This is a guest post by Jaryd Krause, bio at the bottom of the post.
The fact is that 90% of startups fail. So I feel that going down the route of buying a website business already making money that has passed that failure rate is the best investment of your money and time.
In my opinion, there is no better approach to achieving your financial and lifestyle goals.
Personally, I have bought multiple website businesses myself as have my clients. By doing so they are making thousands to tens of thousands per month from their websites. However, there is a lot of work that needs to be done to get to that point.
The first of which is what I call solidifying the foundation. Because if you are going to build anything, especially an empire of successful websites or one large website, building it on shaky footings is only going to cause it to topple at some point. Those footings I speak of aren’t to just have a success mindset like everyone preaches. Whilst that is important, being financial and knowing your finances inside out is a huge part of the equation.
I do want to warn you though. There are some exercises that need to be done to attain a firm financial foundation, which I will outline in this post. It to doesn’t matter what financial position you are in, these exercises are non-negotiable to realize any level of financial success in your life.
1. Fix Your Bucket First
Whenever someone comes to the decision to want to work with us and buy a websites, the first thing we like to understand is something we call the bucket. Almost every single time my team or myself go through this exercise with someone they are shocked. Usually, because we save them thousands to tens of thousands of dollars per year.
Want to know the best thing about this though?
Fixing your bucket is incredibly basic stuff, but by FAR the most impactful.
What is the bucket though?
Just like anyone who has any income and any expenses we like them to imagine that the income that comes in goes straight into the bucket. Now the expenses, they come out of the base of the bucket which are generally plumbed up to certain things in our life, which we need. Examples being food, shelter, transportation and other fundamental expenses.
Next, to really understand what is happening with this system, we do some basic accounting. So first (and do this whilst reading this), I would like you to write out how much you actually save per month. And be realistic with this, it’s for your own benefit.
Then I want you to work out how much income (after tax) you have coming in on a monthly basis. Once you know what ALL your income coming in is, then I want you to list out every single expense you have, including drinking on the weekend if you do that. Including a holiday if you have one of those each year, just divide that by 12 months to work out the expense. Include absolutely every expense.
By now you may be thinking this exercise is boring, and you are right it is. Normally no one wants to do this, however like I said before you could save yourself thousands to tens of thousands of dollars per year just by spending 15 minutes doing this. Meaning, it’s totally worth it.
Once you have all your income and all your expenses listed out, then minus your expenses off your income and see what is leftover. This is how much money you should be saving per month. The next thing you want to ask yourself is:
Is that number the same amount that you are actually saving per month right now?
If the answer is no, then you have a leaky bucket.
Don’t fret though, this isn’t bad. Knowing this is actually good. Because it allows you to see how much money you are wasting (leaking) on things that you don’t even realize. It also gives you the opportunity to fix the bucket and save even more money! Which I will show you how to do shortly.
2. Clear Debt
The average American is in about $38,000 worth of personal debt and that is excluding mortgages. So it goes without saying that clearing your debt is an absolute must.
This is another huge reason why I like people to fix their bucket because by doing so you can eliminate expenses that are not serving you and pay off that debt faster.
This is crazy to think, but a lot of people know that the longer they are in debt the more they pay, but they don’t care. The main reason people don’t care is that they delay responsibility in paying that debt back, which only makes life hard and harder.
If you are in debt now, imagine how good the feeling of being debt free would be. That isn’t just a goal (or should I say dream) for people but it’s very achievable. All you need to do is go through your income and expenses and cut out all unnecessary expenses and simply put more of your money towards the debt to pay it off sooner.
How you can make this easier once you have cut out some of those expenses you don’t really need. Then you can increase the amount you pay towards your debt and make sure those payments are scheduled payments that go towards your debts too. That way your debt will start to decrease quicker, without you realizing, thus putting you in a far better financial position.
Once you have paid off your debt then you can then start saving. My opinion is that you should never be saving and holding on to money whilst you have debt because you are paying interest on that debt. Instead, pay it all off then the next step will be to save.
Like I said earlier this is super basic stuff. You already know all of this, it’s just like if you want to lose weight. All you need to do is eat better food and go for a jog maybe twice per week. The same with finances, you know what to do, this article really is to bring this back into your awareness to do before you start buying a website business.
If you have reached this step, congratulations! In a world where consumerism is king and buying things with other peoples money (financing) is the norm, it can be hard to reach this stage.
If you haven’t already, what I suggest you do is go through all of your expenses and eliminating the expenses you don’t need. I am talking about things like cable TV/Netflix, eating out more than 2 nights per week, the latest and greatest gadgets and spending money on new clothes every week/month.
These expenses add up and they are just not necessary, especially when your goal is to become financially free, start buying a website business and have a better lifestyle. To achieve a goal like that there needs to be some sacrifices and the way I see it is you either choose to sacrifice your goals or sacrifice some closer comforts.
After cutting off some expenses, a lot of people forget that you can save a lot of money by just downgrading subscriptions and bills or even just changing suppliers. Many of my clients pay $100 or more per month for their phone bill when they can get the same deal with a different provider for far less. This can be the same with your power bill and many of your other bills. It may seem like you only save an extra $10-$50 per month, but that over 5 years can be an extra $3000 or more.
Once you have done that there are two last finishing touches to ensure you set yourself up for the future. The first is setting yourself up a separate bank account and calling it your ‘Investment Account’, this is where all (or a big portion) of the money you save will be going. The money in this account is to go towards your first website business, it can also be used for any investments whether that be in property, bonds, stocks or what you feel is best.
The last part is to set up a specific scheduled transfer, which should be automatically transferred weekly, fortnightly or monthly into your investment account. To transfer your savings from your income account into your investment account and allow that to happen like clockwork. After a while you will start to see that investment account grow. Whilst that is growing I urge you to grow your education so you can minimize your risk when buying a website business.
Once and only once you have all the above handled, then you can look at getting finance. I say this because imagine if you have a leaky bucket and don’t have the basics covered like we just talked about before.
What happens when you go get more money, which is not yours and you owe it back to people (lenders)? Is that you then you put it through your leaky bucket and lose a lot of it, causing you to be fighting forever to pay the lender back, or you will have to claim bankruptcy.
This is very common; it’s why lenders lend. Because they know people have leaky buckets and over time lenders can make even more money from those loan holders in interest.
So I warn you, DO NOT get finance until your bucket is solid.
If you have all of that done and accounted for, then there are a few different options to get finance when buying a website business.
The first of which is my favorite, it’s called an earn out.
How an earn outs works is, when you find the website you want to buy after lots of due diligence and knowing it’s a great investment you can put your offer to the seller to structure the deal as an ‘earn out’.
Meaning you could pay them an upfront amount (deposit), which on an earn out is normally more than 50%. So as an example for a $100,000 website business you could offer to pay $70,000 to the seller and work out an earn out over maybe 3 months paying $10,000 to the seller each month. This has been done by many websites investors, myself included, and it a great way to finance part of the deal without needing to pay interest. A key tip here is to not talk to the seller about interest in an earn out like this.
The earn out it the first option my clients and I go for. The second option is to pay the whole amount in cash, I like to use this route before I pay any interest as that only makes my investments cost more.
Should you not have all the finance (cash) you need there are 3 different options from here:
a) You can use a structure which we call seller financing. This is exactly the same type of structure as an earn out, though you pay the remaining balance back to the seller with interest. Which is worked out between you and the seller in regards to the amount of interest and the length of time you pay it back.
b) If for some reason the seller wants all cash and you don’t have that option, then applying for a small business loan is a possibility. Usually for website businesses under $50,000 the seller typically will be expecting cash. In America you can get SBA loans and in other countries there are different types of small business loans, which generally have better rates than personal loans. Though I do know people who have used personal loans for website investments and that has worked for them.
c) Lastly, if you don’t want to get finance from a bank or finance lender you could find an investor. This is more common than you may realize and when an investor (such as an Angel Investor) see’s they can invest in a business through you, that is already working and making money, it is often more attractive than investors lending money to people for start-ups. To find these types of investors you should have an investment plan/strategy to present them and you can find these investors from various websites online. Though if you know people it’s best to start there because there is already a level of trust.
As you now know, there is a lot to consider when buying a website business and using finance. If you are going to buy a website I also suggest educating yourself on how to find the right one and how to do website due diligence to ensure you are buying a great website. If you would like more information or some free websites due diligence tools you can grab them from my website here.
All the best on your journey to making money online and I hope this was valuable if you have any questions at all feel free to contact me through my website as I am always happy to help.
About The Author:
Jaryd Krause used to be a plumber working 60+ hours per week and hated it. Fast forward to today and he now owns multiple online businesses himself and many of his clients earn thousands to tens of thousands of dollars per month from their business they bought working with Jaryd. His Buying Online Businesses Podcast has been rated in the top 5 best passive income podcasts online where Jaryd is dedicated to teaching people how to buy websites to achieve a better lifestyle.