I may have found an online website that I would like to buy. It is a social media management company. The website is making around $8k a month and they are asking for $250k for it. Seems like a great deal, but when things are too good to be true, I am convinced it is likely a scam.
I am pretty nervous about forking over a large chunk of my hard earned money, regardless of the deal I find. Any advice for this process so I can avoid being scammed, or loose money? Tips and tricks to validate the legitimacy of the business? Maybe a recommended checklist based on past experience?
A little about my background, I have been a software engineer for the past 10+ years, but I don't love to program anymore. I prefer to think about the business, customers, sales, marketing, etc. and would prefer to pay an employees to do the programming and manage infrastructure with only the occasional need to roll up the sleeves.
If any of you have an existing business that you are looking to sell to an individual, I'd love to have a chat. Ideally it would be something like:
- Actively Managed Business, net income $16k monthly
- Passively Managed Business, net income $2k monthly
- Ran virtually online or located in the DMV if office basedAlong with the other questions shared by HNers:
What kind of social media management are they doing? Is it in a fast shrinking area? What has been the CATEGORIZED revenue flow FOR EACH SERVICE CATEGORY for the last three months? How about for six months?
What are the revenues generated from each of the top ten clients? Is it skewed? Or, are there only three or four clients?
Is the revenue based on a (monthly) subscription model? Or do you have to keep selling every month?
What will make the clients to stick with you, post-acquisition? Will the seller do something similar after the sale? Does the seller have any involvement with any similar businesses? Any of his friends or family in the same business?
Why are they really selling? They may or may not tell you that, you will need to infer that.
Luckily, for $15000 I figured out I am bad at business.
Lesson for you: Unless you have done some amount of business/customers/sales/marketing before, dont spend such a big amount of money on your first venture.
It is par for the course if everything else checks out. If anything, it is at the higher end of multiples for a business of this size.
THe question you should be asking is if this is a business you can take over and run and more importantly, grow further. How solid are the existing customers ? What is the churn rate ? What is the current growth rate ? What do you know about Social Media Management ?
Also, forget about "Passively Managed business". There is no such thing especially in early days. Even if you are buying an existing business, you have to run it actively no matter how passively managed it was because for you, it is a new thing and like a job the first 2-3 years. Don't fall in that trap thinking it will run itself. It won't.
Source: Bootstrapped business owner for 8+ years and counting. If it matters in this context, I did buy it as a side project but built into a proper company.
Also I'm surprised that you'd ask it here. Considering you're about to drop $250k, I imagine you'd hire a lawyer to look over everything.
Are the $8K total revenue or the net income?
I've found that many web sites for sale are from people who found a niche, built a product, milked it until the writing was on the wall for its downturn, then are trying to sell it at its peak, leaving the next owner to figure out how to recover.
Make sure that isn't what you are buying.
1) hire a broker 2) do your damn-dist to have them sell you a good chunk of the business on a promissory note. it will force them to have skin in the game and force them to care about your success moving forward 3) ignore cash flow trends that aren't established for at least 3 years 4) don't ever pay more than 1.5-2 times the cash flow. ever
edited to add point #4