Online businesses are created for a variety of reasons. A test, a weekend project, or just a genuine desire to discover the possibilities. Some don’t succeed; however, some spark imagination and increase a customer base. Once the initial momentum is established and the business continues to grow, it requires more energy. Some business owners on the internet continue to grow and expand while others stop keeping the company going and begin looking for the exit.
Dominic Wells is the founder of Onfolio, which purchases and develops online businesses within eCommerce, content, and services. Wells has purchased more than fifty online businesses over the last two years, and his company assists investors and entrepreneurs in earning returns that aren’t typically found in other fields. Onfolio is a funder of investment that helps help accelerate acquisitions and fund acquisitions. It is confident enough about its ability to pay regular dividends each year. Many online businesses are available online through well-known marketplaces like Empire Flippers, Flippa, and Swift Exits. Here are three options to take into consideration.
Maintain and buy
You can earn excellent profits by purchasing an existing online company and managing it yourself to maintain its profit. According to Wells, the numbers add up. “Online businesses are usually sold at 3-4% of annual revenues.” This means that from the standpoint of investing, “if you bought one and managed to keep its profits through your management, then you’d get 25-40% cash-on the cash investment each calendar year.” Comparing this with properties, for instance, and you’ll see it’s a fascinating idea.
If you’ve got something you can add to this strategy could yield huge profits—an email list or name and talent to grow companies. A keen eye may result in some tweaks to improve the conversion rates of your website. Profit from a bored owner by spotting the things they didn’t notice and reviving the company, and reaping the benefits from doing it. If you can keep the profit, you’ll see a return on your investment.
But, this approach isn’t suitable for novices. “The main matter people have is the risk of competency. They aren’t sure how to run an online company, and this makes the maintain profits’ task difficult to accomplish,” said Wells. There may be subtleties that the previous owner did not reveal or that the market may be shifting rapidly. Google Adsense and affiliate links, and eCommerce are all fast-moving and require a lot of effort to keep. Maintaining the same level of service could be a full-time occupation.
“This is an extremely involved investment,” explained Wells, “while the majority of people would rather invest in to do something more that is passive.” The actively involved nature of purchasing and operating an online business is the reason they “only generally sell for three or four times the profit, rather than substantially higher.” If an online company can be incorporated into an investor’s business, the profits could be multiplied. However, establishing a successful business for an online store or platform is a tough job that even amateurs cannot apply.
Outsource and buy
Another less active option is to purchase an online business and then transfer it to an expert to manage. Wells stated that “hiring an operator to manage the business for you means your returns will be in the range of 20% and will be more than passive.” An experienced operator will ensure your business is running smoothly and may even grow. They should be able to avoid the most common online business mistakes. The business owner is likely to manage several websites that offer member benefits, such as expertise and shared networks, similar audience profiles, and the economics of scale. “You can earn your exxpenditure back in just five years, and once you’ve established, you’ve won for a long time.”
Operating the online businesses of business owners is an enterprise in and of its own, Wells advised. “There are increasing numbers of company owners who are turning an active investment into that is passive.” At the same time, it decreases the profits, “since they don’t work on their own,” and they have to expand the company to pay for their expenses. “Even when they can only manage it, the profit margins remain attractive.” However, what happens if they aren’t? What happens if Google alters its algorithm or the previous owner was more productive than they admitted and the new operator takes over the business and puts it in the dirt? This is a passive option that must be done right. Delegate, but don’t abandon.
Invest in an investment fund
Another way to profit from acquisitions of businesses online is to put money into a fund that invests in online companies. “This provides diversification and can provide between 20% and 30% return during a prosperous year but with less control,” according to Wells, who stated the fact that “this market is still in its early stages, but the profit potential is vast,” and whose company offers a fixed 12 percent dividend each year.
The majority of funds will release their financials along with the names of companies in their books. This could allow investors to draw on the other resources to expand businesses even more, like the mailing list, the extensive network, or the name we talked about earlier. It cuts down administrative and running business headaches to a minimum, as another person owns the company; however, it limits the benefits. If someone is looking to get started operating an internet-based business, it’s not going to suffice. For those who are looking to make money, this could be a good option.
Wells recommended the idea of investing in an online fund as an investment option that can stack with shares, stock, and property, mainly when the market is still relatively new. “Financing alternatives and the leverage market are at the beginning of their development which provides an opportunity and power to those with cash for investment.” Additionally, entering the market is low because the fund handles the administration and due diligence required to source and purchase online companies.
While you aren’t required to conduct due diligence when adding new items to their portfolios, you’ll have to verify. When you invest in a fund, you trust its management. You can trust them to keep their fingers at the pulse changes in the market to safeguard your investment. The track record of their company is vital, and therefore, research into them is crucial.
In all investment decisions, it is important to consider risks cautiously. Anyone who plans to invest should seek expert guidance and be prepared for the possibility of losing everything. However, for business owners seeking to earn a return from extra cash, purchasing or investing in online-only companies is an option worth considering.