An Information Memorandum for prospective investors should include a FUTURE earnings forecast based on milestones and achievements to date.
When you’re evaluating the purchase of an online business there’s more to the income generating potential than what you first see. The figures presented in the profit and loss report reveal the past and current trading performance. You can use trends to try to forecast future earnings and profit but businesses are very dynamic and future performance usually depends on what the new owner does with the business.
If you read an annual report you will find milestones and notes about changes and improvements made by the current owner and it’s these changes that effect future income as well.
The hardest part about start a new business is the first two years or so, but if you continually test new marketing strategies and improve efficiencies by reinvesting in technology, you’ll plant the seeds for future revenue growth. After that, the value of the business is what you can generate from it over the next 3-5 years.
Learning From the Past
The beauty of buying an existing online business is that the initial groundwork is already done. By the time a vendor advertises a successful business for sale they will have already spent considerable time and money measuring and analysing results and making improvements along the way.
This not only adds value to the business opportunity, it means the new business owner can start earning immediately and incur less risk.
The testing, research, planning and investment that occurs in the first two years of operation will determine the future viability of the business and ultimately, its sale value.
Whether you’re a start-up or buying an existing business, the goals are the same—growth and profitability. Sadly, most new businesses fail due to lack of planning and follow through. Growing a successful business takes vision, patience, commitment and time.
When purchasing a business you need to consider the following:
- How quickly will you learn how to manage the business?
- What changes will you make?
- How you can sell more of the same products,
- How can you increase the average value per order, or
- Can you sell more products and services?
Before you can make (potentially costly) decisions about technology, equipment and people, you need to have a broad framework in place for marketing your services, capturing sales leads and delivering your services. For example:
- Advertise on Google Ads to reach a wider audience.
- Create a strong Call To Action (CTA) and make it easy for potential customers to make a purchase.
- Implement effective lead capture and follow up processes.
- Ensure operational excellence by meeting service delivery and customer service expectations.
Although you may have an end-to-end operational plan in place, the market and your competitors are always changing so there is no guarantees that what you’ve always been doing in the past will work work the same in the future. The only way to keep moving forward is to keep testing new and better ways of doing things.
This online business for sale demonstrated (on average) consistent top line growth in revenue over 4 years (except in the last year when the owner didn’t advertise as much). This growth occurred because the business owner implemented a number of changes to ensure future growth and increase the value of the business.
- Promo codes – discounts to incentivise student enrolments.
- Course funding for students – easy payment options to remove financial barriers to enrolment.
- Time based discounts – to create urgency.
- Testing niche Google Ads campaigns – to find the optimum combination of Keywords to attract the ideal client.
- Implement a CRM for customer service and sales pipeline – to keep track of leads, conversions and clients.
- SMS marketing – re-target past and present students and prospects.
- Cloud telephone system – portability and ease of access for remote workers.
- Lead capture using forms plugin – automate the capture of information from online enquiry forms.
- Premium services – improve client retention and cross-selling opportunities to alumni students.
The important aspect about these digital assets is the low fixed operating costs and that growth in sales and profit can increase with investment in product range, advertising and customer support.
An Information Memorandum is a document prepared by the vendor that provides a comprehensive overview of the business to prospective investors. It typically includes information about the offer including:
- Digital assets such as a website, client email list, historical sales (client testimonials) and a sales pipeline (for generating future revenue).
- Training and support for the buyer’s incoming team.
- Products and services that are sold by the business.
- Prospect and customer information such as conversion rates and sales by product category.
- Digital marketing strategies and implementations.
- Technologies such as a payment gateway, cloud-based phone system and WordPress for website updates.
- Financial performance showing historical trends as they correlate to key milestones, and a financial forecast for the future.
- Overview of the competition, market trends and opportunities for growth.
With this information it will be easy to see what actions the vendor has taken to increase the value of the business. By making a plan to keep your fixed costs low and maintain scalability, you will be able to reduce your risk and have the best potential for future income or a profitable resale.
Online Training Course business – 30% pa growth including customer base and training available for sale
This online training business is perfect for the upskilling and retraining needed by a massive number of Australian jobseekers. Good margins, training and support and growing at 30% p.a.
Buying An Online Business—What If You Could Choose Your Own Business Model?
If you’re purchasing a business off the shelf, chances are that you will inherit some operational aspects that you don’t want. Perhaps the business is currently supplying products or services that are irrelevant to your long term business objectives. What if there are additional services or support obligations which take up more time and resources than you are prepared to spend?