In this article, I am going to walk you through how I’m using Flippa to find companies to integrate into my existing business for growth. I’ll be outlining the benefits of business mergers for growth as well as the features that will make your search easier. In addition, I’ll go over how to assess a business once you’ve found it. Perhaps most importantly, I’ll share how to conduct killer due diligence to help understand if the company is indeed a real opportunity.
I’ve always been a serial entrepreneur on a mission to be financially free. So, I created The Financial Appetite to help other entrepreneurs along their journeys. My existing business is an entrepreneur’s community for education, inspiration, and connection. My business is currently very small, with goals for significant growth in the next 3-6 months. I intend to use Flippa for two purposes: to purchase a company and then to leverage that company to optimize my current one.
In this article, I am going to share with you the refined process I have been using so you can learn from my experience and insight.
So grab a cup of coffee and let’s dive in!
The Power of Finding Good Companies to Integrate Into Your Existing Business
The process of integrating old businesses into new businesses for growth is not new. It can provide real benefits and give you a mega push toward significant growth.
A buyer can expand their business quickly and effectively, especially if it’s in the same industry.
Here are some acquisition strategies for buying a business in order to grow your existing business:
- Customer Base: The buyer can target their marketing efforts with the acquired business’s customer base or use the customer base to cross-promote their own goods or services to the acquired business’s clientele.
- Email and Subscriber Lists: The purchaser may market their goods and services using the acquired company’s email address, or they may send targeted emails and expand their newsletter.
- Brand Reputation: The buyer can leverage the acquired business’s reputation to become recognized as an expert in their field or to draw in new clients who are already familiar with it.
- Technology: Integrating proprietary software or technology from the purchased online business into the buyer’s own online business can be a huge advantage. By utilizing the new technology, a buyer can improve their products and services or streamline business operations.
- SEO: If the acquired online business has a successful SEO strategy and positioning, the buyer can use that to boost its own positioning. To help improve their website’s authority, search engine results, and traffic, the buyer can incorporate the keywords and backlinks from the acquired company’s website into their own. A great resource to find articles on SEO is PracticalEcommerce
Flippa’s Helpful Features to Find the Right Company:
You can establish criteria and receive notifications with different features from Flippa.
- Save your search: When searching for a business on Flippa, you can save your search criteria by choosing the “Save Search” button. By doing this, you will be able to access your search criteria with ease in the future and receive alerts when new postings that match your criteria become available.
- Set up alerts: On Flippa, you can also create alerts for specific groups. You can do this by going to your saved results and clicking “Create Alert.” Then, you can make alerts for specific terms and get emailed when a new match comes available.
- Follow specific sellers: If there are any specific sellers on Flippa whose listings you are especially interested in, you can follow their profiles to receive notifications whenever they list a new business for sale. To do this, go to the seller’s website and click “Follow.”
- Use Flippa’s broker services: Flippa also offers broker services to help you find and purchase businesses that meet your requirements. I have not done this, but I imagine it’s a big time saver!
These features are so helpful in saving me time by directly delivering opportunities that make sense for The Financial Appetite.
Assessment of Potential Opportunities
How do you thoroughly assess a company that you think looks interesting to make sure it’s a real opportunity?
The most crucial factor to take into account is the website’s traffic and revenue. Google Analytics can be used to check the amount of traffic and where it is coming from, as well as metrics like bounce rate and time spent on the page. Over the previous 12 months, look for consistent patterns of revenue growth and traffic growth. Examine the traffic’s sources, such as paid advertising, social media, and search engines.
Say, for instance, that only one or two articles account for the majority of the page’s traffic. What if one of those articles loses ground and its ranking drops? You could lose a ton of traffic. Check to see if the website is making money from affiliate marketing, ads, or product sales.
What if the website’s only revenue stream comes from Google Ads? If one source accounts for all of the traffic to a website, that is not good. What you want is a balanced mix of traffic sources.
The traffic trend is also important to look at. If you see an increase in traffic, it could mean that the owner is focusing on building the site. You’ll want to know the seller’s growth strategy and what’s been effective. Do they have quality content and a lot of traffic coming from their ads? Knowing this reason is important so you can grow and maintain the strategy they are getting traction with.
On the other hand, if visitors are dwindling, when was the site last updated by the seller? A site could be seasonal, and if you’re looking to buy in high season, the traffic skyrockets, making the company look very valuable in that season only. It’s important to know why it’s trending and have an accurate view.
Besides looking at the traffic, consider these six factors to assess a potential opportunity:
- Determine whether the website’s niche has room for expansion by conducting research in this area. Look for competitors and analyze their strengths and weaknesses. Determine whether there are any barriers to entry in the niche, such as high competition or limited growth opportunities. You can check Googletrends.com to see how the site’s associated keywords have been trending.
- Check the website’s age and history: This will help determine a site’s longevity and stability. Check whether the website has had any penalties or suspensions from search engines or other online platforms. Determine whether the website has a loyal audience or customer base.
- Analyze the website’s assets and liabilities: Look into the domain name, hosting provider, the strength of the content, inventory, and any outstanding debts and expenses. Always have the seller show proof and have them screen share whenever possible to verify accuracy.
- Analyze the website’s SEO health. Take a deep look into the strength and quality of backlinks. You want to make sure the site has quality backlinks and not spammy ones with low domain ratings that may have been purchased. Also, look at the domain rating which is a measure of the site’s health and is scored out of 100. Low is not always bad, it could mean that there is room for improvement or scalability. Comparing the domain authority of your website to that of your competitors is also a good idea. To dive deeper into SEO, check out this article here.
- Check the seller’s reputation: Research the seller’s reputation on Flippa and other online platforms. Do they seem reliable? Look for feedback from previous buyers and analyze the seller’s communication skills and responsiveness.
- Consider the asking price: Determine whether the asking price is reasonable based on the website’s traffic, revenue, and growth potential. Consider whether the price includes any assets or liabilities and what additional assets come with the sale. For The Financial Appetite, I’m looking for a 1.8x annual profit multiple. There’s a great article on this here. For determining how the price looks, take the income multiple into account. By dividing the selling amount by the annual revenue, this can be determined. As a general rule, a multiple of 2-3x could be considered a decent deal, while a multiple of 4x or higher may be regarded as expensive. However, keep in mind that depending on the type of business, industry standards for revenue multiples can vary.
Effective Due Diligence
I believe that conducting thorough due diligence is the most important skill in vetting a company to integrate into yours.
The biggest error people make when buying companies is making emotional purchases. Being excellent at carrying out due diligence helps limit the emotional component and solely rely on facts. Thus, practicing successful due diligence is the best thing you can do.
Every time I evaluate a company, one of the things I try to do is prove why a company appears to be a bad investment before looking at why it is a good one. This strategy helps take the “rose” out of your “rose-colored” glasses and gives you a more realistic view of the company’s health.
The key seller inquiries I use when I am seriously considering a company are listed below. Try to keep these questions open-ended as often as possible, forcing the seller to give more context, which can help offer more valuable and rich information.
For any questions on a website’s statistics or numbers, ask to do a screen share with the seller to see the platforms they use and verify the information firsthand. For example, you want proper access to the business merchants, whether that’s PayPal, Stripe, or Shopify. Make sure not to accept any old Google Sheet or Excel, as that is not a valid indication of profit and loss.
There’s a great podcast called Buying Online Businesses that teaches you about the power of due diligence here. This was a great resource when starting my journey and educating myself.
Seller Questions For Effective Due Diligence
- What would you do to make this business less risky and make more money?
- What is the history of the company, and why are you selling it?
- What is the revenue and profit history of the company, and what are the major revenue streams?
- What should any new owner of the website be worried about and why?
- What is the composition of the customer base, and what is the retention rate of customers?
- What is the marketing strategy of the company, and what marketing channels are used? (Social, email, content marketing, etc.), and can you show proof of metrics for each?
- How much money and time are you spending on marketing? (They may not be spending a whole lot of time on building traffic with content, but they may be spending hours on social and reaching out for links, which would pay off later)
- What is the current technical infrastructure of the company, and what software or technology is used?
- Who are the current employees of the company, and what are their roles and responsibilities?
- What is the current online reputation of the company, and what is the sentiment of online reviews and feedback?
- What is the intellectual property of the company, including trademarks, patents, and copyrights?
- How is the competition presenting itself, and what do you know about any weaknesses that may help the business?
- What did you do to grow this website’s revenue (this also allows you to be conscious of what did not work and what skills you need to run the site)
- What should I know about the business that I don’t already know?
- How would you like to get the funds? Less upfront or more paid out over time? Is seller financing possible? How can we be creative about an offer I have submitted?
Red Flags to Watch Out For
- Poor Traffic Quality:
A website may receive a lot of traffic, but if that traffic is of poor quality or is not directed at the target market for the business, it may not result in sales or income. To make sure that the traffic is of high quality and applicable to the business, you should carefully assess the sources, channels, and demographics.
- Look for outdated, harmful algorithms.
Are there any unusual traffic peaks and troughs? Checking whether a website was affected by a previous algorithm update is essential to determining whether the site is simply declining as a result of that change. It’s vital to understand, as the new owner, if you will or will not be able to restore it.
- Time spent on page and bounce rate.
These elements offer useful insight into the user experience that website visitors have while browsing the site. Visitors will leave a website quickly if they feel that it offers them nothing, is irrelevant to their needs, or has low-quality content. A time on the page of 1 to 2 minutes is acceptable and shows that visitors value the website.
A low bounce rate and a healthy time on page, which indicate that users enjoy the content and the site, are necessary before investing in a website.
That said, there can be big opportunities for people to make those metrics better when they purchase; this would be considered a “fixer-upper.”
- Outdated or Ineffective Marketing Strategies:
If the online business relies on outdated or ineffective marketing strategies, the buyer may need to invest significant time and resources into revamping the marketing plan.
- Limited Growth Potential in the Niche:
The buyer should evaluate the potential for growth in the online business. It’s possible that the buyer won’t be able to grow the online business significantly or bring in a sizable amount of money if it has a small room for growth or operates in a declining sector.
- Technical Issues:
You should assess the online business’s technical foundation, including the website, hosting, and software. The online business might not offer a positive user experience or bring in a sizable amount of money if it has technical problems like slow loading times, poor mobile responsiveness, or out-of-date software.
- Hidden Costs or Liabilities:
You should evaluate the existing financials of the online business to identify any hidden costs or liabilities, such as outstanding debts, unpaid taxes, or pending lawsuits. Make sure to have the seller do a screen share when possible and get reports directly from the source (Paypal, Google Analytics, etc). Do not accept a Google Sheet or manual document that can be tampered with.
My Story
Hi! My name is Joanna Golden, and I am a business owner, seasoned businesswoman, mother of three young kids, and serial entrepreneur. I’m a woman with a huge appetite for life, especially when it comes to business.
I spent 15 years at media companies in various leadership and business development roles. I mostly oversaw the development of large partnerships with consumer and enterprise companies. Most recently, I was the Head of Global Sales at a media company. I also established a small real estate business at that time, and I currently have six rental properties. Fast forward to now, and I am just starting a new business that is a financial community for entrepreneurs called The Financial Appetite.
Exactly one year ago, I quit my cushy corporate job and decided I had enough of making other people money. I wanted to use my skills in business development, sales, and leadership to build something of my own. And I wanted financial freedom—to live my life on my terms. Though I was making very good money, I knew the only way to be truly free was to do something on my own. So, I leaped into the abyss of the “unknown” and started The Financial Appetite. And now, it’s up to only me to grow this thing and do it in an intelligent way. Hope to see you on the journey!
Conclusion
In summary, I discussed using Flippa to find companies to integrate into my existing business for growth. I outlined the benefits of business integration for growth as well as the features that will make your search easier. In addition, I went over how to assess a business once you’ve found it.
I spoke at length about the importance of due diligence to help understand if the company is indeed a real opportunity. If you can get good at one thing, it should be due diligence. Ask as many questions as you can, and make sure they are all open-ended. Let the seller divulge information for you to feel out.
I have developed a system and checklist for assessing each company to integrate that takes into account all of the details I’ve provided in this article, and I suggest you do the same. This makes it incredibly simple to look through each company and identify the gems while avoiding the duds.
Keep an eye out for my next guest post on the subject after my imminent purchase, where I’ll be documenting the post-buy merger process.
I wish you the best of luck in your business hunting and integration journey!
Ready to grow you businesses through acquisition? Start your search for online businesses to acquire here.
