- 1 Introduction: Who is this guide for?
- 2 Buying an Online Business
- 2.1 Where to buy online businesses?
- 2.2 Best practices for vetting a business before you buy
- 2.3 Common forms of online business
- 3 Selling an online business
- 3.1 Exit planning
- 3.2 Don’t overlook easy monetization opportunities
- 3.3 Should you sell on your own or through a broker?
- 4 Do the work you love
Introduction: Who is this guide for?
So you want to learn the business of buying and selling online businesses.
Well, there are many places we could start. Business acquisition is a massive industry. Millions of businesses are launched each year. And in many cases, the original founder eventually decides to sell their creation.
And these sales come in all shapes and sizes. Private equity funds make headlines every week dropping 8-9 figures to acquire companies. Then there are celebrity private acquirers like Tai Lopez, who buy famous, struggling brands like Pier 1 and Radio Shack for pennies on the dollar to reinvent them as eCommerce companies.
This guide isn’t for those folks. (Sorry, Tai.)
We’ve written this guide for the first-time business buyers and sellers who are in the market for five and six-figure transactions: small blogs, eCommerce stores, newsletters, and SaaS companies.
We’ll explore where to find businesses for sale, how to find the highest-paying buyer, and formulas to help you determine the fair market value for a business before you make (or accept) an offer.
There are many reasons to acquire or sell a company. Some people do it for passive income. Others buy to skip the first year or two of cashless hustle that’s so common for online entrepreneurs. Others use acquisitions as an unconventional marketing strategy.
The list could go on…
If you’ve ever dreamed about buying or selling a digital business, this blog is your introduction.
Buying an Online Business
Where to buy online businesses?
Use marketplaces and brokerage firms
The simplest place to find businesses for sale is online marketplaces and brokerages.
Marketplaces are to business acquirers what Zillow is to real estate investors.
Yes, it’s fun to scroll through endless businesses, but if you want to buy, you typically have to act quickly and expect competition. These websites can attract a lot of traffic, and good deals don’t last long in front of an audience.
Here’s just a handful of places to buy businesses
- Empire Flippers: This online brokerage firm vets every business to ensure that scams or poorly-run businesses don’t make it on the website. According to Greg Elfrink, Director of Marketing at Empire Flippers, the team turns down about 92% of the businesses who try to list on their website.
- Flippa: If you don’t mind vetting businesses on your own, Flippa is a very popular business marketplace. You can browse thousands of online businesses, with purchase opportunities starting in the hundreds of dollars.
- MicroAcquire: Like Empire Flippers, MicroAcquire is respected for its vetting process. It specializes in startups. The acquisition process starts blind, with the prospective buyer and seller exchanging minimal information to see if there’s interest.
- Exchange Marketplace: Owned by Shopify, this is an eCommerce marketplace exclusively for buying and selling Shopify businesses. The big benefit here is that Shopify uses its own internal data about each store to verify numbers before you make a purchase.
Cold email founders for off-market deals
The best deals happen where there’s no competition. But finding off-market deals requires a lot of creativity and drive. They’re called off-market deals for a reason. You’re reaching out to people who may have no interest in selling.
The rejection rate can be enormous and you should get used to hearing “no thanks.” But remember: you’re playing a numbers game. Send enough inquiries and someone will eventually be interested.
There are also tactics to improve your success rate.
Plant seeds in your network
If cold emails aren’t your thing, you can play the long game by steadily building a professional network in the world of business mergers and acquisitions. In other words: become friends with other people who buy and sell businesses.
The key is to let friends, family, and colleagues know you’re interested in buying businesses.
Different investors have different goals. When a deal isn’t the right fit for someone else, you want your name to be top of mind when that person considers who to tell about the opportunity.
Entrepreneur and private equity investor, Jay Vasantharajah, recently made a fast off-market SaaS acquisition after a former colleague told him about an upcoming company sale. The deal was to buy Viostream, an enterprise video software company.
As Jay explained in an article, “A publicly-traded Australian-based venture capital firm was looking to divest one of their portfolio companies… The opportunity lied in the fact that the VC firm simply wasn’t the right owner for the business. A company like Viostream with steady cash flows is much better suited for private ownership.”
In other words: what had been a lousy investment for a venture capital fund turned out to be an ideal investment for a private equity buyer. By having a friend with an inside scoop, Jay and his partners at Bloom Capital were able to inquire about the business and make a fast off-market purchase.
If you’re in the market for a business, start telling your network. Text your friends. Email your coworkers. Post it on social media. Join masterminds and attend relevant networking events. Let the world know what you’re looking for.
You never know what opportunities may already be within your community.
Best practices for vetting a business before you buy
Different buys Losers, growth companies, steady seller, and non-monetized
Broadly speaking, there are four states a business might be in at any given time. Depending on your strengths and goals as a soon-to-be business owner, you’ll look at the month-over-month financial trends of the last few years in business.
Then you’ll ask: are sales going down, up, or staying consistent?
- Down: Different trends appeal to different buyers. Some people look at a downward trending graph and see an opportunity to flip a business. Others looking at the same graph see a sinking ship just waiting to become a disaster—they’ll avoid trying to catch that falling knife.
- Up: Upward trending businesses are similar. Maybe the business was riding a trend that’s about to lose its appeal and suddenly come crashing down. Others see an upward trend and buy in to ride the wave. It’s always a judgment call.
- Flat: Perhaps the safest investment is in the businesses that produce consistent sales year over year. Yes, these are less flashy and exciting. But that’s precisely why they may go under the radar of other investors.
- Non-monetized: These are websites, blogs, newsletters, and software that have never generated income. These may be valuable for their brand, audience, or the quality of the product, but for some reason were never used to generate returns for the creators.
On risk: Find your unfair advantage
“High risk, high reward” isn’t the mantra of most people who achieve success. It’s more like: high reward, controlled risk.
The most successful people look for opportunities where they see a potential exponential upside, with a fairly minimal downside coexisting in one opportunity.
We call this finding your superpower: what is your unfair advantage in buying businesses?
For most, the unfair advantage is a decade of experience helping other businesses grow through SEO and copywriting. At Digital Legates, we know digital marketing. We were also willing to wait to find the right deal. “You have to be really patient. You have to take your time to find the right deal. Because as a beginner, the deal needs to be a little better than the average for you to be comfortable pulling it off.”
How much should you pay for a company?
The phrase you’ll hear a lot is “multiple of earnings.”
This effectively means the cost of a company is determined by how much annual profit it brings in.
If we were to put this into a very simple formula, it might look like this:
[Annual profit] x [determined multiple] = sale cost
So how much is a reasonable multiple to pay for a business? The range for this usually falls between 2x to 8x annual profits.
Do the work
Buying a business is a great shortcut for getting past many aspects of the startup grind. You can skip months or years of work to become an owner and operator in your own business.
But acquisitions aren’t a shortcut to everything. At the end of the day, buying a business means taking risks, outwitting competition, and finding marketing and monetization strategies that keep your business running.
Beware of personal brands
Before you buy a business, investigate how closely tied the founder is to the success of the company. Personal brands are hard to grow when the original creator steps away. If the customers really were just a loyal following, then sales can drop dramatically when that person leaves.
Look for similar experiences within the company as well. If a founder has major influence within their own company, this can translate to a workplace that doesn’t function on its own without them.
Before you buy a business, interview some of the employees who work there. Do they constantly rely on the founder for direction, answers, and day-to-day help? These are red flags—and a clear sign that the figure will need to be replaced. Are you ready to take on that risk?
Beware of scams and illegitimate businesses
There are ways to twist business metrics or give the appearance of substance without actually having a real business. Unfortunately, people try to scam aspiring business owners every day. Other times, businesses are set up so inefficiently that a proper business transfer isn’t possible without losing customers. Here are some of the most common things to look at while vetting a business:
- Is the website traffic real or coming from bots? Bots are non-human visitors to your website. (Cats? Aliens? Unfortunately, no.) Bots come in many forms and appear on websites for many reasons, both good and bad. But knowing the difference between bot traffic and human traffic can help you distinguish legitimate sites from scams.
- Are the affiliate links correct? Do they provide enough value that you’re sure the creators’ friends and family didn’t just buy through the link?
- Is the underlying software transferable? A common problem in small subscription businesses is PayPal accounts, which are personal to the user. To transfer a business that’s been using a PayPal account, the new owner has to request each customer to sign up on a new payment processor—which is almost certain to lose a lot of users.
- Is it defensible against the competition? Many affiliate stores can be set up in a day or two. They drive all their traffic through ads to the website and then sell the business while affiliate income is high. The problem is, there’s nothing stopping a dozen other people from stealing your idea—and your traffic—using the same model. It’s not easy to defend against.
Look for businesses with “moats”
“A moat is anything that is hard to copy, anything that makes it harder for a competitor to come in and steal your thunder.”
- Diverse website traffic: A business with multiple strategies for gaining website traffic is hard to replicate or disrupt. Even if one traffic source dries up, they have others to lean on.
- Diverse monetization: There’s power in having multiple income streams. This moat is safer for your business, often means safer (and more) money for the stakeholders, and is harder for competitors to copy.
- Strong search traffic: Not all marketing funnels are created equal. One of the hardest (and slowest) traffic streams to disrupt is organic search. Having a strong search presence can be a moat against competitors.
- A large (and active) email list: An email list is an audience—and it can become a business unto itself. Growing an engaged email list requires a lot of effort. It’s very hard for others to copy.
- Trademarks, patents, and intellectual property: Do you own the secret formula? Various patents and intellectual property can differentiate your business through exclusive technology or knowledge that only you have.
- A five-star listing with hundreds of online reviews: This is especially powerful in marketplaces like AppSumo and Amazon. Reviews are one of the highest forms of social proof. They show future buyers that you offer a popular product that delivers on what it promises.
Common forms of online business
Buying blogs: Information as a business
When you consider buying a blog, there are two major questions to consider: how is the blog monetized and how do readers discover it?
How is the blog monetized?
There are several common ways to monetize a blog. You can use ads, become an affiliate, sell your own digital or physical products, or offer professional services.
Once you know how the blog is monetized, you can look for low-hanging fruit in the form of under-monetized aspects of the business. Maybe the former owner only used ads and never took the time to add affiliate links or create and sell their own digital products. That could be an opportunity to increase the monthly recurring revenue.
Or maybe the current ads are under-monetized. Every ad platform compensates people differently. It may be time to renegotiate with advertisers for better rates.
How does the blog receive traffic?
Do most of the blog’s monthly readers come from social media? Paid ads? Search engines? A newsletter? Backlinks from other blogs?
Here, again, is where you want to consider risk. If most of your traffic comes from a single source, how secure is that source?
Consider the example where most of your traffic comes from a single high-traffic blog post on another website. What happens if that blog post becomes less popular or even gets deleted?
Another risk: if all your traffic comes from buying digital ads, what will you do if the ad networks double the cost to acquire more traffic?
One of the latest trends in online business is topical newsletters. These are essentially businesses built entirely on someone’s ability to create an audience around a certain topic.
Newsletter creators will choose a topic, begin publishing regularly about the topic across the web, and steadily grow an audience of subscribers who are interested in that topic.
And people buy and sell newsletters just like any other business.
Newsletters are not capital intensive. You can have multiple revenue streams off of one audience. There’s inherent leverage from an audience perspective. Newsletters are also an emerging industry. There may eventually be a lot of aggregators, but right now, it’s still the Wild West, and you always make the most money when markets are least efficient.
The margins on these newsletters are also incredible. I mean, we’re talking 50, 60, and 70 percent margins. You don’t need to run them with a bunch of people. And so every newsletter you purchase is worth 2-3x what you bought it for because of multiple revenue streams. It doesn’t really increase the backend infrastructure costs, so the ability to scale is super interesting. You just have to know how to structure the deals.
Look for under-monetized newsletters. This is extremely common. People who have built an audience are often afraid that if they ask their followers to buy something, they’ll scare them away.
That’s why many newsletters choose to monetize only using ads, which is one of the least profitable ways to build an audience-based business.
Here are other ways to monetize a newsletter:
- Create a paid subscription: Charge your subscribers a monthly or annual sum to access the contents of your newsletter.
- Sell digital products: Create ebooks, courses, and industry reports that your subscribers can buy from you.
- Sell physical products: Create physical products like clothing, gear, or gadgets that you sell to your audience.
- Affiliate partnerships: Get paid a commission for helping other companies sell their products through your newsletter. You’ll receive a kickback for every item purchased through your unique affiliate link.
- Offer professional services: Offer consulting, freelance, or coaching services to members of your newsletter.
Buying SaaS and eCommerce
Unlike blogs and newsletters, which are usually content-forward businesses that you can run on your own, a SaaS or eCommerce store can be a bit more involved. They often require technical expertise or the ability to hire skilled employees or freelancers. They also tend to have lower margins and require higher monthly expenses to run.
Buying a SaaS or eCommerce company means solving customer problems using software and products, rather than just information. Since the process is much more involved, here are just a handful of questions to ask as you consider purchasing a SaaS or eCommerce business:
- Do I have the engineering chops to fix bugs in my software?
- How will I market my business?
- Will I run this on my own or will I need to hire a team?
- How will I handle customer support?
- How well do I understand the needs of my ideal customer?
Selling an online business
You’ve grown your business. Now, it’s time to sell.
You could reverse-engineer the buy section to realize the best practices for selling. But for the sake of simplicity, here’s what you should consider as you prepare to sell your online business.
Selling a business comes down to two core actions: exit planning and finding a buyer.
The best sales happen when all your ducks are in a row. As you might have guessed from the previous sections, buying a business is risky. If a potential buyer sees small mistakes here and there, they’ll wonder what other mistakes in your business they’re overlooking.
Here’s what to get right.
Avoid taking shortcuts on your profit and loss statements
If elements of your business are intermingled with your personal bank accounts or other owned business accounts, now is the time to perform due diligence. Make sure the business you’re trying to sell uses financial best practices, showing every number, naming every account, and making sure everything adds up on your profit and loss statements.
Don’t overcut expenses
You want your business to appear efficient. But efficiency can be taken too far. Yes, you can cut unnecessary expenses like the experimental marketing budget. But don’t cut core aspects of the business like personnel.
Stay active in the company until it’s out of your hands
It’s also common for entrepreneurs to start focusing on their next project too early. When they‘ve decided to sell, they stop investing in the business they’re now trying to sell. The business stops performing as well, revenue drops, and customers start leaving bad reviews online. To an incoming buyer, these are red flags that can stop a purchase.
As a rule, don’t stop investing in your business until it’s out of your hands so that you can get the best bang for your buck.
Build a not-so-personal brand
Lifestyle businesses are often tied to the personal brand of the founder. When the founder steps away, the business takes a massive hit because sales were so closely tied to their personality or taste.
Similarly, businesses that rely on founders to constantly provide input and ideas may be hard to sell. In the buying section, we recommended interviewing employees before purchasing a brand. Potential owners will likely do the same. If all the employees say that they could hardly do their job without the founder, that’s a really bad sign.
Before you sell, make sure your business can stay afloat on its own. If you take a month-long break as a founder, could the business keep running without a hiccup? That’s a sign of a business that’s ready to sell for top dollar
Beware of “emotional equity”
You’ve grown a business you’re proud of. Unfortunately, sometimes the business won’t be valued as highly as you feel like it should be based on the countless hours you’ve put into building it.
Emotional equity, it’s when a founder has overvalued their business because of all the hard work they put into creating it.
Don’t overlook easy monetization opportunities
We get entrepreneurs looking to sell their business, and they’re like, ‘I have 100,000 subscribers on my email list, how much does that increase the value of my business?’ And we always ask them, ‘How much revenue does your email list create?’ Oftentimes they’ll say it brings in nothing—because they haven’t actually sent a single email.
In these situations where business owners don’t use their email, they’re actually hurting their valuation. These founders would have been better off just sending their website traffic to a page where someone could buy something right away instead of an email capture form for a newsletter they never use. But when an email is used effectively, it can be a dramatic boost to your valuation.
Should you sell on your own or through a broker?
The people interviewed for this guide were split exactly down the middle when it came to whether to use a broker for buying or selling businesses. There are clear benefits to working with one, but there can also be drawbacks, depending on your goals.
From the perspective of a buyer, the best deals almost always exist where there’s the least competition for an asset. It’s why “off-market deal” is such a glorified phrase in the world of investing. But the benefit of off-market deals for a buyer is often flipped to the negative for the seller.
When you use a broker, they know how to value your business correctly. They have a buyer network already built and they already have a system to weed out all the tire kickers. The main reason a buyer wants private deals is that they’re hoping you don’t know the value of your business. They want that discount.
They want to find people who don’t know what they’re worth.”
For sellers, using a broker tends to help you gain access to a world of buyers that most business owners would otherwise struggle to find on their own. Brokers have a list of people ready to buy. The big problem is working with a middleman who might take a significant portion of the transaction.
The primary downside for buyers is competition. The potential to have to bid against other acquirers means paying a higher price for deals—and having to make decisions more quickly. On the other hand, brokers provide elements of protection and due diligence. Especially for first-time buyers, working with a broker just puts one more layer of experience between yourself and the seller.
Should you work with a broker? It depends.
Do the work you love
When many people think of selling a company, they imagine being handed a single massive check that allows them to retire.
When they think of buying a company, they imagine owning an asset that pays all their bills so they never have to work again.
It’s tempting to think this way, but it’s also pretty idealistic. Opportunities like these might be there. But perhaps the best approach is to simply find work you love doing—and then do that work the rest of your life.
At the end of the day, success in business cannot be bought. Whether you start your business from scratch or take one over from another entrepreneur, mistakes will be made and lessons will be learned.
But that’s the road of entrepreneurship. You learn your superpowers through the daily grind. Over time, you notice which skills truly set you apart—and what work you’d gladly do for free.
You can take those skills into every venture. Ultimately, even if you sell your company for hundreds of millions and never have to work again, most of us will just revert to doing the meaningful work that we would have done for free all along.
So don’t wait until you’re retired to find those skills. Find them today and make retirement irrelevant