Taking risks is mandatory when it comes to business. Whether you are new to the business world or a businessman with years of experience, you will often find yourself in situations that demand some risk if you want to profit. That is the “good” kind of risk-taking.
On the other hand, there are situations that you should avoid, were risking it all just isn’t worth it. If you still can’t distinguish those situations from the other ones, don’t worry. We know that digital acquisitions require knowledge and that’s where this article will go over some of the risks that you’ll want to avoid when buying an online business.
Buying an Online Business That’s Completely Wrong for You
The first risk that you need to avoid when buying an online business, is buying something that doesn’t match your interests. It doesn’t matter if you want to hire a manager to do most of the work or if you are planning to do it yourself, this mistake is likely to curtail the company’s growth.
You need to find an online business that you can be passionate about. After all, one of the things that entrepreneurs cherish is the choice to work on something that appeals to them. With that in mind, find a company that you share interests with and that matches your personality.
Not Researching the Seller
This mistake is incredibly common when new entrepreneurs decide to buy online businesses. They see an offer that looks simply delicious to them as it fits their budget and/or other goals, not realizing what lies ahead.
If an interesting offer catches your eye, be sure to research the seller as much as you can. Maybe the seller just wants to get out of a business that’s broken beyond repair and that’s currently in some stage of going under. Once you become the captain of that ship, you will realize what you’ve got yourself into.
Another risk is that you will end up competing against your seller after the sale. The seller could just be selling to start something even bigger. Since the seller knows what they are selling, he could be a potential mountain you will have to climb for your new online business to succeed.
Not Processing and Analyzing Chargebacks or Disputes
Every online company has found itself in this situation multiple times since its existence. Errors, shipping delays, carrier delays that are out of the company’s control, customer change of mind, you name it. Many things can go wrong when it comes to shipping, especially if you are shipping all across the world.
That will result in dissatisfied customers and bad company reviews. Since we already discussed that becoming a captain of a sinking ship is a fool’s errand, you need to do a little bit more research.
This time you will be researching the reviews that previous customers left about the company’s website. Take your time and go through as many as possible. Once you’ve done that, you should be able to get a full picture of the company you are trying to buy.
High Website Maintenance
There are unavoidable website maintenance routines and procedures that have to be done every day for a site to work properly. What you should do before buying an online business is contact its current owner and ask them about their current maintenance routines.
That way you will be able to figure out the number of resources you will need to dedicate to the website’s maintenance every week. If it is too much for you to shoulder, you might have to figure out if you can afford to hire a team for the job for you, or simply choose a different online business.
Going Over Your Budget
Before you do anything, you have to know precisely what your budget is and just how much money you are willing to pay for a specific online business. Many entrepreneurs make the mistake of going over budget.
They see an interesting online business offer that suits their intentions, but at a price, that’s way over their budget. What do they do? They decide to risk it thinking that it will work out later. The most usual scenario is that it never does.
Avoid going into debt, potential bankruptcy, and risking your entire team’s work, and simply either wait until you have sufficient funds or move on to the next online business offer.
Not Having a Good Purchase Contract
Once you find the perfect online business that you would like to purchase, it is time to sign the purchase contract. Before signing, you need to talk with the current owner and lay out your terms. You should be concerned about the property, assets, stock, bills, etc.
It would be wise that you hire a corporate lawyer with years of experience and first consult with them or let them oversee the entire process.
Not Knowing the Value of an Online Business
This step will prevent you from losing extra money when in reality, you don’t have to. There are business owners who could trick you into buying their online business at a price that’s more than what the business is worth.
To avoid that mistake, you should consider doing a detailed evaluation and financial analysis of the business that you would like to buy.
With that being said, you will need to look up or request the company’s profit and loss statement, key assets, balance sheets, cash flow statements, etc.
If accounting isn’t one of your strong suits, you can hire an account or let your broker boil it all down. Only then will you get to know just how much this online business costs.
Here at Digital Acquisitions, we make sure that you learn everything that you need to prepare yourself for the world of business. Now that you know the 7 risks you should avoid when it comes to buying a new online business, you should be ready to go.