If you’re anything like me, you’ve always dreamed of owning your own business.
You’ve dreamed of having more control over your life.
Control over your time.
Control over your income.
Control over when you work and what you work on.
To accomplish this dream, most people assume they need to start a business from scratch.
But that can be terrifying.
What if my idea sucks?
What if no one wants to pay for the product I’m offering?
How will I feed my family with no income?
These questions create doubt. And this doubt prevents us from taking action.
Well what if I told you there was another way?
An alternative approach to finally run your own business, without sacrificing years of your life and taking significant risk to get there.
Oh and guess what…
This approach will allow you to own and operate your business from anywhere in the world.
In this Free Guide, I will breakdown the exact, step-by-step process countless entrepreneurs are following to find, diligence and acquire profitable online businesses.
Businesses that have product-market fit, a team in place to run the daily operations and a history of generating positive cashflow.
You will learn:
- Why buying an established online business is such a good idea
- Where you can find the best internet businesses for sale
- How to value an online business
- The step-by-step process to buy a small business
- And so much more
So without further ado, let’s dive in!
Top 5 reasons to buy an online business
1. Operate From Anywhere
Unlike traditional brick-in-mortar, internet businesses can be run from anywhere in the world with an internet connection. And given the emergence of freelance marketplaces like Fiverr and Upwork, operators can now find talent across the globe. Entrepreneurs are no longer limited by where they live.
2. Established Product-Market Fit
When you start a new business you are taking a big risk. You likely have no customers and no revenue — just costs. You are investing your time and money into something that is not yet proven. By acquiring an established business, you know there is proven demand for your product or service. As they say, going from 0 to 1 is often more challenging than going from 1 to 100.
3. Team & Systems in Place
Hiring talent and setting up basic administrative processes can be a major time suck when starting a new business. An existing business should already have much of that in place and the documentation (Standard Operating Procedures, or “SOPs”) to support it. These systems can save you months, if not years, in administrative work, allowing you to focus on growing your business, rather than simply maintaining it.
4. Immediate Cashflow
Depending on your acquisition strategy, it’s quite possible to find and acquire profitable online businesses. With the cashflow they produce you can pay yourself a salary, hire new talent, or invest in marketing to grow the business.
5. Ability to Access Leverage
The majority of small businesses can be acquired using alternative financing sources. Perhaps the most common source of alternative financing is debt, which can only be accessed if the business has a history of producing steady cashflow. It is very difficult, if not impossible, to use debt to start a new business. You will either need to supply the startup capital yourself, or you will give up a significant piece of ownership to raise money from outside investors.
What types of internet businesses can you buy?
Leveraging a virtual storefront to sell physical goods to consumers. eCommerce companies do not have a physical storefront. Instead, they use the internet to market their products to consumers. Once a customer places an order, eCommerce companies leverage a vast network of third party fulfillment providers to deliver the product directly to the customer’s front door.
Most common types of eCommerce companies:
Products are sold directly through the company’s own website. The company is responsible for delivering these products directly to the customer (often leveraging a third party logistics “3PL” company). These websites are powered by Content Management System providers such as Shopify, Wix or Squarespace. DTC companies drive traffic to their website from Google, Facebook, TikTok, Pinterest, or other media platforms.
Amazon FBA “Fulfilled by Amazon”
Products are sold through Amazon’s website and delivered to customers by Amazon. More than 60% of the goods Amazon sells are sold by 3rd party merchants — or businesses with their own private label brand. Generally speaking, it is much easier to attract new customers by selling through Amazon’s platform, particularly since consumers often visit Amazon with strong intent to purchase.
Other Marketplace Businesses
Products are sold through other, non-Amazon online marketplaces. Since Amazon is the clear and unrivaled leader among eCommerce marketplaces, all other sites fall into a category of their own. Examples include Etsy, Walmart and eBay.
Publishing content — written, oral or video — that is viewed by consumers. “Blogging” would technically fit under this category. Content businesses can be very capitally efficient given you do not need to purchase physical inventory, operate a warehouse or fulfill merchandise. However, these businesses can be more challenging to monetize.
An attractive Content Site will monetize its content in multiple ways:
Advertisements placed on the content itself. Every time a viewer sees or clicks on a display ad the site owner gets paid.
Links from the content to promote the products of other businesses. The content provider earns an affiliate commission for every sale she helps generate. This can be incredibly powerful for subscription businesses where the affiliate retains a piece of the revenue generated from that customer over the life of their subscription.
Customers pay a fee to access content. This content can be pretty much anything the audience is willing to pay for. Paid courses have risen in popularity with the emergence of EdTech platforms like Kajabi, Teachable and Gumroad that make it easy for creators to monetize their knowledge. A separate, but related, model is freemium newsletters. Writers will publish free content on sites like Substack, acquire users and upsell them to a paid tier overtime.
Selling consumers access to software that performs a service. There are literally thousands of SaaS companies that operate today. SaaS businesses can be very high margin. Once the software is written, the product is marketable and customers are paying for it, there’s little ongoing capital that is required to sustain it. Moreover, customers have become conditioned to paying for software on a subscription basis, which typically results in a much higher customer lifetime value.
💡 Pro Tip: It is not uncommon for an online business to make money from two or more of these business models at once. For example, Peloton sells physical bikes direct-to-consumer. They also monetize access to spin classes through a software subscription (mix between SaaS and Content). In fact the more diversified a business’ traffic base and revenue streams, the higher its value.
Where can you find online businesses for sale?
MicroAcquire prides itself on being the world’s most founder-friendly startup acquisition marketplace. Founded in 2020, the platform already boasts more than 120,000 qualified Buyers, all of whom are required to make an annual payment to access the majority of listings on the marketplace.
- Buyers ready to acquire a business within 6-12 months
- Buyers looking for SaaS businesses
- Buyers looking for specific technology to tuck into their existing platform
- Relatively high annual fee to access listings
- Deep and highly qualified Buyer pool to compete with
- Given majority of listings are for SaaS businesses, valuations can be quite high
💡 Pro Tip: MicroAcquire is full of quality SaaS businesses. Their annual fee for Buyers is comparatively high ($390-$780 per year), but actually quite small when you consider the importance of buying the right business. You can find great businesses here, but you need to be careful not to overpay. The platform can be very competitive for Buyers. Still, I would strongly recommend every serious entrepreneur subscribe to MicroAcquire.
Empire Flippers is one of the top free marketplaces for buying and selling online businesses. The site is very transparent about the deal sizes and multiples being paid for the businesses they sell. Since inception, Empire Flippers has completed more than 2,000 deals for an aggregate value of $400 million. The site offers all types of online businesses, but specializes in eCommerce and Content Marketing.
- Buyers looking for smaller deal sizes (less than $1 million)
- Buyers looking for an Amazon FBA or Direct-to-Consumer eCommerce business
- Buyers looking for hand holding throughout the buying process
- Buyers who do not want to pay a fee to see deals
- Entrepreneurs looking for a pulse on the health of small business valuations
- Relatively easy to list a website for sale, so may need to filter through many listings to find the gems
- The site has a separate venture arm “EF Capital” that is able to buy websites listed on the Empire Flippers marketplace (potentially a conflict of interest)
- Requires you to show proof of funds before accessing deal info
💡 Pro Tip: Empire Flippers has built a strong reputation in the online marketplace space. The platform is very transparent about deal sizes and valuation, which means sellers should be well informed on the fair value of their business before selling. Since it’s free to use, the site is a great place to start for the casual entrepreneur. I would strongly recommend Empire Flippers for anyone looking for an Amazon FBA business as they seem to have the largest and best selection.
Flippa is one of the oldest marketplaces for buying, selling (and flipping) websites. As of this writing, there are over 6,000 active listings on the site across every online category. Since inception, Flippa has sold more than 300,000 digital assets, far more than the other two marketplaces listed here. The company specializes in low priced digital assets.
- Buyers with a small acquisition budget (less than $100K)
- Buyers looking for an inexpensive domain with a long history (for SEO juice)
- Casual Buyers who do not want to pay a fee to see deals
- Huge number of listings that are not well vetted
- Small number of large (greater than $1M) deal sizes
💡 Pro Tip: Flippa is best for an entrepreneur looking to acquire an aged domain to accelerate their SEO growth for a new or existing business. Also, the site has a large selection of micro businesses (less than $100K), which may be appealing for new acquisition entrepreneurs. Outside of those two groups of Buyers, I would generally recommend focusing elsewhere to find the best online businesses.
Quiet Light is a full-service brokerage for online businesses. Their team of “entrepreneurs turned brokers” are all well connected and experienced small business operators. Each broker functions independently, but they share the same Buyer pool. It is quite easy to connect with Quiet Light through their website and you’ll start receiving acquisition opportunities in your inbox right away.
- First time Buyers
- Buyers looking for highly vetted, reasonably priced businesses
- Buyers looking for eCommerce businesses, specifically
- Buyers looking for larger deal sizes
- Relatively small selection of deals; generally 3-4 new listings per week
- Given the small number of deals, the best businesses can go quickly
- Very few SaaS deals
💡 Pro Tip: Subscribing to Quiet Light’s Buyer List is an absolute no brainer. It’s completely free and you’ll start receiving quality online businesses for sale immediately. In my experience, Quiet Light brokers are very responsive and helpful. Unfortunately, Quiet Light only lists 20-30 deals at any given time, so I always recommend augmenting your search with other marketplaces as well.
FE International prides itself as being a global M&A advisor of eCommerce, SaaS and Content businesses. According to their website, “FE turns down 90%+ of the leads it gets and only takes on businesses that it feels strongly about and that pass our rigorous diligence pre-marketing.” In other words, FE brands itself as the most selective broker focusing on the largest online businesses.
- Buyers looking for larger, highly vetted online businesses
- International investors
- Lowest volume of new deals
- Very few SaaS deals
💡 Pro Tip: It never hurts to subscribe to FE International’s Buyer List. That said, in my experience the volume and quality of Quiet Light deals are better.
How much should you pay for an online business?
Calculate Seller’s Discretionary Earnings
Seller’s Discretionary Earnings “SDE” can be calculated by taking the business’ last twelve month “LTM” net income and adding back owner’s expenses — or spend that does not impact the company’s ongoing operations.
Examples of items that may be added back to net income include:
- Interest payments & taxes
- Owner’s salary
- Owner’s automobile costs
- Owner’s meals & entertainment
- Owner’s tax prep / legal fees
- Owner’s home office deduction
- Corporate retreats
- One-time product development or creative spend
- One-time legal spend (eg. setting up a trademark)
- Credit card points (technically non-cash, but a benefit the Buyer will receive)
Seller’s Discretionary Earnings is intended to reflect the true, recurring profitability of the business. Ultimately whether or not the new owners pay themselves a salary, for example, does not necessarily reflect the real economic output of the business.
Brokers will almost always work with the seller to prepare an accurate SDE figure. It is your job as the Buyer to diligence that work and poke holes.
For example, does the Seller perform any ongoing services that are essential to operate the business? In other words, will you as the Buyer need to hire another worker to perform those services? If so, you may be able to argue a portion of the owner’s salary should not be added back to SDE because without their ongoing involvement, the business would not continue to operate.
Generally speaking, valuation will be based on the Last Twelve Month “LTM” SDE. This is not always the case, particularly in the event of one-time business disruptions that do not reflect the ongoing performance of the business. An example of this is an inventory stock-out on a popular item for an eCommerce business. Often the broker will adjust the SDE to assume a stock out had not occurred.
Apply a Multiple to the Company’s SDE
Once you have calculated an accurate SDE figure, the next step is to determine how much you are willing to pay for that SDE. Your willingness to pay is generally expressed as a “multiple” of that SDE. Multiples are generally quoted as annual figures. For example, if you offer $100,000 for a business generating $25,000 in SDE, you are offering a 4X multiple for the business ($100,000 divided by $25,000).
Applying the correct multiple to a business is a very subjective exercise and usually a point of serious negotiation with the Seller.
Here are a few attributes to consider when determining what multiple you are willing to pay for a business:
Monetization / Business Model
Generally speaking, the type of business you are acquiring will have a large effect on the multiple you should expect to pay.
SaaS businesses often fetch the highest sales multiple among online businesses. That is because SaaS businesses can be incredibly asset-lite (no inventory and minimal required headcount) and often produce the highest customer lifetime values (given most SaaS businesses operate on recurring billing). The fastest growing SaaS businesses are valued based on a multiple of their revenue, rather than SDE. That is because certain SaaS companies generate such high customer lifetime values that the owner chooses to spend very aggressively on marketing in the near-term to build a large base of recurring revenue that will drive profits in the future. Prospective Buyers are often willing to pay a premium for companies with attractive unit economics that are growing revenues quickly.
Content businesses are generally the next most attractive from a valuation standpoint. These businesses are also asset-lite, but monetization may be less predictable, or diversified, than a SaaS model. There can be quite a wide range of values placed on a Content business based on the scale and diversity of its revenue / traffic base.
eCommerce businesses generally achieve the lowest multiple due to their heavy ongoing capital requirements (inventory, warehousing, fulfillment, platform fees, etc.). Again, valuations can vary widely based on the factors covered below. For example, an eCommerce business that derives 100% of its revenue from a single channel (eg. Amazon FBA) may be less valuable than the same size business with 50% of revenue from its own website (DTC) and 50% from several other marketplaces, including Amazon.
Years in Operation
The longer a business has been around the more likely it is to stay in business. All else equal, there is more risk in acquiring a business with 2 years of operational history than one with 10 years of steady performance.
Barriers to Entry (IP)
How difficult would it be for a competitor to take share from the business? Does the business have any Intellectual Property “IP” like patents, trademarks or copyrights that protect it from copy-cats? Does the business have a large customer base built over 15 years? Are there proprietary algorithms or systems that would be difficult for outsiders to replicate? These are all questions that speak to the business’ moat — or barrier to entry. All else equal, the greater the barrier to entry, the more valuable a business.
In theory, larger companies carry less risk since they are often less dependent on a single customer, supplier, or acquisition channel. Scale also unlocks efficiencies on the cost side that may not be available to smaller companies. Again, all else equal, the larger the business the more valuable it is.
Further to the point above, the more diversified a company’s traffic, revenue and/or supply chain, the less risk to the company’s cashflow. If a business with 100 customers all paying the same amount loses a single customer, that isn’t a big deal. However, if a similar business with only 5 customers loses one, well that’s likely a much bigger problem. All else equal, more diversified businesses will earn higher valuations.
The final attribute that can affect the multiple you should pay for a business is its growth rate. Generally speaking, the faster the business is growing the more it’s current SDE should be worth. The idea here is quite simple: if a company’s revenue is growing at 50%, it is very likely the SDE of the business will be much higher in the next twelve months “NTM” than it was in the last twelve months “LTM”. As a result, Buyers will be willing to pay a premium multiple on today’s, LTM SDE.
💡 Putting the Pieces Together: As you can imagine, determining how much you should pay for an asset is a mix of art and science. Focus on the asset’s growth potential. I’ve seen Buyers walk away from a deal over half a turn (0.5x) on the multiple. They may have justification for the lower walk-in valuation, but you should ultimately expect to add significant value to the business post-closing. If you execute your post-closing strategy, the difference between half a turn on the purchase price will not materially affect your overall return on the investment.
What is the complete process for buying an internet business?
1. Find the Asset
The first step is to find the asset. I’ve written about the many great resources to find online businesses for sale. Cast a wide net, subscribe to all newsletters and set filters on each marketplace to be alerted of relevant new listings. Speed is absolutely critical, so be sure to monitor your inbox daily for new opportunities.
2. Review Marketing Materials
If an opportunity catches your eye, start by reviewing the publicly available disclosures. This will often include the business’ asking price, the implied asking multiple, historical financials, a link to the website, traffic data, etc.
You may need to execute a Non-Disclosure Agreement “NDA” to access additional, non-public information. An NDA protects the Seller from Buyers using sensitive information against them. NDA’s are standard legal documents.
You can expect more information to be available after executing an NDA. Brokerages such as Quiet Light or FE International will provide an Offering Memorandum, or Investment Summary, that covers many of the most important aspects of the deal.
3. Intro Call With Seller
Once you’ve identified an interesting business and reviewed the available marketing disclosures, you should arrange a call with the Seller. In this initial conversation you will want to establish your credibility as a potential acquirer and double click on the most important aspects of the business. You can achieve both of these objectives by asking good questions.
Here are some areas to focus:
- Why is the Seller selling?
- What are the short and long-term growth opportunities for the business?
- How do these growth opportunities fit with your unique interests and skillsets?
- Who is required to run the business day-to-day?
- How might the business run more efficiently?
- What are the business’ competitive advantages / barriers to entry?
- What value do you unlock by acquiring this business rather than competing with it?
- What is important that the Seller see in the offer? Price, Consideration, Timing, etc.
- Where are other parties at in the sales process? Has the Seller received any offers?
4. Request Additional Diligence
After a conversation or two with the Seller, you should be at a point where you need additional data to (1) confirm your interest in the asset and (2) arrive at a fair valuation for the business.
The best approach is to consolidate all of your diligence requests into a list that you share with the Seller. Be careful not to request information that is already available via the Offering Memorandum or other marketing materials — comes across unprofessional.
Your request list should be comprehensive. You don’t want to bother the Seller multiple times. It is much more efficient to be thoughtful upfront so you request everything you need to potentially moving forward with an offer.
5. Prepare a Letter of Intent “LOI”
Assuming the Seller addresses your diligence requests and you build conviction, you may be ready to formalize an offer for the business. You will need to prepare a Letter of Intent “LOI” to submit to the Seller (or broker, depending).
An LOI is a non-binding document meant to formalize your sincere interest in the asset and establish a mutual understanding on price. In my experience, you can often draft a strong LOI without paying an attorney. You will most certainly incur plenty of legal fees to finalize the closing documents later in the process. Obviously, if you would feel more comfortable reviewing an LOI with your attorney, that is completely reasonable.
At a minimum, a good Letter of Intent should include:
- Your experience & qualifications – convince the Seller you are qualified
- Your team (or advisors) and their background – show the Seller you’re not doing this alone
- The reason for your interest – be original and sincere!
- Brief thoughts on your strategy post-closing
- Enterprise valuation (offer price)
- The form of consideration (cash, debt, earn-out, other)
- Outstanding diligence you need to complete before closing
- Time you will need to complete that diligence
- Exclusivity period – time you request to complete diligence without the Seller working with (or entertaining offers from) other parties
💡 Pro Tip: Although a Letter of Intent is technically non-binding, you want to put together an offer that you intend to execute, particularly if no red flags emerge during closing diligence. You should rule out as many red flags pre-LOI and complete all negotiations on price and consideration before executing the LOI. Haggling on price or failing to secure financing post-LOI can irreparably damage your reputation as a Buyer.
6. Secure Financing
You will want to start lining up financing before executing the Letter of Intent, particularly if you are funding a portion of the purchase price with debt. A lender can send you a Pre-Qualification Letter, which is a simple document provided by the bank with the funds you are eligible to borrow, for how long and at what interest rate. A Pre-Qualification Letter is not always required before submitting the LOI, but it is a good way to give the Seller confidence you will deliver on the terms outlined in your Letter of Intent.
However, once the LOI is fully executed, you will need to secure funding. Let’s look at the process for several of the most common capital sources:
Cash on Hand
Make sure you have cash in a bank account that is ready to be sent to the Seller at closing. It can be a good idea to have the cash available several days before closing to avoid last minute delays.
There are many different ways to use debt to help finance a small business acquisition. Each lender will have its own unique process that may take weeks to complete. For that reason I recommend starting this process early and asking for an extended diligence timeline in your LOI. A lender’s inability to complete their internal processes can absolutely jeopardize a deal. Plan for the worst and hope for the best.
If the Seller is financing a portion of the sales price, you will need to prepare a Promissory Note to be included alongside the other Closing Documents. The Promissory Note should specify the borrower (You / Your Company / The Buyer), the lender (The Seller) and the terms of the agreement: size of the loan, repayment period, interest rate, etc. Your attorney should be able to prepare a Promissory Note for your review.
An earn-out is a common way to align the incentives of the Buyer and the Seller. Earn-outs come in a variety of shapes and sizes. As the Buyer, you will want the earn-out to be tied to performance over and above expectations. If the business outperforms, you should be very willing to share a piece of that upside with the Seller. Earn-outs will be included in the Asset Purchase agreement, which your attorney will draft.
7. Prepare Closing Documents
In parallel to step 6, you will also begin working closely with your attorney to prepare the Closing Documents. Common closing documents include:
- Asset Purchase Agreement “APA”
- Transition Services Agreement “TSA”
- Bill of Sale
- IP Assignment
- Escrow Agreement
Hire a good attorney and place your trust in their hands. They will know exactly what documents you need.
Depending on the size and complexity of the deal, you should expect an attorney to spend anywhere from 10 hours, to several months, on your deal. You should expect to pay at least $300 per hour for a competent M&A attorney (hourly rates can go much higher than that). And remember, if the deal falls through you will still owe these attorney fees. That’s why I recommend front-loading all critical diligence BEFORE executing an LOI and engaging an attorney.
This is also a good time to hire experts to help with other key diligence areas. Those experts may include tax accountants, finance professionals, tech developers, SEO experts, content marketing experts, etc. If you have made it this far into the transaction it means you are very likely going to close the deal and invest significant time and capital. As such, you shouldn’t be afraid to spend a couple percentage points to protect you from making the wrong investment decision.
8. Close the Transaction
Closing an online business can be quite anticlimactic. You’ll work for months to get to that point and can often complete the closing in an hour or less.
The process will look something like this:
- All participants join a closing call and exchanges pleasantries.
- There’s a bit of nervous enthusiasm – everyone’s excited!
- You and the Seller electronically sign the Closing Documents.
- The escrow agent handles wiring the funds based on the terms set forth in the APA.
- The Seller and Buyer work together to transfer any important assets.
Once the funds are wired, the documents signed and the critical assets transferred, you’re all done – congrats, you’re officially an online business owner!
If you made it this far congratulations, you must be really serious about acquiring an online business! Trust me, that may be the best career decision you will ever make.
This article just scratches the surface on how to execute a successful small business transaction.
If you’re serious about this path and want to learn more, sign up for our weekly newsletter and send us an email once you do! We’re here to help.
How much are broker fees and who pays them?
Online brokers typically earn a commission on any business they sell. Depending on the brokerage, this commission can range from 5% to 10% or more of the purchase price (paid by the Seller).
As a Buyer, the only fees you will absolutely need to pay are your attorney fees. However, you may also decide to consult 3rd party experts to help diligence areas of the business that you are less familiar with, such as finance, tax, technology, or growth marketing (SEO. SEM, etc.).