WES S03E01: Introduction To Selling An Online Business
Welcome to Season 3 of the Web Equity Show. In this season we’re going to walk you through, step-by-step, the exact process for selling an online business.
We’re doing these in seasons because we want you to have a long-form walk-through on the process. If you’re interested in buying, we’d highly recommend you check out Season 2 here.
In this episode, we dig into exactly who buys online businesses, take a look at how they’re valued from a buyer perspective, and discuss the various places you can look to when you want to sell your business.
This is primarily an introductory episode to selling an online business, so if you’re more experienced you might want to skip ahead to some of the later episodes.
Are you digging the show? Please stop by iTunes and leave us a review! We’ll give you a mention on the show and we’d love to hear your feedback!
Listen To The Full Interview:
What You’ll Learn From This Episode:
- Who Buys Online Businesses?
- How Are Online Businesses Valued?
- Where Can I Sell My Online Business?
- Frequently Asked Questions
- Why would I ever sell my business if it continues to make money?
- Which businesses will sell and which won’t?
- I’m still building an online business. Where can I go to learn more about selling an online business?
Featured On The Show:
- Empire Flippers
- John Lee Dumas @ Entrepreneur on Fire
- Empire Flippers 6 Major Buyer Types Podcast
- Empire Flippers Valuation Tool
- Empire Flippers 11 Popular Business Models Blog Post
- Spencer Haws @ Niche Pursuits
- Dropship Lifestyle
- Cloud Living
- Tropical MBA
Justin Cooke: Yeah, I talk about the kind of like, the people that have tons of time and no money are at one end of the spectrum. And then you have people that have no time and tons of money at the other end, these guys are definitely at the higher end on the cash side, lower on the time side.
Speaker 2: Buying and selling businesses just got a lot easier. Welcome to the Web Equity Show where thousands of successful entrepreneurs go to learn about buying, growing and selling online businesses. Your hosts Justin Cooke and Ace Chapman share their real life advice, examples and expert interviews to help you build and grow your own online portfolio. Now to your hosts, Justin and Ace.
Justin Cooke: Welcome back to the Web Equity Show, this is season three, I’m your host Justin Cook and I’m here with my co-host Ace Chapman. What’s going on buddy?
Ace Chapman: What is up man? It feels good to be back. People have been reaching out to me, when are y’all bringing it back? And I’d tell it’s coming soon, so I’m excited for this first episode.
Justin Cooke: Yeah, me too buddy. Season three is going to be great. Season two was all about buying online businesses, season three is all about selling online businesses, we’re going to do this start to finish. From someone who has just a little bit of experience, who’s kind of heard of the concept of selling our website or online business, we’re going to step them through the entire process to actually closing the deal and moving on, spending that money their end.
Ace Chapman: Yeah, I feel like we’ve been a good summary of buying businesses, and there’s a couple of different folks that have been listening to the show that were asking some questions about selling the business. I mean obviously if you buy a business, you want to start thinking about selling it at the very beginning, but then there are people that are just getting started in businesses that want to build a business that’s going to be easy to sell. And then there are other folks that are already owners of successful businesses, and so those folks are going to get a lot of benefits out of this episode in this season.
But if you want to dig in and find out a little bit more about us personally, I would actually go back to the first couple of seasons. So go back to season one if you’re just getting started with this, because it really is kind of this whole work that Justin and I put together and design so that you can start from complete newbie, to this whole space of buying and selling, and then end up at a place where you can go out and do deals. You can buy a business and you can sell a business and all that. Go back to season one and dig in from there if you’re just getting started with us.
Justin Cooke: Yeah, for anyone who’s wondering, we should probably introduce ourselves a little bit man. I’m Justin Cook, I’m a partner at a company called Empire Flippers where we list websites and online businesses for sale. We have a marketplace to introduce buyers, investors and sellers and do anything from like small five figure deals up to seven figure deals. You Ace Chapman obviously you’re a deal maker. You’re on the buy side, you’re involved in a lot deals personally. You also guide people and work with people that are looking to possibly buy or invest in deals. You put deals together with investors and operators and do a lot of that. Right?
Ace Chapman: Absolutely. And one of the updates from the last time is that we are now putting together a fund. So we’re in the process of raising about 10,000,000 or so, and we’re going to be investing that in this space is what else, so-
Justin Cooke: Nice buddy, you’re getting the big money together, you’re going to … What kind of deals are you looking for in that fund?
Ace Chapman: We’re looking for deals that are complimentary. We’re going to be doing a lot of ECommerce deals. We’re going to be doing maybe a little bit of dropshipping and then some SaaS so, you know me Justin well enough, so at this point know that I’m a very big believer in building a portfolio and having a diversified group of sites, and that’s what makes this space even safer. There’s always going to be risk but it makes us safer, and then you’re able to generate these really amazing returns with a lower risk level. That’s what we’re going to be putting out in the fund.
Justin Cooke: Dude I’m going to pause of this hole cause I know what’s gonna happen, when we start talking about this fund and how we’re put all the steel investors together, we’re going to buy a whole bunch of details-
Ace Chapman: You’re right.
Justin Cooke: And we’re going to get caught, but I do want to talk to you more about that, let’s do it on the Empire Flippers podcast, let’s have you on as a guest.
Ace Chapman: Cool.
Justin Cooke: Because I’d love to get into that. In the meantime man, before, before we get stuck, because you know me, I’ll talk about that a little bit too.
Ace Chapman: I know. I felt like we hadn’t had a chance to really talk about that and then it popped in my head, I’m like, that’s a[crosstalk 00:04:26]
Justin Cooke: It’s been awhile. We took a break really a few months between season two and season three and it’s just kind of nice to connect again. It’s been a while. Let’s talk about who this season is for, as I said, for anyone that is looking to build an online business from scratch or is already built, that business was already running and established, I think it’s for anyone in that spectrum. For anyone who’s listening to this is thinking about getting involved in online space, it’s way early to be talking about selling their business, but I think it’s really good idea to start building a business with the exit in mind, and to have some kind of idea on how they would exit the business in two years, three years, four years time.
Ace Chapman: One of the other things that we wanted to do with this episode is make it really simple. I mean there are a lot of folks that listen to us that have been doing deals, we’ve done a lot of deals with and you’re going to get a little bit of value out of this, but we’re really targeting the folks that are just getting started. So we’re going to spend some time to finding terms, explaining the process, and we want this to be something where anybody can come in and not just start the conversation at a level that’s for the pros only.
If you’re a pro, you can feel free to skip this. I probably would still kind of come back because you never know when you’re going to get that tidbit that just reminds you to look at things from a different perspective. But you can feel free to skip this one if you’re a pro, and at the very least, if you listen to it and you feel like, this is very basic, don’t worry, we’re going to get there, you’re gonna get some value out of this season.
Justin Cooke: Yeah. I didn’t want anyone who was a pro, a season pro at this to listen to this first episode and be like, oh my God, when are they going to really get to it? We will get to it just as first episode, we want to lay it out. So yeah, the pros we’ll get to the advanced topics later. In this episode we’ll be looking at the types of businesses that sell, we’re gonna be talking about valuations and we’re gonna look at some frequently asked questions that we get from sellers.
Before we do this episode though, let’s do a quick listener love shout. We get iTunes reviews from people and we really appreciate, when people do iTunes reviews we want to give them a shout on the show as well. We’ve got one from CBC 4 in October, I said, very informative, just started listening to podcasts, don’t even listen to music anymore, so much valuable information. Justin Cook and Ace Chapman are true professionals that gives detailed real life advice and examples about buying businesses online or off. Thank you guys for the show experience, life gave us five stars. We really appreciate it.
Got another five star, I mentioned value pack with key insights, Kurt and NYC, so I’ve just ripped through the season two buying and now hitting the rest while I wait for season three. The focus seasoned concept works. I’ve already sent the people I will be investing with, it’s onboarding them better than I ever could. He says, one request guys, what you did today was amazing because it was funny, number two, it addresses the issue that the market is moving fast. I wish all the hype can get lost, I’d revisit as a way to say every three or four months in what space do I want to be a seller.
That’s a really good point Ace, we should probably look at that every few months and talk about kind of interesting niches that we’re finding and give people like business ideas. I mean, you and I run across business ideas on a regular basis that we’re too busy in our space or in our niche to act on, but I wish someone would. I’m like, I wish someone would do this because I think it’s valuable.
Ace Chapman: Absolutely. And the other side of that happens, and is very interesting when you start seeing a business that’s in a niche and it comes for sale and you’re like, this looks interesting. And then you see the exact same business model converse and you’re like, okay that was just like the other one, and then you see like three more and you’re like, wow, they’re probably all selling because this is a very crowded market. And sometimes you can get the benefit even if you’re starting something from scratch of avoiding that space, and if you’re buying or maybe, not even necessarily staying away from it, but certainly discounting it because of that.
Justin Cooke: Yeah buddy. By the way, we got a mention on Twitter from Johnny Dumas over at Entrepreneurs on Fire. So they host the Empire Flippers podcast and Web Equity Show, Empire Flippers is on fire. I did an interview on his show and it went really well, so I’ll link to that in the show notes if people are interested in hearing that. I’ll link to your interview on Entrepreneur on Fire as well. All right buddy, you ready for the episode? Let’s get into the meat of it.
Ace Chapman: Let’s jump in.
Justin Cooke: All right. Season three, episode one. Ace we’re talking introduction to selling an online business. We better do a little bit of background first. And the first thing I mentioned, if you’re running an online business making any profit, you’re the envy of lots of people online right now. Right?
Ace Chapman: It is very interesting. And this is actually even on the buy side, it’s something I try to remind people as we’re looking at deals, it is not an easy task to start an internet business and have it make money. So every time you’re talking to a seller, you’re talking to somebody who’s really good, accomplished a major feat. I mean it is a big deal. So yeah-
Justin Cooke: [crosstalk 00:09:22] You have old friends, high school, college buddies, they think about that and are like, if I could just make some extra money on the Internet. Then they just have some kind of, what I’m going to talk in like full on, like replace my income business. I’m just arguing like, if I could make my car payment or God, could you imagine if I could make my house payment with an online business on the side, I’d be so happy. Anyone who has an online business that has that or more, she’s always crushing it comparatively or compared to someone else. Right?
Ace Chapman: Yeah. And one of the biggest things that I think they miss out, obviously we look at it and it’s like, wow, this is incredible but the seller sometimes can forget that, once you figure that out, it becomes the skill where you can go out and do that again and again. Not every time something is going to work, but you’ve got the basics of a skillset where you can replicate that, and that’s where a lot of people end up selling these deals.
Justin Cooke: And a lot of people fail as they’re honing those skillsets. They’re building their business and they make mistakes and they have screw ups and they learn from that and they come back stronger, continue to build their business and they work through that and they build their successful, profitable business. Now they can sell that as an asset and that asset has value on its own, but the super valuable stuff are the skill sets and the kind of struggles they went through to learn how to build that online business.
This season is really for those people, it’s for the people that have already put in their lumps. They’ve kind of done all the early stage stuff and they’ve built an online business that is successful and making a good amount of money, but it’s also for people that are looking to build their first business. And I want them, those people they’re a little further away from the exit or from actually getting cash out of a business they haven’t started yet or they’re in the early stages of. But I think it’s really important to have an eye on their end goal or to have a plan for how they’re going to exit.
One of my favorite books is a book called Built to Sell. He talks a lot about that in the book on how, when you’re starting the business, if you have a plan or a path toward selling, it’ll make it a lot easier when you get there.
Ace Chapman: Yes. It’s funny because I’ve talked to people all the time that realize they’re ready to get out of their business and they haven’t done any planning. This is going to be huge for you both. But before we get into all of that, let’s start with some of the basics Justin.
Justin Cooke: Yeah man. So the one of the basic questions is, from sellers we get is, who the hell buys these online businesses? Potential business owner thinks, they got this business, maybe it’s making $3000, $5000, $15,000 a month and it’s great for them, it’s a nice cash flow, but they’re like, is there anyone out there that would really buy this from me? How much would they pay? These are the kinds of questions that they’re wondering, and I think we can both answer emphatically, yes, there are people out there that are buying online businesses.
Let’s define these people a little bit Ace. One of the things that these people have in common is generally they have more money than time. One factor of people or one group of people are the ones that have cash, they don’t have much time and they really want to turbo charge their learning. They don’t have the time to start off with the very, very basics and baby step their way through it, maybe they are made the senior level manager in an Exec, at a larger company and all their time is taken up by their company.
So what they’re thinking is that by buying an online business, they’re going to be throwing themselves in the deep end, but they’re going to buy something that’s already making money, and the learning curves would be much faster and they’ve got the cash to do it. I talk about the people that have tons of time and no money are at one of the spectrum and then you have people that have no time and tons of money at the other end, these guys are definitely at the higher end on the cash side, lower on the time side.
Ace Chapman: Then you have the people who have certain skillsets and they’re looking to put those businesses, that skill set to work in certain businesses. We see partners all the time or husband, wife teams who, one, maybe the marketing person, the other may have some tech experience. Instead of going out and trying to build something from scratch, they’re like, we have the skillset, let’s go and buy the business that our skill sets will basically, will be able to grow that business. And it’s not so much about the business being something that’s like, this is our passion or whatever, they want to replace the income. They aren’t entrepreneurs, but they can get into a business and that business will leverage their skill sets.
Justin Cooke: We also have the portfolio owners, and these are the ones that have maybe hundreds or sometimes even thousands of websites or online businesses. They’ve got huge teams sometimes and maybe they buy a couple of dozen up to hundreds of websites or online businesses per year. And you can think of these as like many private equity groups, you can talk about MS funds, you could talk about in terms of having sometimes 30, 50, 200 people that work for them and run these businesses.
These are kind of the serious players and they’re definitely repeat buyers in our space that work with our company. And you run across some as well, although less Ace, because you generally dealing with the buyers and you’re on the buy side, so you don’t see those guys even though you bump up against them from time to time, when you steal their deals or they still your deals.
Ace Chapman: I find those guys when I realize I’m bidding against them so that we could get the best deal, so I definitely come across them. The next group of folks is the kind of worker, investor partnerships. I thought they’re other people that may come into the deal, both have different skill sets, they’re going to grow the business, and then you have the folks where one person is going to work the deal, they’re going to put some sweat equity into the business and they’ve got some money behind them.
I mean, we just sold a deal to a father son team where the father knows absolutely nothing about the internet, it gets on the calls, he’s talking a little bit just to find out what is this my son is doing, and then he’s putting up the money and his son is now running that business that we sold them. And so you get those kinds of teams as well.
Justin Cooke: Yeah, I’ve seen the father son team. Sometimes you’ll see it where it’s just a partnership or just two guys kinda got together and then one of them is providing 100% of the cash and is getting 70% equity. The other person is going to run it, and they get 30 or maybe they’re putting up 70 or 80% of the cash and the other person has put up 20, 30% but they’re going to run it, so they split it 50, 50 in terms of equity. There’s a lot of different ways you can structure the deal in terms of a worker investor partnerships, but I do see those pretty often when they’re buying sites from us.
I’ve actually covered and talked about six major buyer types or profiles, and these are like the newbie norms, the flipper Fred’s and the portfolio Paul’s, I’m going to link to that in the show notes for this episode, so if anyone wants to take a look at that, they can do that as well, so they can get a little more background on the types of people that are buying online businesses.
But I think Ace, the next question is to answer, how are online businesses valued? We get this a lot from sellers that are going, how do you determine value? How does it work? Why is my business not worth $50,000,000, why is it only worth $400,000? Like how did you know? Are you pulling this out of your back? How does this work? I should mention before we even get into valuations is that, this doesn’t apply to companies like Twitter, who based on our formula and our evaluation models would be worth zero, which Twitter is not good, it’s not worth zero because of their market share.
It’s not going to work on companies like Facebook or much larger companies that have a significant amount of market share. This is kind of a valuation model that works for the rest of us. It’s really best under $10,000,000. We’re talking probably $5000, $10,000 a minimum up to maybe 10,000,000 max, outside of that in the range, this kind of falls apart, there’s other valuation methods that work better.
Getting into the formula, I’ve just stated, I have someone that can write off. They want an valuation equals revenue minus expenses, times a multiple, plus the wholesale value of any inventory or equipment. So I’ll say that again, valuations equals revenue minus expenses or profit times a multiple, plus wholesale value of inventory or equipment. Now Ace, let’s talk a little bit about what expenses mean. With expenses, what are we talking about here?
Ace Chapman: So the key with expenses is, it’s what is necessary to keep the business running and maintained at normal level. Most of the times, especially with the small module, we’re not talking about including, will take out the owner salary since that’s coming to you. There are some cases where you may on your end want to figure out, what’s it gonna take for me to pay somebody to do the work that the owner may have done into the deal. But in most valuation, and this is just kind of the industry standard, it’s the profits minus employees, but people aren’t really taking that into consideration like on the show or anything like that.
Justin Cooke: Yup. Owners pay and there’s not as an expense, so we can leave that in, you’re fine or we’re not going to deduct that. We’re also not going to deduct some like exploratory stuff. For example, if you are putting on the business some trips that aren’t necessary to maintain the business, which a lot of foreigners do, we’ll generally take that out. That’s not going to count against you most of the time unless the buyer trusts and negotiate that as a later point, but usually that doesn’t happen. Expenses are just absolute necessity expenses. That’s the expense piece.
The second thing we need to talk about in the evaluation model is the multiple. People ask, you’re saying revenue minus expenses times a multiple, what is that multiple? Well, here’s where it gets a little more vague. The multiple is generally between 20 to 40 times the monthly profit or the monthly revenue minus expenses. Sometimes you hear people talk about, it’s like two to three years, and that’s another way that’s basically 24 to 36 and we’re going to go a little wider and say 20X to 40X. And that depends on a number of factors. It depends on things like how old the businesses, how has the business done year over year?
Is it growing, is it declining? How diversified is the business? What kind of processes and people are in place? What kind of team do you have in the business? Just a whole bunch of different things are going to come into account. Of small affiliate site that you have early, maybe it’s a year and a half old, might only be worth 20 to 24X. A more established eCommerce business with lots of different traffic sources and multiple product lines, it’s been around three, four years, might be closer to 30, 35 40X, right?
Ace Chapman: Yeah. And it depends heavily on the business that you’re looking at, and that’s why this one like you said Justin, it does start to get a little bit vague. What I like to say is that, this is where the art of the deal kind of comes to play is, you gotta be able to look at that business and compare what aren’t apples to apples as apple to apples. It’s a market where the longer that business has been around, the more established, all those things come into play.
One of the other things that’s important is inventory and equipment and in most of these deals, we did negotiate actually with one of one of your skills that didn’t have some equipment, but it’s pretty rare. There aren’t many deals that have equipment, but there are a lot of deals that have inventory. The thing that you don’t want to do as a seller is starting to get excited about selling your business because you’re going to unload all this inventory that hasn’t sold for the last four years.
Justin Cooke: You see that, you’re like, I’m going to get inventory, and the first thing they wonder is they go, am I going to get retail on inventory? No, you’re going to wholesale so-
Ace Chapman: [crosstalk 00:21:22]Yes, that’s it.
Justin Cooke: Back. You’re not making a profit on two years worth of stuff. You can’t load up on stuff and try to get more of your business, that’s not going to happen. Then the other thing is, as you mentioned, it’s like the inventory has been sitting there for years. If people aren’t buying it, you’re not going to be able to include it. So trying to throw dead inventory into the deal, you may be able to negotiate that, but as a general rule, buyers don’t want something that’s just not valuable.
So if they can’t move it, they don’t want to have it included at all and they probably won’t be willing to pay for it, so dead inventory is probably a no go. And when it comes to equipment, which is sometimes included, although is much more rare with online businesses, it’s either wholesale value or current market value, so that’d be included at that cost.
Ace Chapman: Absolutely.
Justin Cooke: All right man. So I said it earlier, generally two to three times annual profits, not taking a hit for owner salary, you want to make it a little broader, 20 times to 40 times a month in net profit, again, not taking into account the owner salary. Anyone who wants to get an idea on valuation, we actually have valuation tool they can use. It’s really rough, it’s pretty basic, but it’ll give you a pretty good idea without having to do like a full on valuation. You can go to EmpireFlippers.com/valuation-tool and it’ll give you a valuation you can use for free.
Ace Chapman: Yeah, and I love that tool. It comes up with a good rough estimate, especially for the folks that it’s like, y’all just spit out a bunch of different numbers, I don’t know how to do any of this, just tell me what it’s worth. That gives you somewhat of an idea.
Justin Cooke: All right man. Someone listening to this, they’re going, so where can I even look at selling an online business? How do we even get started there? And there are two options really, you can either sell your software, you can have someone sell for you.
Ace Chapman: For me, even as somebody who’s been in this space for awhile, I still see the value of working with a broker. You can sell a business yourself in this space. There are places, and we’ll go into detail later, they are the flippers and that kind of thing, but I found that it’s really valuable to have that person in between both parties because there’s just a lot of like this trust and not really knowing and all of that that takes place when you don’t have anybody in between in the transaction.
Justin Cooke: Yeah, that’s interesting. And even for us, so we’re like professionals, funny saying that, but we are. We’ve done lots of deals. We’ve done eight figures with the deals. We’ve done multiple seven figures with just you, our company and your business. We’ve done a lot of deals, we’ve done a lot of deals with other people. We do this regularly, but even us, like that’s where this is just kind of like an average day of doing deals, if it’s your own business you take it more personally. And so having someone kind of in between I think is helpful. I think if you don’t have the experience, you’ve never sold an online business before or have never transferred a business to someone else, just having someone to take care of that is helpful.
I’d say there are times when you don’t need the progress if you have, I mean you Ace wouldn’t have to, you do because you want to reach a larger audience too and you don’t want it to have to hassle with it, but some people can sell it themselves, they have a wide audience of people. Another scenario would be like if you’re selling to your partner or other partners in the business, I would still say get some legal advice and help, but you don’t necessarily need a broker for that deal, or maybe you can just get a broker to advise rather than actually list your business for you.
Ace Chapman: One of the other things that I’ve seen that has been needed is, if you have a large audience, like I was watching a process that a guy who has a blog about ECommerce was doing where he’s already got a big audience, people who want ECommerce sites, they’re learning from him, and he’s able to sell the sites that he builds to that audience in a very interesting process, so those kinds of things do exist. And if you already have those kinds of things in place, then that can be really, really valuable.
Justin Cooke: All right, so let’s do some additional, this is the additional frequently asked questions. I guess this is like the more rapid shot of questions we get from potential sellers. The first is, why would I ever saw my business if it continued to make money? And so that’s the kind of skeptical person, this normally comes from someone that’s maybe just starting out, trying to build an online business, but they’re like why, or maybe they’ve built one and it’s successful and they are hanging onto their baby.
They’re like, why the hell would I ever sell my golden goose? And the truth is that, the business they’ve built or the business they’re planning to build is not their golden goose, that’s the only the egg that the golden goose has laid. Their golden goose, and we mentioned this before, are the skill sets that they’ve learned or the mistakes they’ve made in the process of building this business and their ability to do it again and again and again, that’s their golden goose. If you’re selling anything, it’s the egg.
Ace Chapman: Yes, it can be a very personal thing when you’re selling something that you’ve poured your time and effort into, and I bet as soon as you can make that shift into, this is an asset. What you’re building is an asset. Like you said, the real golden goose is the skillset, and just like as a stock or a house or car or anything else, they’re meant to be grown, bought, sold, traded, all those things.
Justin Cooke: And people have a lot of reasons for selling their business, and some of them are and legitimate and some of them are not real or illegitimate, they’re thought but not necessarily true. It may be the fact that they feel like they can’t grow the business any further, which may or may not be true. They have another business that’s bigger and is a better opportunity, again, which may or may not be true. Maybe they just hate working on the business, they’re just are sick of it. They’ve worked in that for a few years and it’s just not enjoyable for them.
Maybe they had a life event or they have an upcoming live event, maybe it’s a divorce or a death in the family or something that keeps them from really being able to put their time into it. So there’s a lot of reasons that people sell, especially if you’re just starting off, I wouldn’t be so quick to say, no one would ever sell their business. That’s absolutely not true.
Second question Ace, which businesses sell and which ones don’t? That’s a question and people are wondering, well basically, what my business sell.
Ace Chapman: There are some things that make it easier to sell than others, but in any case that I come up with a specific thing like, you can’t sell something when you’re tied into the business or you can’t sell something that is under your personal brand, which actually we just did a deal with you guys, it was a personal brand. A lot of the things that you say, you come across this perfect scenario, and if you look at enough deals, eventually it’ll be proven wrong. It is very hard to sell but there are some things that are just important, I mean, it’s gotta be something like profitable.
Justin Cooke: Yeah, it’s got to be making money of some type. You bring up an interesting point though Ace, like I can’t sell personal brands, you can’t sell this, you can’t sell that. There’s a difference between can’t or aren’t likely too. As brokers, as people who list businesses for sellers, people come to us and they’re like, look, can I list this business with you? And sometimes we make judgment calls and we’re like, you know what, it’s not that this business can’t sell, it probably could if we stumbled on the exact right buyer, but our chances of stumbling across that buyer aren’t as good. And if we’re going to use the shelf space, there’s not a better way to put up over when you take our efforts and energies and then take the shelf space, I’d rather do it for a business that will attract more buyers, will fit more buyers.
We actually make those decisions sometimes. It’s not that it won’t sell, it’s just that it’d be harder for us and we don’t want to take it on. I can talk about our basic requirements, and this is a moving target, we change this year over year, but right now as we’re recording this is that, the business must be profitable in the last six to 12 months, it has to make some minimum amount. For us it’s $500 a month in profit, for some types of sites and $1,000 a month of profit for others. And again, we’re going to talk a lot more about what makes a business more sellable in future episodes.
(*Update: The minimum earnings threshold for listing an online business is now $2,000 a month in net profit over a 12-month average).
Ace Chapman: When people come direct to us, I was talking to a seller the other day that just wants to sell a site, and some of the things that we’ll get into that of making a lot more fun is, when you get into creating terms to sell your business, we’ll pay more because it shows us that you are very comfortable and competent in the business that you’re selling.
Justin Cooke: All right man. For anyone that’s looking for more information about building an online business, maybe they’re just getting started or they’re in the early stages, and they’re looking for more information about where to go to do that, there’s a ton of different places that will lay out the different business models for you, and there’s a ton of different business models. Anything from drop shipping businesses, info products to Amazon affiliate sites, to ad songs sites, to fulfilled by Amazon businesses.
There’s a ton of models out there. I’m going to put a link in the show notes that links to what we wrote on Empire Flippers about 11 different business models, and then kind of gives you advice and direction for each of those business models. I’ll also mention a couple that you and I know and I’ve worked with Spencer over at Nichepursuits.com. If you’re looking to build Amazon affiliate sites, the drop ship lifestyle, guys if you’re looking to build the drop ship business, again, Amazon affiliate sites. Another good resource would be Cloudliving.com.
If you’re looking for ECommerce, I would say the Tropical MBA guys, especially the early podcast episodes, I think are super helpful. So there’s a lot of people out there that can help you, we’ll link to all those in the show notes for this episode. It’s a steward wrap up on our first episode of the third season. Firstly what we mentioned is that there are plenty of buyers out there that are looking to buy online businesses right now. I mean, Ace, you’re one of them, right?
Ace Chapman: Yeah.
Justin Cooke: You’re looking at online businesses. We have guys that are looking to buy businesses right now, so if anyone has profitable online businesses, there are people right now with the cash in hand ready to do deals. Businesses that sell are going to be profitable. They have some kind of money coming in and they’re able to be taken over by someone else, so it’s not like they’ve got their processes documented, they’ve got maybe employees in place or if not employees, maybe they’re part time contractors, or if not that, at least the processes and skills in place that someone else can step in and take over that business.
Another thing we should mention is that online businesses are valued on a multiple of net monthly profit that’s usually somewhere about 20 to 40 times their monthly net profit, that’s not counting owner’s salary or owners pay.
Ace Chapman: That is it for this episode guys. if you dig it, go ahead and head over to Webequityshow.com and let us know, drop us a quick review on iTunes, we’d also really appreciate that. Feel free to reach out to us, when you get to the website, you can shoot us over a message with any questions or feedback on the show.
Justin Cooke: Yeah buddy. Really appreciate those iTunes reviews. The next episode we’re going to look a bit closer at the reasons people sell their online businesses and dig into those, and look at whether or not those businesses are truly able to be sold or not, and we’ll give you a few examples of those as well. All right guys, thanks so much.
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