6 Figure Deal... 10 year old E-commerce.. Uptrending... Owner Finance... 20k Down

[TrustButVerify]

Hey guys...

Tell me what you think.

It's a 10 year old e-commerce business.

Asking price is 100k

Owner financing with 25k down - remaining 75k spread over 3 years...
NO INTEREST

Product is naturally viral - website address is attached to product which drive sales.

Domain age - 10 year, PR3, horribly optimized... the home page uses an IFRAME, google cannot read much of sites content.

Basic SEO is non-existent on site.

Majority of traffic is referral.

Checked the last 3 YEARS of awstats - 60% of traffic is TYPE-IN - who knew there was such a thing!!!

Gets about 2k-3k unique visitors a month.

Gross revenue about 100k

Proft margin about 50%

Website is 10 years old... does not even use a shopping cart. The "order page" is really an unencrypted email form.

Owner manually types in email data into quick books and manually punches credit card data into a physical machine

Due to viral nature of product, sales have increased 10-20% per year.

Existing database of 10k higher end clients that have never been marketed to.

Product is considered the "high end/top quality" of the industry.

Products are drop shipped from China but suppliers are considered very reliable.

Business has one employee who can take over daily operations. Currently spends about 10-25 hours per week at $15 per hour. Owner spends about 5-10 hours a week in business. (depends on their busy season)

Since the entire system is horribly non-automated, lots of back and forth is unnecessarily generated with email.


For example - they have to manually send the customer a receipt and then manually send the tracking number. And when I say manual, I mean like MANUAL... i.e. copy and paste, attache receipt, write a quick note to the customer thanking them for their order...

The website encourages people to call, not all products are on website and most special instructions require a phone call.

I imagine I could eliminate about 50% of the labor involved within 30 days or less.

Owner is open to verification of all data. Provided access to account information, stats, accounting, quickbooks, etc.

Owner is willing to put the domain in trust with a lawyer while payments are made.

Owner will still be my wholesaler for a new version of the product for which she has the USA exclusive. Will offer support as needed although employee while retain much of the duties.

I just spent a few hours today on skype, listening in on customer phone calls and asking the employee questions.

What do you think?

[benitez17]

I think I'm jealous

Seriously, it sounds like a nice find. The continuing partnership with the seller and the seller financing available should lower the risk, and it sounds like you are doing your due diligence.

I assume the 50% profit margin is net margin (after all expenses, including the employee)? If not, it's not that great of a deal. Also, be sure to pick the attorney who holds the domain carefully, and make sure you are well represented.

How did you come across this sale?

[TrustButVerify]

I assume the 50% profit margin is net margin (after all expenses, including the employee)? If not, it's not that great of a deal. Also, be sure to pick the attorney who holds the domain carefully, and make sure you are well represented.

You're a sharp one benitez17 - it's 50% before expenses.

That's really what's been bugging me about this thing.... a lot of back and forth... I see the potential in the business - but before I automated everything, it really is kind of like a job. Employee costs plus loan payment doesn't leave much room for error assuming business stays the same or has a dip.

It's wierd... having suppliers in China, physical products and you need a real live person at least part of the time to run this business. It kind of goes against my grain a little bit...

Hhmmmm

[benitez17]

You're a sharp one benitez17 - it's 50% before expenses.

That's really what's been bugging me about this thing.... a lot of back and forth... I see the potential in the business - but before I automated everything, it really is kind of like a job. Employee costs plus loan payment doesn't leave much room for error assuming business stays the same or has a dip.

It's wierd... having suppliers in China, physical products and you need a real live person at least part of the time to run this business. It kind of goes against my grain a little bit...

Hhmmmm

Oh.

So the site is making about $3500 per month after all expenses? If there is an employee, why does the owner have to work 5 - 10 hours a week? Does the employee work as an employee or a contractor, or do you have other employees already? Do they have a contract in place guaranteeing some minimum amount of work per week (hopefully you can automate the site and cut down on the amount of work to do, but it's less attractive if automating the site doesn't really cut your costs)?

It sounds like you aren't going to see much money from your investment over the next 3 years unless the site grows, you are able to effectively remove the employee from the picture, or this new product really takes off. Do you have other plans to monetize the site and try to increase your return, or are you planning to set it up as an actual e-commerce site and leave it alone after that?

It's still not a bad deal, it's just not the great deal I thought it was initially.

[Clinton]

Sounds like a great find!

Since you sent me a PM to look at this thread, I expect you want me to find some holes

The fact that there are numerous automation, promotion and other tweaks you can apply does suggest that profits can only go up. But what is the level of expertise required of the owner and the employee? Is the supplier easy to replace should he fold? What is the net profit? If it's closer to $5K than $50K I wouldn't be so excited i.e. are there some expenses you aren't aware of?

Owner will still be my wholesaler for a new version of the product for which she has the USA exclusive. Will offer support as needed although employee while retain much of the duties.

Hmmm. If the website relies on the US sole dealership status of the owner, I'd want that transferred over. Otherwise she could pull the rug from under you should any future disagreement occur. Why does she want to still be a wholesaler? I'd want her out of the business and signing a non-compete! I'd want to have enough knowledge (or documentation) to not have to rely on the previous owner (or employee) for product support.

Also, why does she want to sell? No, not why she says she wants to sell.

That's really what's been bugging me about this thing.... a lot of back and forth...

That's normal. You need patience with these things. It's better to do it carefully now than live to regret your haste.

[TrustButVerify]

You guys are a sharp bunch...

In then end I decided NOT to go through with the sale and let if fall to the other buyer she was in negotiation with.

For many of the reasons above I felt it was a really close deal but the cash flow just wasn't there. Even at a no interest 3 year loan... payments were around 2k... and yes I could have
automated much of the business and run it maybe on 10-20 hours a week total but we're also dealing with Chinese suppliers and drop shippers.

They say you make your money when you buy and not when you sell and I was really starting to feel like it wouldn't really cash flow until I got it automated and increased revenue. I was starting to get sucked into the "potential".... something I always try to steer clear of.

All in all, I think it was a better than average deal - but not so much that I wanted to "partner" with somebody for the next 3 years.

I wrote this post to hear your feedback but also just to kind of hear myself out loud.

Thanks for pointing out the holes guys!

[Michelle]

Seeings you're not buying it would you mind sharing at least the broad market the product falls into?

[Clinton]

Sorry to hear the bad news.

Listen, I hope I didn't put you off, that wasn't the intention. I was hoping to help you raise the right questions.

They say you make your money when you buy and not when you sell

I like that . Luke Moulton, isn't that a good saying?

So how about renegotiating/restructuring the deal to get the terms within your comfort zone?

I was starting to get sucked into the "potential".... something I always try to steer clear of.

I agree. Getting sucked into potential that's being marketed to you is always a bad move. But with most buys you're making the purchase because of the potential you see in the business. And this seemed like the ideal site for value add.

[TrustButVerify]

Seeings you're not buying it would you mind sharing at least the broad market the product falls into?

It's in the events product market. Things that are regularly sold to a person putting on certain types of events/parties. And each type of this event, they will usually all buy this. The products are usually personalized for the event.

Listen, I hope I didn't put you off, that wasn't the intention. I was hoping to help you raise the right questions.

So how about renegotiating/restructuring the deal to get the terms within your comfort zone?
But with most buys you're making the purchase because of the potential you see in the business. And this seemed like the ideal site for value add.

Yes, I thought about that.

You're right, many times you can be happy to pay 24x the current monthly revenue if you see a way to really add value and increase revenue. And I did see the actual potential.

With all the good it had, it came down to these two things:

1. It was a physical product that was usually customized with every order (orders are of quantity)... you put those two together... physical product + customized.... and I think you're really headed away from a completely passive internet based business.

2. The length of the financing... I just wasn't too excited about a lengthy term, even if the terms were good.

But in the end, I'm comfortable with my decision and I'm learning for myself what I"m truly comfortable getting involved with.

[Clinton]

in the end, I'm comfortable with my decision and I'm learning for myself what I"m truly comfortable getting involved with.

Excellent news. And thanks for starting what turned out to be an interesting thread.