The Benefits of Buying an Existing Online Business to Starting from Scratch (with Jaryd Krause)

Jaryd Krause of Buying Online Businesses tells us about when you might consider buying an existing online business to starting a new one from scratch. He also talks to us about due diligence, negotiation, and more.

Transcript
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welcome to the Frigo preneur podcast.

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I am your host, Sarah St.

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John and my guest today is a leading Australian business coach mentor

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and online business professional.

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Since he went from plumber to building an online business empire, he now

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dedicates his time to teaching individuals all around the world.

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How to exit the rat race, replace their income and live a life.

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They always did.

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Welcome to the show.

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Jared Kraus.

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Thank you so much, Sarah.

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Good to have you.

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Can you tell us a little bit more of your background and history?

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I know I briefly covered that, you started as a plumber and now you.

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have online businesses and whatnot, but I'd love to hear more about your story.

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Yeah, sure.

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So I was plumbing, obviously out of school.

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I was taught that there's two routes that we can go.

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We can go to university.

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Or we can go and get a job.

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I went and got a job straight away.

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In fact, I was still at school whilst I was a plumber.

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So I was working two days as a plumber and three days at school.

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And over time I just realized that I didn't want to be one of the old

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guys on the job site with gray hair pushing, wheelbarrows of gear around

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and, the hard yakka law, the hard work.

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Also from working big hours, I kind of like put myself in a position that I

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had a pretty toxic lifestyle, a lot of, drinking and not looking after myself.

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And in hindsight now I look to where I was, is I had to

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get out of that lifestyle.

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So what I did is I, usually quit my job and I traveled

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Come back on what for a year.

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And then I go travel for six months or a year and did that about three

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or four times before I realized.

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No, I don't want to go back to plumbing like this.

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Isn't actually what I'm here for.

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This isn't actually what I want to do.

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And then I try to work out how I could make money online.

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And so I was living in Egypt at the time when I realized where I'm not going to

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go back home broke, I'm gonna work out.

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I can make an income online.

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And I jumped on the internet and because I love traveling some.

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Audits stopped in how to travel the world and make money online, which came

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up with a bunch of different options.

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Travel blogging was one of them, and that was the route I decided to go down.

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So I started travel blogging now trying to make that work.

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And until everybody with an iPhone became my competition and a travel blogger.

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And then I realized that, I started a drop shipping business trying to sell

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products online through a drop shipping.

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And learn a lot about SEO and organic traffic and blogging and stuff, but

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I didn't know much about digital marketing paid ads for selling products.

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And so my store didn't go so well.

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And over this period of time and may try to make money online, it was just a real

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struggle, I'm sure everybody listening is in the same position or has at least

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understands this to a certain extent.

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It's just so damn hard to make an online business work, especially

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now when we're recording.

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So back then I thought, all right, I'm just going to keep,

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I'm just going to keep at it.

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I can't, give up on this.

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I need this.

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Lifestyle.

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This is what I want until I came across a stat and the stat was a stat from the SBA,

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which is a small business administration study that 90% of all startups fail.

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And I thought to myself, Sarah, well, hang on.

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If 90% of startups fail.

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Why don't I go away and buy one of these businesses that are past that 90% failure

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rate and has a proven track record of actually making money each month.

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So then I went to Google, again, my trusty, Google education, and typed

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in how to , buy all my businesses.

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And so then I had to sort of teach myself how to buy these websites and I bought one

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and it was making money, make great money.

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And then I bought another.

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And I made it in better money.

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And then I bought a third and by this time I'd bought three

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businesses and I had quit.

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My job replaced my income and I was traveling and that's when a

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lot of people kind of said, Hey Jared, how come you're traveling?

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And you're not needing to work.

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They found, I told them what I did and then they, said, dude,

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just please teach me this.

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that's where I started my community of teaching people, how to do this.

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Awesome.

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Yeah, I, think that's an interesting, cause most people they think

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of starting their own business from scratch from the ground up.

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, I don't think people really think about the possibility of buying an existing

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business or at least on online business.

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So I'd love to hear more about that process, how that works.

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Sure.

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how many people do, you know, buy online businesses or by

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websites or buy businesses at all?

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Right.

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Like, it was the same as me.

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I was like, I didn't even know this was a reality.

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That's why I had to go to Google to see if there were businesses

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that you could even buy.

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And I think it's just a massive shame that there's so much talk about.

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Becoming an online entrepreneur and how to get out of the rat race

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and how to make it work for us.

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And the main message is if we want to sort of get control over the

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future of our finances, have our own financial independence and

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our own lifestyle, independence, travel and we'll live anywhere.

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The one thing that we're always taught the main message that we wish that shared is

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that we need to go and start a business.

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It's just a shame that that's the main routes because it's so hard

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and 90% of us are destined to fail.

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Unfortunately, according to this actual stats almost give up and

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there's so many people that give up and don't even know that this is around.

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Luckily there's a few people that I actually am able to access

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and even share within that.

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I can go.

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Take this route, not even with my help, just they can go do it on their own.

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And that's the hardest part is, is breaking the mold and getting the

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message out there that this is a, thing

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it's very similar to buying a physical property investment.

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You go to the real estate broker, right?

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When you go to buy an online business, you're buying digital property.

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And what you do is you go to a website, broker, or an online business broker, and

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they have all these businesses listed this out, just like you would, if you went to

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the real estate broker and they tell you how much they're selling these businesses

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for and how much they making per month and what sort of work do you need to do?

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Per week or per month to run it, like, do you need a blog?

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How many pieces of content do you need to create?

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All these different things and you can actually buy

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something that's already set up.

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that's how it works in the simplest form, I guess, is you go to website brokers

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and you can find a buy these businesses.

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Obviously, there's, a lot between the finding period and acquiring cause

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you want to make sure you don't get taken advantage of which is where I

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step in, but that's the main, process.

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I think I've heard of a couple of them like what's it called?

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Is it empire flippers?

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Is that one of them.

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Okay.

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And then there's another one I can't think of at the top of my head.

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And I'm sure there's several there's a big one.

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So what is, I mean, I'm sure it varies, but what is the typical

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investment to buy an online business?

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Or what is the range?

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Usually that's a great question.

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the range is anywhere from like, A thousand dollars up to a hundred million.

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It's such a big range.

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Yeah.

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I mean, Particularly, what I say to people is that if you're going to buy

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a business, usually you want something that's sort of, you know, especially in

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the online business space, it's usually you want to spend about $10,000 or more.

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If you spend any less than $10,000, what you kind of doing is you're

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buying a startup where you need to put a lot more time, effort, energy,

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and money into it to, make it work.

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Like you've actually got a lot of work to be put into it, but that

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said, some people want to start off at that, $5,000 price range.

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So they do understand what work is required and they can understand

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the nitty gritty of like how.

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You know, operate WordPress or this site.

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And now how do I do this?

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And some people want to start there and then save up to buy something

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that's a bit more established, which usually requires less work

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So when you're looking at online businesses that are available to

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buy, I guess they have a breakdown of like how many visits they get per

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month and how much income they're generating and, things like that.

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I guess you kind of get.

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The full breakdown before you get into it.

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Yeah.

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Such a good question.

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When you go to buy an online business, if you understand how to do due diligence,

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which is basically just researching to see if the business is a good investment

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or websites are good investment, you should be asking for access to the

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Google analytics account to look at all that traffic you should be asking

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for access to the backend of the store.

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If it's an e-commerce business.

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How many products are sold, how much money is that business making?

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How many, a bit Autumns are returned, what's their return rate even, access

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to, multiple different things you want to be also be able to see.

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Get proof of income is a really big one, but yes you do.

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request access to multiple different data sources to be able to verify that

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that business is performing or how that business is performing, basically.

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So are they predominantly like blogs and E-commerce or like drop shipping

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businesses or what other types of businesses would you find available?

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That's a great question, Sarah.

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Like this there's three main business models that I, say that.

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People normally go and purchase there's some outside of this, of course.

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And I'll tell you about those soon, but the main one is a content

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website or content business, which is a blog basically.

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The second is an e-commerce business.

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An e-commerce business is under the umbrella.

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Oh, sorry.

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A dropshipping business is under the umbrella of e-commerce.

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So under that same umbrella of e-commerce, you have not just drop shipping, but you

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have Amazon FBA, which is hugely popular.

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Now you also have self product distribution where you purchase the

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products yourself and then send them out from your garage or your warehouse.

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So it's, e-commerce, that's the second business.

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The third business type is membership businesses and a membership because

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business can be a SAS business as well.

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SAS stands for software as a service.

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what we're using now, squad, cast or zoom.

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It's a paid software to use these are the, that's a software that you,

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you know, a business you can purchase or, an accounting software like

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QuickBooks or whatever it is, zero.

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I forget the ones that are in America, accounting services, and

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then you have the different membership businesses, like what people pay

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to use or get access to content.

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Okay.

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And it can be information or content or educational content, or it could just

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be entertainment content like Netflix is a big membership business, basically.

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So you have those three main business models.

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So content, which is blog e-commerce and then membership businesses that said

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there are different businesses out there.

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I just helped somebody purchase a Instagram account and an

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Instagram business that generated leads for in the real estate.

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They just closed that deal a couple of weeks ago.

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And I'm also helping somebody look at purchasing a YouTube channel that

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makes a bunch of money from ads.

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And we may be able to monetize it through affiliate revenue as

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well as an opportunity forward.

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So there's many different types of business models that I work with,

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but top three main ones are the ones that I mentioned earlier it's easy

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for people to wrap their head around.

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Okay.

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That's interesting.

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So even like a social media page, like an Instagram page or YouTube channel.

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Wow.

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I didn't even think about that.

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Yeah, it's crazy.

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It's, if it's a online asset that is producing a result,

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people will purchase it.

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It's pretty cool.

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Do you usually know, like why someone's wanting to sell a business?

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Like maybe they started for that intention to build it up and then sell it or.

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What is usually the reason, I guess there are a bunch of people

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that are great at starting website businesses, and they just started up

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to sell it and make a, big payday.

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A majority of people that are selling these businesses sit into brackets.

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One is that the they'd been working in the business for quite

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a while and they're either over it.

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And all they're trying to make it work or they just can't and it's, all

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they're trying to, it's declining a little bit, their traffic and their

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revenues declining a little bit, and I don't know what they can do to fix it.

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And they're just being in the business for many, many years.

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And they just like, oh, I just, I don't know what to do,

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but there's a great business.

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Maybe somebody else can, can run it.

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So that is thought to sell it.

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Then you have other people in a different bracket that like,

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this is the great business.

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It's excellent, but I'm not really into it anymore.

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And they've owned it for quite a while.

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And I want to just take that cash out and invest into a bigger business

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or invest into another investment.

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So I have a client who I've helped scale his, he bought a bit.

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Came into my mastermind to help scale his business.

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Built a great system that produces a great result without him having to do

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any extra work it's run by his team.

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And we increase his revenue by 20% within a very short period.

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And he wants to sell the business.

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I'm like, dude, don't sell the business.

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We've just done all work.

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It's, let's keep it and just keep building it and let it grow.

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You'll be able to sell it for more soon.

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He said, no, no, no.

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I just want to sell it because I want to buy a property, on a,

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buy a property behind my house.

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And I was like, okay, let's, you know, there's different reasons.

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Everybody's got a very different reason that said there are.

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Selling, failing businesses.

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And that's why we need to know how to do due diligence.

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So does anyone sale a service-based business or does, that not really work?

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Yeah, a service-based business, like a marketing agency.

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any kind of where it's an online business, but you're doing a service versus like

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a software where, it's fairly hands-off certainly there is I've looked at

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purchasing a business from a lady in Australia who is in internet marketing,

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digital marketing, and they were providing a service, helping people scale their

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marketing efforts with their businesses.

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And I had a team, but it was a service and yeah, that business was for sale and the

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reason she wanted to sell it is cause she was very close to having a little child.

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So she's like, I don't want this business whilst I'm trying to, Raise a child.

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So that's written why she wanted to sell her business.

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So yeah, there are service-based businesses.

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Most people that do want to purchase an online business, though that come

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into my realm, have a reason being that they don't want to work too many hours.

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And because that's a very attractive lifestyle and a service-based business,

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doesn't lend to that as much as.

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So then when someone purchases a business, I guess they get the login information

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and they get, SOP or standard operating procedures, things like that to kind

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of keep the business running without.

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Anyone really noticing that it switched hands.

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I guess, of course, let's go through an example.

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So say you've got a content website, a blog, and say it's on

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a, a certain knee say fishing.

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when you purchase this business, you'll get, and the business

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is making money through.

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Ad revenue on the site and affiliate revenue through

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selling like fishing products.

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When you purchase the business, you're going to get access to the logins.

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You're also going to set up your own ad account and then, you'll put your

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ads on the site instead, and then you also set up your own affiliate

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account and then change the affiliate IDs over to your new affiliate IDs.

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So you'll make the revenue through your ads and the.

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So you have those two accounts, you'll have the word WordPress

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site or whatever site is built on.

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And then you will also have, depending on how much involvement is in the

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business, sometimes people will sell a business and the team goes with the.

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So if they've got writers and editors then sometimes they go with the business

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and with the same SLPs and the same frameworks that they're using content

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briefs and all that sort of stuff on how they do keyword research, how they create

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the content, how they publish it In terms of backlinks and whatever they will go

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with the business and then sometimes, the team won't go with the business, but the

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owner is prepared to share their, SLPs.

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And when you do purchase a business, what I suggest people

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do is they in their contract.

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In their agreement, asset purchasing agreement is that they request some

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training from the previous owner.

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And usually you get, a number of Scott Coles will zoom calls with the

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previous owner who basically what they do is they teach you how to run the

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business, how they were running it.

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And I think that's just seriously, the best business education you can

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get is not only to be in business, but to learn from somebody who's

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previously was running that business.

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So they usually they'll share a lot, all that.

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Hmm.

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Okay.

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That's good to know.

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And then for, if someone is interested in selling their

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business how do they go about that?

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Like what process would someone go through?

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It depends on the business, but what I suggest people that do, and this isn't

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in my actual wheelhouse are more on the buyer's side, teaching people to buy.

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That said, I'm helping people sell in terms of this client of mine

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that wants to sell his business.

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What you really need to do is you really need to get your

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finances in order your accounting.

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So it's like people can actually understand your accounting

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and where the money's going.

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So you can present that in an easily and consumable manner

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for a possible purchaser.

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And depends on how big the business is.

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Do you want to scale back on some of the expenses?

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And how much work is going into the business.

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Like if you're creating a bunch of content and it cost you a lot of money

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and you want to sell a blog, maybe you want to decrease how many how much input

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you're putting into the business, because you're not going to retrieve an ROI on

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that in the short term, a seller may, but you may be able to sell the business

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for a bit more if you do cut back on expenses and unnecessary expenses.

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So, slim lining the business, I would say is a great way to go.

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And also.

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Making sure you can automate things.

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So there's less work required for the new owner of the business which has also makes

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the business more attractive when somebody is looking at purchasing it, for example,

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would you rather buy a business that takes you about five hours per month to run or

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one that takes you, 50 hours per month to run, but makes the same amount of money.

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So it's setting up systems and processes and automating things and

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making sure the business is attractive.

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you've mentioned due diligence quite a bit.

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And I was wondering if you could go more into that, like what types of

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things do you need to be aware of or look out for when buying a business?

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So I actually have a due diligence framework that I give away for free.

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This is the framework that my clients actually use and submit to me before

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they look at purchasing a business.

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And I review it in that framework.

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We cover a few things we cover.

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So search engine optimization and traffic.

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So we need to see what's the SEO profile of the business.

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And how much traffic is the business coming into the business?

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Is it trending up?

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Is it turning down?

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Is it going sideways?

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And the most important question we need to ask is why, why is the business

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sort of moving in that direction and getting their education on that as well.

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Then we should be looking at the proof of finances, proof of finances.

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Like we mentioned before is getting access to the businesses merchant account.

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And Or even just, screen-share of the ads account and the affiliate

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account and whatever it is, the business that you're trying to buy.

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So that's proof of finances and just confirming that they're

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there and it's making the money.

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The bit, the cell is telling you it is then we, you know, we kind of

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check things like marketing and all the different formats of marketing.

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So how much are they spending on ads?

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Where are they advertising?

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If they're doing paid ads how much content are they producing?

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What does it cost them?

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Email marketing.

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How big is their email?

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How often do they email the list?

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What's the open rate and then checking social media accounts.

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What's the level of engagement.

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So there's a, there's a bunch of different things that we go

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through and check, and it depends on the different business model.

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So for example, somebody was purchasing this Instagram account,

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had some different metrics, like.

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Compared to somebody who was looking at purchasing this YouTube channel,

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thankfully I know a lot about YouTube and I'm building my YouTube channel and you

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know, I've got a lot of other friends in the YouTube space, so I was able to help

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him with the due diligence through that.

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So it's really dependent on the business, but the main things

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we need to check is how much traffic's coming into the business.

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Okay.

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And that can be traffic onto the webpage or into the social media

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account or the YouTube channel.

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And then how much is the business actually making?

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And what's the overall process and then just verifying and vetting that process.

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And so I guess that's.

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With that.

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And what else do you help with, with your business?

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I'm buying online businesses.com by the way, is the website.

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what else do you help with, or how does that process look?

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If someone were to hire you to help buy an online business?

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Great question.

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So what I have is I have a community and membership where

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people pay them per month to join.

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And we have a course it's a buying online businesses course.

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And then we have a growing online businesses course.

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So what I actually do is I help people find.

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Bye run and grow the business that they've just purchased.

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So I sorta share with them how to become an attractive buyer

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which is a important thing.

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Sometimes you can well, many times, and this has happened quite recently

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with a few of my clients is somebody is prepared to pay more for the business.

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Then one of my clients, but my clients will submit an offer that is lesser and

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the seller of the business will decide to go with my client because they're

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more of an attractive buyer, meaning that they're easy to communicate with.

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They've got a lot more trust in that buyer that they're going to do.

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Justice to the business once they take over it.

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So it's not always about more money for the seller.

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More so about how easy is the transition of that asset to the new owner.

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So we talk about how to, become an attractive buy, how to buy the business

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for less, how to negotiate, how to get a great deal, how to make sure you're not.

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Goliath and invest in a lemon.

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Right?

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A lot of people don't want to go, if you're gonna invest $50,000,

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you don't want to take a huge risk.

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So for myself personally, I've looked at thousands of businesses.

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So when I look at one of their businesses, they get my eyes on it.

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And my team and we get to, make sure they're not going

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to get taken advantage of.

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And then once they purchase.

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We sorta nursed them through the migration of the business, into their

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hands and then what they need to do to operate and run it efficiently.

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And then.

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Yeah.

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I didn't realize it was a membership, so that's nice.

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Cause so you're kind of with them through the whole process and, I

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imagine some people probably by more than one business, of course.

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Yeah.

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We've had people buy multiple businesses, have a portfolio of businesses now

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depending on how big the businesses and how big the portfolio is,

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sometimes people are accepted to join.

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My mastermind where.

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I do one-on-one coaching where we get a lot more scale from the businesses.

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So yeah, it's not just about finding and learning how to buy business,

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but it's also about how to become a great online business owner as well,

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and the network and all the cool things that come with a community.

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Right.

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Do you ever help people with say there's a business that they want to buy?

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That's not up for sale.

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They just want to buy it and like how.

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Proach that company with an offer that maybe they would consider.

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Yeah, of course.

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that's a such a phenomenal question where you have some templates and processes

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on how to approach businesses just to sort of test their level of interest

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if they're looking to purchase as well.

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This is a strategy that is not common, but.

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Very very doable with these, templates and it's a hit and miss approach

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sometimes because you may see this amazing business and go, Hey, I'd love

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to buy this and it's just not the sale.

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it's a tougher one to stomach, unless you are prepared to really

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go the long haul and, and do a lot of outreach to multiple businesses

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within that type of niche that you're looking for, or that type of business.

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. And it's also depends on your energy towards it, like I talked about

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being an, a, attractive by before.

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If somebody wants to buy a business and they come in and say, you want to buy this

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domain it's worth, You want to try and buy it's like say $10,000, for example,

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and you want to buy it and you come in and say, Hey, I want to buy this domain.

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It's worth $10,000.

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I'll give you $12,000.

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Sometimes you will lack, well, what am I actually going to do with this?

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You know, if I'm the seller of the business, I could make more money,

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but that's not, something I want.

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Right.

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I don't, I'd rather the business go to a good home.

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And.

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it'd be nurse through a great journey within X person.

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So I think it's the energy and the strategy in which you

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approach that person and that business in, in a very humble way.

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And with good energy and excitement towards that domain and that,

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business and what you're going to do.

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Yes, the money things involved as well, but it's, it doesn't need to be.

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Monetary transactional.

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And I think there's more value there.

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This is what I always tell people.

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There's more value in the relationships and the businesses.

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We ended up buying.

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It's really important when you want to purchase something from somebody.

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, you kind of need to know what they want, what their goals are.

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It's like selling a car or or buying a car is working out, you

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know, why they, selling this?

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Like, did they need the money to be able to afford a better car for their,

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cause their growing family, right?

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If you talk to them in that language, then you're more likely going to be

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able to purchase that car because you're helping them with their goal.

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Whether it's somebody else.

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It doesn't care about them.

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They just want the car.

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Who would you prefer to purchase from, or sell your car to see what I mean?

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Like that's the, these are the types of too many people are too

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transactional now in terms of money and time and all that sort of stuff.

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But don't realize that human beings are the asset.

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The relationships are the real value.

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That's the asset there.

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So that's what, and not.

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Trying to fake a relationship just to get what you want either.

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It needs to be genuine.

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Human beings can actually we're an amazing lie detectors.

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we can genuinely tell when somebody is being genuine or not.

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So people can learn more@buyingonlinebusinesses.com.

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do you have that framework on that website?

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That for you framework?

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Yeah, I do.

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If you go to the same website, there's a tab on code free resources,

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or if you just go to buying online businesses.com forward slash free

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resources, there's that framework.

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There's a bunch of other things like a tool that I've created

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to help people value businesses.

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And write businesses or a lot of cool free stuff there that

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people can grab if they want.

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Yeah.

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Awesome.

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Yeah.

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And I'll also have show notes at these Sarah St.

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john.com forward slash Jared that's J a R Y D.

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Well, did you have anything else you want to go over before we end?

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No.

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I think that was a really fun discussion and shout out.

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My main message is for people is that you don't need to do

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what everybody else is doing.

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You don't need to, to start something if it's not going to

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be the right option for you.

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Yeah.

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I mean, I think this is an avenue, a lot of people haven't

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even thought of or known about.

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So that's awesome.

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I appreciate it.

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Thanks so much for coming on today.

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Thank you so much, Sarah.

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I really appreciate being here.

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Well, you have a good day.

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You too.

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