It may be one thing to spend a whole lot of time conducting due diligence on an internet business, which you need to do. But you sure as hell don’t want to ever overpay for an internet business investment because you let your emotions get in the way of a perfectly good investment.
Which is why I wanted to dedicate this post to just that. As investing in not just internet businesses but any investment with money should not be a purchase based on emotions. Because often that can lead to us over paying for it.
So below I have a list I like to follow when investing and how to keep myself in check so I never overpay for an internet businesses.
Find the right business
Obviously you need to put in the groundwork by searching for an investment that ticks all the right boxes for you. And if by now you don’t have at least some form of guidelines for what you want in a business you may want to start thinking about creating some too.
Conduct your due diligence
One of the clearest things you need to do before you put an offer down on any internet business. Is to really sink your teeth into the business by conducting some rigorous due diligence on it. Exhaust all your resources and tools when conducting this due diligence check, which is going to set you up for the remaining steps so you can ensure you won’t ever overpay for an internet business that won’t reward you accordingly.
Also, if you are new to due diligence or may just want to add some tools to your belt, be sure to check out my post on 7 killer resources for buying Internet businesses.
Know the real value of the business
If you have conduct a lot of due diligence already, I am sure you were able to break down the financials and see what money is coming in and going out of the business in the way on income versus expense.
Once you have done that, you can then start to grasp the real average monthly income. Not the sneaky ‘average monthly income’ the seller or broker is using to value the business.
And while I am on this subject, I have a major warning sign for you to look out for! Which is, almost all sellers value Internet businesses by using just the calculated average monthly income from only the best few months the business has had. So what this means is, they are valuing the business according to the best times the business has ever had, so you need to be really careful about these things, because these sellers can be sneaky.
Instead, what you want to do is get the real value of the business by getting the average monthly income divided over the last 12 months (not the best few months like the sellers might). Then from there you can see the real value of the business.
Set your price
Once you know your true average monthly income, not the one the seller is pitching to you. You need to set your price. For example, if the seller is asking for a multiple of 22 months, times the average monthly income, then it is good to set your price somewhere similar to that multiple.
Depending on the business and how good it is, which you should know by conducting due diligence. Will depend on what amount you are confident enough to pay for the business. You may believe the business is great and are happy to stick to the 22 multiple, or maybe it is an amazing business and you can set your final price around 23-24 multiple mark or more. If the business appears to you it is only worth 18 months then keep your final price at that and no higher.
The trick here is to be realistic. Don’t set your price so low that the seller won’t even accept it. You need to understand that you are not the only person in this deal, so it needs to be a win-win for the both you, the buyer and the seller. Which means be realistic about your price so you are both getting a fair deal. Essentially that is the way it needs to be.
Never EVER go over your price
Once you have set your price you should never EVER go over this. And this is the real test, as it is necessary for you to stick to and not budge higher than what your cut off limit is.
If you have done the homework correctly you know the real value of the business. So don’t buy into the hype or get emotional about the business if the seller won’t take what you are offering. Be firm and confident in the due diligence you have done.
You see, the real trick to never overpay for an internet business is being confident in the research and due diligence you have done. Because you should know from your homework what the business is really worth. Which is why you don’t just need to stick to your price, but instead be confident you valued the business correctly. And if you can master that, you will never overpay for an internet business.
I hope you found this post helpful.