Are You Overpaying To Buy An Online Business?

By | Business Contracts, Business Lawyer, Internet Lawyer, Website Lawyer, Website Legal Documents | No Comments

couple buying an online businessDid you know that it’s common to pay too much for an online business?

Sometimes it’s because of a failure to perform due diligence. Only to discover after purchasing the company that it’s not that profitable or even losing money.

The Phantom Online Business

But the most common mistake buyers make is to purchase something that doesn’t exist yet.

Here’s what happens…

Absurd Multiples

Sellers often have an inflated view of what their ecommerce companies are currently worth based upon the potential these businesses have in the future. So, they’ll set their asking price 5, 10, or 20+ times the business’ actual value.

However, that potential hasn’t been realized yet. And it may never happen.

The Work Hasn’t Been Done Yet

The current owners haven’t invested the time, money, and energy to make it a reality.

So, why should a seller be paid as if the phantom future business already exists?

Now it’s theoretically possible that a seller has put into place everything that’s necessary for his company to become that success over time.

But as a prospective buyer, understand it’s not at that point now…and you shouldn’t pay more than the company is actually worth.

Avoid Paying Twice

Because overpaying the seller for something that hasn’t been built yet means you’ll probably pay a second time to build that reality yourself post-purchase.

If you need help buying an online business, schedule a phone consultation with Internet Business Lawyer Mike Young.

7 Keys To Buying An Online Business

By | Website Lawyer, Website Legal Documents | No Comments

couple buying an online businessAre you interested in buying an online business? Before making the final decision to purchase an Internet venture, knowing as much as possible about the company to be acquired can help set you up for success after the papers are signed.

Here are seven important factors to consider as part of your pre-acquisition due diligence…

1. Internet Businesses Are Not Just About The Website

Buying an online business means looking deeply into the metrics and data provided by the seller to tell you more about how the company operates and its current sources of revenue.

As the prospective purchaser, the seller must be prepared to ask your difficult questions regarding sources of site traffic, revenues, expenses, vendor relationships, labor relations (employees and independent contractors), etc.

2. The Importance Of Non-Competition Agreements

Although the seller of a business often wants to move on to retirement or an unrelated venture, don’t assume this is the case.

Instead, you’ll want to use non-competition agreements to ensure the seller(s) and key employees don’t walk away and use their insider knowledge to directly or indirectly compete against the company you’re buying.

3. Verify Guarantees And Potential Liabilities

Products and services offered in the past by the seller should be carefully reviewed when thinking about buying an online business. As part of this due diligence, check out old versions of the company’s website(s) from the owner (e.g. Wayback Machine).

Why is this important? Because the seller may have made commitments that you could be on the hook for if you buy the company.

For example, the seller might have offered lifetime guarantees on a product or service. Customer claims could come back to haunt you as the new owner. There are ways that an experienced Internet business attorney can eliminate or limit your potential liability exposure for such hidden liabilities.

4. Beware Of Access Issues

Although you’ll want to make certain every password is changed when you’re buying an online business, there’s more than that involved for internal security and website legal protection.

For example, you’ll want to limit internal access to essential personnel. And if there’s been custom coding, you’ll want to make sure that the developers didn’t leave any hidden back doors to access the company’s site(s) post-purchase.

5. Check Out Merchant Bank Requirements

If you already have a business (online or offline), you may already have a merchant bank that processes credit cards. You should see what additional requirements (if any) need to be met to use the same processor for the acquired venture. However, if you’re planning to use the same merchant bank as the seller, you should see what you’ll need to do to make that happen. Will the bank require personal guarantees? What about transaction fees? These costs can be important, particularly when profit margins on products/services are small.

6. Decide If You Need A Business Valuation Expert

For many acquisitions of Internet ventures, a business valuation expert isn’t retained. There are common methods of valuing such a company without paying for an expert to do it. You can discuss these with your Internet attorney and/or CPA. And, let’s face it, the market value at time of purchase is what a buyer is willing to pay.

However, it may make sense in some instances to hire a business valuation expert, particularly if you’re paying seven or eight figures for the company. The data supplied by the expert can be used for negotiating a better deal.

7. Check Out The Seller’s Email Marketing

If email marketing is integral to the online business, you will want to know how and when the seller acquired the names and email addresses on the company’s lists. This will help you avoid legal liability for unsolicited commercial email (spam) and determine monetary value of such lists based on a variety of factors (e.g. prospect v. customer, freshness, open rates, etc.).

In addition, you’ll need to determine the portability of the lists to you as the purchaser. For example, in some asset purchases, a third party autoresponder service will not transfer the lists to a new owner. On the other hand, if the selling entity’s equity is acquired (instead of the business assets), then the autoresponder service will likely let you continue to market to the lists because the entity purchased still owns the lists.

Do You Need Legal Help Buying An Online Business?

If you are serious about purchasing an Internet venture, it’s probably time to speak with an experienced online business attorney. You can schedule a phone consultation with Internet Lawyer Mike Young using our online booking system or by calling 214-546-4247.

How Internet Lawyer Mike Young Can Help You Buy an Internet Business

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buy internet business

Internet Lawyer Mike Young can help you buy an e-commerce company

Internet Lawyer Mike Young, the author of “How to Buy an Internet Business,” helps clients achieve their goals by (1) ensuring that the deal reflects what they want, (2) and protects them from existing and potential risks associated with purchasing an ecommerce company.

How does Mike help clients achieve their goals when buying an Internet business?

Create an Acquisition Blueprint

First, Mike provides a telephone appointment where a game plan is mapped out. Whether you’re still looking for a company to purchase, or have found an e-business you’re ready to buy, your phone consultation is a great way to create a blueprint for putting together the deal.

Prepare Letter of Intent

If you’re ready to make an offer, Mike can prepare a Letter of Intent (LOI) for you to submit to the seller that provides you with numerous protections, including the ability to walk away if you discover information that makes the potential deal unattractive to you.

Perform Due Diligence

Some clients ask Mike to be part of the due diligence process.

He will examine a prospective acquisition to determine whether there are legal issues that need to be resolved. This can include a Professional Website Legal Diagnostic to identify legal dangers that exist on a seller’s website.

Close the Deal

When you’re ready to move forward with closing the deal by purchasing an Internet company, Mike can prepare the legal documents you’ll need for closing. In some cases, he handles the closing so that the purchase can go smoothly.

Get Started Now

How do you get Mike to help you buy an Internet business?

The first step is for you to set up a telephone consultation with Mike using the law firm’s online booking system.

How to Buy an Internet Business

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buy an internet business

“How to Buy an Internet Business” was written for entrepreneurs by Internet Lawyer Mike Young

Just wanted to let you know that my new book, “How to Buy an Internet Business – 12 Steps to Owning Your Own eCommerce Company,” is now available at Amazon in both paperback and Kindle eBook editions.

As the title suggests, this is a how-to guide with easy-to-understand steps for finding the right Internet business for you and buying it at a fair price.

Although the book does contain legal information in plain English, it’s also a business guide that covers issues like financing your purchase and determining a company’s value to you before making an offer.

By the way, this book is written for Internet business owners, not for lawyers.

Of course, after reading the book, feel free to email me with your thoughts. Your feedback is important for determining what to include in future editions.

Return On Investment Calculator For Internet Businesses

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return on investment calculator

March 7, 2017 UPDATE – The ROI calculator has been removed because it significantly affects the load time of this site. Thanks for understanding.

This return on investment calculator complemented related books authored by Internet Lawyer Mike Young.

How To Buy An Internet Business: 12 Steps To Owning Your Own eCommerce Company

and

How To Sell An Internet Business (10-Minute Legal Guide Series)

In addition to ROI, these books respectively provide easy to understand instructions on how to protect yourself when buying or selling an Internet company.

You can learn more about these and other business legal books by Attorney Young at 10MLG.com.