation if you have to, but don’t settle for the asking price. The sellers take into account that the buyers will want to lower the initial price so they tend to start with a high price on purpose. This doesn’t mean you should be rude and offer 50% of the asking price, but 15-20% lower is usually acceptable.
• Research. Research. Research. Know “everything” there is to know about the business before buying it. Become an expert in the field before making the purchase if you want to save yourself from making a terrible mistake. Oftentimes, your research will make you realize this business is not for you.

Keep in mind that buying a business is not for everyone. In most cases, it's a better idea to start something on your own so that you can go through the whole process and learn from your mistakes without being required to invest lots of money initially. However, if the opportunity jumps in your face and the right business comes along, you should be able to make a more informed decision by using some of the suggestions in this topic.

And last but not least, don’t risk everything by putting all your eggs in one basket. There’s no reason to invest all your life savings in someone else’s business. Start small and expand as you go along. Make a plan, execute it and never give up.

Good luck!

 

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