Buyer Beware: Why New Buyers Shouldn’t Buy Businesses Privately
It feels like an amazing deal right up to the moment you take it over and realize the definition of “buying a lemon.”
Everyone loves to get a good deal.
If you’re in the market for an online business, and you should be, then you don’t want to fall into the trap we see many entrepreneurs fall into. Getting addicted to the idea of finding the perfect deal leads to all sorts of problems, particularly for new buyers.
Shunning brokers and going off-market because you think brokers are overpriced is a risky move. While you might know a lot about building and improving online businesses, buying a business is a different skill that comes with its own set of challenges.
Knowing how to find, vet, and migrate online businesses is something that’s best learned from first-hand experience. In order to successfully do this on your own, you’re going to have to navigate through a field of landmines. A brand new buyer is better off using a broker for their first few acquisitions, but why is this? Well, let’s talk about the problems.
The Pragmatic Problems
There are several problems that buyers run into when looking to acquire businesses privately.
Deal Flow
To get a real sense of the market, you need to be able to see what’s out there. Being able to practice due diligence requires deal flow. When you go off-market, you’ll spend more time trying to find deals rather than cutting your teeth as an astute buyer and learning how to analyze deals.
Establishing your personal buying criteria is something you need to build up. Identifying what you want and what you don’t want from a business is done through a filtering process. Once you have this knowledge in place, you can use it to almost immediately filter out any unsuitable listings. Having no quality filters in place means you’re going to be wasting your time doing due diligence on low-quality businesses, which are more commonly found when searching for private listings.
How Do I Do X?
Finding the right business is only one half of the equation. The second half, and one that is often forgotten about, is transferring the business from the current owner over to you.
There are a lot of moving parts when it comes to business migration. It’s a very important step that needs experience to be done correctly. If something was to go wrong during this process, then you may not even know about it until months later. By this point, the loss in revenue hits you and it’s too late to back out of the deal, so you have to soak it up and hope you can bounce back.
One common migration issue buyers of content sites run into is changing all the affiliate links to yours. If a site has five products to a page and 200 pages, then that is 1,000 links that you have to manage, which is a lot of work and responsibility, especially if you’re on your own.
For Amazon FBA, a major issue that we’ve seen happening is Amazon terminating the Seller Central Account. Amazon can be very protective over their seller accounts to ensure their marketplace remains as high quality as possible. If they think something fraudulent is happening, they won’t hesitate to terminate the account when the reality is that they just weren’t properly informed.
What about if you’ve just used a large part of your capital to acquire a very attractive SaaS business? Everything seemed perfect, but you now realize that the payment processor can’t be transferred over to you. To get around this issue, you have to set up a new payment processor that requires all customers to sign back up. This sees a 60%+ drop in paying members who are too lazy to bother switching to the new payment method.
There are tons of horror stories out there, but they shouldn’t scare you from buying an online business. Working with a broker can help to avoid a lot of the pragmatic problems new buyers face. If you want to give it a go on your own, then these process-driven problems will be something that you have to overcome.
Internet Moneyz Here: Buy My Scam
It wouldn’t be fair to write about private sales without mentioning the threat of scammers. It can happen to anyone, but it is far more common for internet scammers to operate in the $500 to $50K range. Seeing as most new buyers have a lower budget of around $40–200K to acquire digital assets, scammers are likely something you’ll have to contend with.
These price ranges are the easiest prices for scammers to manipulate data to make it look like the business is doing better than it actually is. Scammers might have a network of family and friends buying products through their affiliate links to make it look like they’re making sales. Traffic data can be faked by using bots or other malicious traps that a new buyer may not know about.
You need to watch out for these and be extra vigilant as a new buyer. When buying privately, if you end up buying a scam or just a bad business that was misrepresented, you have no real recourse. The money is likely gone, and you’re stuck with what people that buy used cars call a “lemon,” AKA, a car that’s filled with nothing but problems.
How to Avoid All this Mess
There’s a lot to contend with when you buy privately. If you’re worried about falling into any of the pitfalls that have been mentioned, then the answer is simple: use a reputable broker.
To find a reputable broker, you can do due diligence on the broker itself. Do they sell what you want? Take a look around their marketplace and see what businesses they have listed. Do they have real testimonials? One trick to see if they’re real is to see if they use people’s real names, both first and last names, ideally. In theory, you could look the people up and talk to them if you wanted to.
Are other people actively talking about their brand? Hop online and try a Google search, or YouTube some videos, a broker will likely post plenty of good stories about successful sales. However, keep in mind that buying a business is risky, so even a reputable broker will usually post at least a few negative case studies of a business that went downhill, in the name of transparency.
A new buyer will be able to leverage all the experience that a broker has built up. This will help when it comes to negotiations and will be particularly useful when dealing with astute sellers. It will also give you the use of their deal flow where you can get potential acquisition targets delivered right to you, saving you time.
The buyer protections associated with a broker can be huge for added peace of mind. At Empire Flippers, we provide a two-week timeframe called the Inspection Period. After you’ve sent the money to us, and after the business is successfully transferred over, you get a two week period to make sure the business is making over 50% of the claimed revenue. If it is under that, the business is reversed and you get all your money back. This is a kind of buyer protection that just doesn’t exist when buying privately.
Looking out for a great deal is a good mindset to be in, but a broker can help to make sure you not only get a great deal, but a real deal. After you do a few acquisitions and learn the process of how it works, you’ll be able to approach off-market private deals far easier because you put in the work to learn the process of how it’s done.
To start working with an established broker, sign up for a free account for our marketplace. This account will allow you to start making the most of our deal flow as the number one curated marketplace for online businesses in the world. You’ll be able to use your account to filter and sort results to start your due diligence quickly and efficiently.
