Wouldn’t it be easier if you could just buy a business that’s already profitable instead of building one from scratch?
Yeah, me too.
After several business failures, I just decided to buy one that’s already making a profit to see why their business was working and mine didn’t.
I’ve bought a few businesses on flippa.com and I’ve learned some great lessons I can share with you.
As well as mistakes you can avoid.
1. Just because its been listed on Flippa several times doesn’t mean its bad
Sometimes the owner will have unrealistic expectations about the value of the business and therefore it will be listed and relisted several times because no one bids as high enough to meet the reserve.
BTW if you prefer to watch I’ve made a video on all this here:
In fact, that’s a good thing because it means they’re more likely to be fed up and motivated to sell.
I once bought a business on flippa.com that was relisted like 4 times.
It made some good cash and I ended up selling it a couple of years later for more than I bought it.
2. Just because its desired by everyone doesn’t mean its good
Sometimes if a niche or business model is trending then people will be all over it. But that means you’ll have more competition and that means you’re more likely to overpay for the business if you ever get into a bidding war.
Usually, when buying a business you want a motivated seller. You don’t want to be a motivated buyer because then you’re more likely to overpay.
This is what I did with one business I wanted so badly. I ended up overpaying. (Actually, I shouldn’t have bought it in the first place… but… even if it was good I still overpaid).
3. Sometimes if it is not wanted by anyone then maybe its bad
I remember I once bought a business because of the revenue it achieved but didn’t have that much attention. I thought I struck gold but if I did a little research I would have figured out I’m making a huge mistake.
I ended up buying the business for a “bargain”. It was an online store selling fidget spinners when the trend was already dead. I’d like to think I reclaimed some losses after a few months (well I tried) before I shut it down.
So ask yourself. What could be the reason behind the little interest from buyers? You can even check the questions at the bottom of the listing. They sometimes help.
4. SEO takes time and a lot of investment
Now one thing I always look for an online business is if it ranks well on Google. Because that means I get to get free traffic from Google without having to spend anything on marketing. Of course, investing in marketing is great it becomes somewhat optional and it also means I don’t need to factor in that much cash for marketing as well.
But here’s the thing if you’re buying a business and you think you’re going to make it rank in record speed then you’re dreaming. I’ve hired several SEO experts and agencies and none of them get you any results for months.
So if the business your buying doesn’t rank well on Google then make sure you have a marketing budget set aside as well.
It doesn’t NEED to rank for SEO. But I’m just telling you to have a budget set aside if it doesn’t.
5. Research the niche to see if its growing or dying
Adding onto my earlier point on buying a business in a dying niche. Make sure the niche is growing. Ideally, its best to be in a niche that’s going to last for a long time and not a trending fad that will die.
Ideally, you want a growing market or a market that will last long or has always been there. Not something that will die in a few months.
You can check how demand by searching on Google trends.
I would also recommend a Google search of “[Niche] Industry growth” to see what’s going on.
6. Do you Due diligence and Bombard the seller with 101 questions
This is the most important point. Due diligence. A lot of mistakes can be avoided by just bombarding the seller with questions. Don’t hold back or be shy with the questions. Because if there’s something wrong with the business they need to tell you about it upfront. Like Dan Pena says “the more you investigate the less you invest”.
Here are a few questions you can ask the seller:
- When and how did the company start?
- Why you want to sell?
- If one thing to fix in the company, what would it be?
- How do you get your customers right now?
- What skills are required to run the day-to-day?
Bonus tip: Never release the payment to the seller until they’ve delivered everything they’ve promised.
7. Think of Who Will Run the Business and If You Can Afford It
Okay so once you buy the business who’s going to run it? Do you know what the day to day involves and how the previous owner was running it? Do you even have the time to run it yourself? If not what skills are needed to run the day-to-day? Can you afford to outsource and is the business making enough for you to even hire?
If it just needs a virtual assistant and the average cost per hour for a virtual assistant is $5/hr then is the business making enough to cover that? I know it sounds silly to think about the $5/hr but if you’re buying a small business that’s only making a $1-5K and you require a lot of work then those VA costs can really add up so do the maths upfront.
Buying a business is fun and rewarding but it can also be costly and painful if you buy the wrong business. So make sure you do your due diligence, understand what’s involved in the day-to-day operations, and never be a motivated buyer otherwise you could end up overpaying.
Remember its a business and the only thing that should influence your decision is the profit. It’s all about the profit it makes.
Find good businesses from motivated sellers and put in offers.
And very soon you’ll own your own profitable online business.