The process of acquiring an online business has the potential to be confusing and difficult, but with the appropriate understanding from the outset, it can be fun, quick, and simple. As a general rule, you should always attempt to engage with a reputable online business broker when purchasing a company.
With a growing number of first-time purchasers going from the offline world to the profitable online market, the acquisition procedure frequently raises a number of problems. In this article, we break down and explain a detailed guide to buying an online business.
Determine the Business Opportunity
If you have checked the broker's business listings and discovered an appealing website, you should contact the broker either directly or via their website. Alternately, the majority of brokers maintain a mailing list, and if you sign up, you will be quickly notified of new postings.
When requesting further information for the first time, you will typically be asked to sign a non-disclosure agreement (NDA). This safeguards the seller's information and enables the broker to provide you with information on all future postings. In some instances, you may be required to provide additional eligibility documentation, such as proof of money.
You should be prepared to make an offer for the business after examining the prospectus, following up with questions, and performing your own background research.
This is formalized with a letter of interest (LOI), which is a standard-form non-binding agreement between buyer and seller to move forward in good faith with specific offer terms.
After an offer is accepted, the deal continues through due diligence (DD). Due diligence for an online business differs differently from that of a brick-and-mortar business, which sometimes causes confusion among first-time purchasers.
Obviously, the premise of fact-checking remains the same, but in the absence of tangible assets and a significantly different client acquisition process. Due diligence is typically concentrated on the following areas:
Financials
A competent broker will conduct thorough pre-listing due diligence on the financials and then supply the buyer with all supporting data during due diligence. Always organize a live screen-share with the seller to walk through the website's backend and associated payment platform as a second step of verification. This will establish ownership and validate the numbers you've been examining.
Maintenance
Investors must assess the business owner's daily, weekly, and monthly tasks in order to correctly account for the cost and effort associated with outsourcing or assuming these workstreams. It is essential to examine and comprehend the difficulty of the duties that the existing owner is executing if you intend to perform them internally.
Traffic
Buyers should examine the traffic sources, backlink profile, and visitor data to ensure that everything is in order. Most respected brokers will supply the buyer with access to Google Analytics for this purpose.
Typically, the broker will prepare the Asset Purchase Agreement (APA) concurrently with the due diligence process. This is derived from a standard-form template and then adjusted to the particulars of each transaction.
Buyer and seller formalize inside the contract, among other things, the terms of the consideration, the assets to be transferred, the scope of the non-compete, and the training and support for the buyer after the sale.
Helpful reminder: Always have your legal counsel evaluate the deal independently before signing.
Transfer & Escrow
Once due diligence has been completed and the APA is signed, the transaction proceeds into closing. Most well-established brokers will use an escrow process to facilitate the secure funding of the transaction and transfer of assets. The go-to solution below $500K is usually Escrow.com and most tend to use attorney escrow above this value.
Naturally, first-time buyers quite often ask what protection is afforded to them during this process. In the very rare case that assets have been misrepresented or not transferred in entirety, the buyer can notify the escrow agent during the inspection period. If there is a legitimate misrepresentation, the transaction will be reversed.
Training & Support
After the deal has been finalized, the seller usually provides the buyer with training and support for four weeks to familiarize them with running the company. Sometimes, in deals involving contingent consideration or seller financing, the seller will stay heavily involved, so that the buyer and seller may reach their performance or education objectives.
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