Existing online business or start it from scratch?

[panam]

Just wondering what the smartest thing to do is... Buy existing or start from scratch?

Business details...
Sales price of online business = $185K
I've offered $125K with a promissary note for the remaining $60K. Collateral for this $60K is my condo which i currently own free and clear.
It would take me 1.5 years to break even. The business has been profitable since its existence. It has a customer base of 9,000 and sales have been steadily growing. Profit margin is 45%

The dilemma i have is what is the advantage of acquiring an existing online business when i have enough funds to start one on my own? I mean why expend this large amount of cash upfront when i can use far less of this cash to create my own "baby"

Is there a better way to finance it?

Thanks

[RayB]

The short answer is that a brand new site will probably take 1 - 2 years to reach it's potential in the search engines and therefore sales. And not much at all will happen for the first 6 months (unless you invest in a large adwords campaign to get the momentum going).

If it is a competitive space it is very easy to spend $100,000 getting a site going, promoted and SEO'd

So, it is simply a case of how best to invest you cash for the best short and long term ROI taking these factors into account

[PrettyPaws]

I mean why expend this large amount of cash upfront when i can use far less of this cash to create my own "baby"



There is ALOT of hard work and cash creating your own "baby" and also no garentee it won't fail!

[Chris Kaday]

Established reputation and visibility, 9000 custmers and 45% gpm - decision made.

Chris Kaday

[quikshop]

Check check and check the figures again. Make sure everything is as it appears, no hidden liabilities, all the sales are qualified (i.e. not pooled from several businesses) and best of luck with your new venture!

[jim_gold]

On the face of it, the business you are contemplating buying looks the better option. Payback within 18 months is a very good return.

As mentioned, however, you must complete a thorough due diligence exercise to make sure that everything is as it seems. Go through all the figures leaving nothing unturned.

Try to strike a deal that involves a payment upfront with the rest payable after 12 months according to a revenue performance scale.

[sirearl]

I think one would have to know what the product/service was,before making an assessment as to the cost of starting from scratch.

Also would want to know how secure the existing business is.?

Earl

[adventurelife]

Having done both in the past I will always go with the buying route if your DD shows the business is sound but more importantly you have the knowledge/skills to make a difference to the business and fast.

What would an improvement of the GP% by 5% mean to the business and your ROI .

Just guessing here but the purchase price leads me to think the position of the online business could be improved with SEO work and hence ROI returned quicker

[giorgioarmani]

Just wondering what the smartest thing to do is... Buy existing or start from scratch?

Business details...
Sales price of online business = $185K
I've offered $125K with a promissary note for the remaining $60K. Collateral for this $60K is my condo which i currently own free and clear.
It would take me 1.5 years to break even. The business has been profitable since its existence. It has a customer base of 9,000 and sales have been steadily growing. Profit margin is 45%

The dilemma i have is what is the advantage of acquiring an existing online business when i have enough funds to start one on my own? I mean why expend this large amount of cash upfront when i can use far less of this cash to create my own "baby"

Is there a better way to finance it?

Thanks

What industry/sector is the website in?

Some online businesses can take very long to get where they are... When you buy an existing business, that is profitable ontop of it, then that means income from day 1... And that is definitely not the case with a startup.

[Page]

You can get only get loose opinions with such a basic question.

There are so many variables involved.

Why not approach someone on here for a days consultancy or more to have a serious look at it with you. You are not after all talking about half a bob.

[Chris Ashdown]

You need to spend a few days with an accountant going through the numbers to get a true view on the worth of the company,

Profits may have peaked or be dependant on the owner history with his customers

9000 cusomers is not a great deal, what sort of time frame are they built over how many added last year and the year before

Is he including his wages in the profit figure

say $120,000 spent on adwords would soon bring in a large number of customers if you took a new site route at $2-4,000 per month and leave room for site and stock

[sirearl]

Hey... would that include travel and accommodation in Miami? :D


wifes going to Tampa in Feb,she would take a look as she is a real power marketeer.

Well she shops in Sainsburys and Tesco's.:D

Earl

[positiveenergy]

Before you check that the business numbers are legit, you should check out first the seller, your accountant and lawyer. After all, this is Florida we are talking about ( speaking from experience here!);)

[jofstar]

You need to be very clear on what you are buying. Due dilligence day one might save you a lot of heart ache later.

There are 3 ways to value the business you are buying.

1) Multiply the real income by the ammount of time you want to claw it back. E.g if you wish to get your money back in 3 years, pay 3 x the income derived from the business

2) Cost to "enter the market". What would it take you to build a similar business from scratch in cash terms? If this is less than the valuation above, that's the way to go

3) Value the assets. What does the business own + what's it owed - what it owes = what to pay.

The valuation you use often depends on the state of the business. In reality if the business is trading in a possitive growth model the owners are likely to value on an income multiplier. If the business is trading down or is in administration it's likely to be option 3.

However get provenance on every number they give you. A great way to do this is get a copy of all their supplier contracts, the audited accounts and the bank statements. If what they tell you doesn't equal what the owners tell you (or indeed if they don't want to share the information) walk away.

[panam]

Jof,
You mention above that if #2 will cost me less than #1, go with #2. Since i'll get my $ back in 1.5 yrs, 1.5 x Annual real income is far less than what it would cost me to enter the market (#2), so according toyou #2 is the way to go. Reason i am buying it instead of building it from scratch is that it affords instant income with a large, establish client base. Additional comments are appreciated. thanks

[jofstar]

The quick answer is if you think that you can get your money back in a year and a half (and that the evidence for this is strong and not based on some kind of un-proven management forecasts) you are probably on to a winner.

As with all things without knowing a bit more about the business it is difficult to give much advice. Is there a genuine reaon for the existing owner to sell?

[panam]

The owner is selling because he would like to use the money to start another company. He has owned it for 2 years. This is what he conveyed to me.

cheers

[busynessman]

The main thing for me after doing all checks on business that are up and running, is the fact its not my baby. When starting a business from scratch ( i started with an outlay of only £1200) you can build it up at a pace to suit you and you get to know the pitfalls and experience every aspect of your business. You have a short space of time to learn when acquiring new business unless you get some honest traing etc.

Both carry a risk but if the figures add up and all looks good then it may be worth it for you.