Buying an online business is an incredible way to earn extra income from home, without the traditional hassles of a bricks-and-mortar business. There are some specific legal considerations you need to understand so you can invest in website businesses safely. In this article we explore 3 legal tips for buying online businesses.
When buying an internet business, it’s important that you learn how to do website due diligence. At our latest live 3-Day Digital Training Workshop, we were fortunate to be joined by Australia’s leading online law expert, Jeanette Jifkins from Onyx Legal who helped explain the legal side of website due diligence.
Jeanette takes us through some great legal tips and shares 3 key things that you need to understand about transacting websites and online businesses for you and your clients.
CLICK ON THE VIDEO BELOW to hear Jeanette’s 3 tips for Buying Internet Business
Tip #1: Are you Buying the Whole Online Business, or Just a Portion?
The first thing you need to consider when you’re buying a website (or when you’re buying an online business), is to know whether you are buying the whole business, or only a certain portion of it.
To help you relate, I like to use the analogy of buying a motorbike. Are you buying the body kit or the whole car? Now, I’m a little bit of a revhead – I do ride a motorbike! And so if you’re not a revhead like me, hopefully you know what a body kit is…
Essentially, you can get a car, fully engineering in the bottom part and then get a pretty top to put over the top of it. If you see Shelby Cobras and things that you around, most of them are made from body kits. They’re not actually the original vehicles. So it’s a pretty bit.
If you’re looking to purchase a website for sale, either for yourself (or on behalf of a client), you need to understand whether they’re getting the pretty bit or all the engineering underneath as well.
Make sure you understand what included in the sale of an Internet Business
I did a transaction for a client a few years ago where they were purchasing an online business. That online business had bespoke software behind it. So it was not going to work on its own.
That whole business was a retail website, and the retail website was not going to work unless the software went with the sale.
If the sale of the internet business had gone to someone who didn’t understand the difference between the software (that makes it work) and the website (that makes it look pretty), then the buyer could have been left high and dry if they didn’t get the software too.
“Be clear of what you are purchasing and make sure the online business comes with all the components included that will make it work.” – Jeanette Jifkins, Onyx Law
Tip #2: Know Where the Money is Coming from when Buying an Online Business
Make sure you’re entitled to continue receiving any claimed income as part of the online business sale
One thing I frequently say to clients is where is the money coming from? Are you absolutely certain that you’re getting every piece that makes sure that money keeps coming in after you finished the purchase?
That might mean you need to buy your own subscriptions to a particular software and things like that, but you need to know before you can do that. So just be aware of that.
Should I create a Contract when negotiating the sale of an Online Business?
Contracts do not have to be in writing to be binding. There are some very limited areas of law where you have to have it in writing. But most contracts, you can have a conversation and then create a contract.
There are certain elements under Australian law which give rise to a contract. But be aware that email exchanges (i.e. a whole bunch of emails together) can create a contract.
If you are negotiating with someone to build a website for them (or to buy something), you might be doing that over email. Even if you’re not going to be paid for building a website for someone (or you’re only charging a small amount of money), make sure you provide a bullet point list of what you are going to do for them in exchange for money. This is really helpful because you can come back to it and say, “Here’s what I said I’d do,” and it can be a binding contract even though it’s not a formal document and signed etc.
Remember – don’t over complicate stuff at the small end. Keep it simple, keep it easy for you and keep it clear. You can come back and say, “See these bullet points we had in this email back then? That’s what I said I’d do, and here’s how I’ve done it.” It just makes your life easier.
Tip #3: Know your Tolerance to Risk when Buying an Online Business
Where in the world are you trading when purchasing an online business? Just be aware if you are going to be transacting with someone overseas, understand your risk profile.
For some people, transacting overseas means, “Oh well, if something goes wrong and I’ve lost $1,000, that’s a learning experience.”
Other people may say, “If something goes wrong and I’ve lost $1,000, that’s a really bad thing.”
So, understand where you sit on the spectrum. Have a level of safety in place when you’re transacting money so that you feel confident that you’re going to get what you’re paying for.
When Buying an Internet Business – Make Sure you Complete Advanced Due Diligence
You need to understand that if you’re dealing with someone overseas, it’s very hard (or it’s much harder) to enforce transactions when they’re cross-borders.
I had a client years ago when I was in law firm who bought a franchise system, (similar to Boost Juice), but they went over to the U.S. and bought it. They had nothing in writing, and they handed over $50,000. When they came back to Australia, they said to us, “He hasn’t delivered the system to us, can you help us?” And seriously, you just wouldn’t spend that much money doing that, so understand what your transaction process is.
There are escrow services you can use when buying an online business. As an example, when buying websites for sale, Flippa has an escrow service. There are safe ways to transact and document. Documenting is good.
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