Acquiring an online business

[PanAm]

What is the name of your state? Texas

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

 

[seniorjudge]

You don't give any details, but my feeling is start one of your own (whatever it is).

 

[oldman9]

Buy existing or start from scratch?
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"

Your question is not a legal question, so this forum is not for this issue. Only *you* (and your CPA) can decide on this complex problem.

There are advantages of buying an existing business versus starting your own, from scratch. That's why many companies are bought and sold. The startup costs can be extremely high, depending on the business. That's why you need to sit down, perhaps with your CPA, and calculate to see which scenario would cost you more.

Besides the question of costs, there are other things involved. Most businesses fail in the first 5 years. If this existing business has been around, say, for more than 5 years, and is doing well and making money, then it *may* be a good candidate for a take-over. (Because, if you start your own from scratch now, your chances of being survived 5 years from now is about 2%, a lot less if it's a dotcom. It's not as simple as you might think to start a business and make money with it 5 years down the road. At that time, you might look back and say "Geez, I wish I bought that business back then to save myself 5 years and a lot of headache.") You might spend money *now* to buy the business, but you might save yourself a lot of time later.

If and when you look at this business' books, you will have to be quite experienced (or have an experienced person look over its books) in order to spot anything "unusual." Only a trained eye can determine this.

Then there is a issue of management. The existing business is striving partly because of its current management. With the new management, how will it fare?

This is a complex issue. Only you can decide.

 

[oldman9]

It would take me 1.5 years to break even. Profit margin is 45%.

For THIS particular business, the ROI (return on investment) is about 67% ("It would take me 1.5 years to break even"), and the "Profit margin is 45%." These "facts" are highly suspect because a typical ROI is about 10% and a typical profit margin is about 10%. You need to check it out, with VERY experienced eyes. These sound too good to be true. Ask them "Why do you want to sell the golden goose that lays the golden eggs??" Don't put up your house until you are sure that the numbers are legit!

HOWEVER, if the business checks out, and these numbers are correct, then it's THE business to buy!!!

 

[J.Goodspeed]

Purchase of a Business

Hi There

For what it is worth, consulit a CPA. I am a online merchant with a product profit margin of 35-50% depending on the product sold. Here is the catch! As new merchants continue to come on board, my advertising costs continue to rise. In addition, my fixed overhead costs also continue to increase each year. Depending on the monthly overhead, my actual profit margin is 10-15%. The internet changes faster with each passing year, and competition, more competitive pricing from other merchants and exposure continue to decrease profit margin. Maybe this merchant see the changes and wants to get out now. I have both started businesses and purchased others. I was always sorry when I purchased a business to find a bunch of blue sky.

Hope this helps
Jeremy Goodspeed
goodspeedmotoring.com

 

[DStaub]

No one can tell you whether to buy or build your own business, but if the business is really solid, then a price that allows you to recover your investment in 1.5 years seems like a really good price. How much will you have to investment (in time and money) before you can hit the sales levels of this business? Where will you be in 1.5 years if you build your own business? Will you be at 9,000 customers and equivalent sales or will you be at 3,000 customers and growing toward the higher mark? Even if you are at the same numbers, will you have recovered all your costs by that date?

If you are confident that you can ramp up fast for significantly less that $185K, then by all means start your own. If you have your doubts, then perhaps using an established as a base makes more sense.