Ep 158: How Much To Spend When Buying Your First Online Business [For Total Beginners]

How much do you think you should spend on an online business? Hi, this is Jaryd Krause, host of the Buying Online Businesses podcast. And in this episode, I'm doing a solo podcast on how much to spend when buying your first online business. In this podcast episode, I specifically talk about the difference between a business, what a business looks like, and a startup, and what a startup actually looks like.

And I'll talk about why that's important when trying to spend money on buying a business versus a startup. I also talk about how much a business actually costs versus what a startup actually costs. Also, talk about the risks that are involved with each of those and what may be a better investment for you. Also, talk about how much you should be spending on a business and what you can do if you don't have enough to buy one yet. I'm also going to cover buying a business with finance and much, much more. If you're looking at buying a business, this is the podcast episode for you. Enjoy it.

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This is such a common question that I always get: How much should you spend when you're buying your first online business? Now, I'm going to dig into this, but before I do, I need to make a disclaimer. Everything that I say in this podcast episode is not financial advice. Please go away and check with your own financial advisor what is the best route and the best thing for you to do with your money based on where you're at financially and personally.

Now, I'm going to be talking about buying websites and online businesses in this episode. When you're buying them with cash, you can also finance them. But I'm going to talk about finance towards the end of the podcast episode. Now, first and foremost, before I tell you how much you should actually be spending on your first business, I want to tell you what an actual business is. Most people that come to this space don't really understand the difference between what an established business actually is and something that may actually be a startup. So I'm going to explain the difference here. A business is a system that makes money.

It's a system that produces a predictable result. For example, an ecommerce business that has products, a marketing plan in place, and a marketing strategy that actually works would put, say, $1,000 into ad spend. You sell some products, you go through some customer service, you send the products out to the customers, and you make $2,000 in revenue. That is a system that has a predictable result. You put $1,000 in ad spend in, and you get $2,000 back.

That's a predictable system that makes money. Same with the content site. You buy X amount of content or create X amount of content, publish it on the site, it gets ranked in Google, you get some Google traffic or some traffic from other sources, and then you make some money from some ads, maybe ad revenue on the site, maybe a course, maybe some affiliate links as well.

And it's a predictable result; it's a predictable system. There's a big difference when you go away and buy a startup. A startup is something that you need to put a lot more time, effort, and energy into for it to produce a result, and you don't actually know what result you're going to get, which is why there's such a high risk with startups.

The SBA, which is the Small Business Administration, has done a study, and the facts are that 90% of startups fail. So what I don't like to do is teach people to buy startups, and I'd like to teach people to buy online businesses. Now I've taught hundreds of people to buy online businesses, and so many people have gotten results. You can go and see a bunch of case studies that I have, but please, please, let's understand the difference between a startup and an online business.

Now, usually there's a bracket. When does a startup turn into an online business and just establish itself and have actual legs? What price range is that? This is very rough. It can be different for different businesses with different business models. But usually, what I see is that if people buy something under the $10,000 price range or even $5,000 and less, they are buying a startup.

Usually people are buying something that is a shell, okay, and doesn't have a predictable system that makes money, a proven system that makes money. For example, an ecommerce business. Some people may be looking at what I'm putting in air quotes here, what some people call an ecommerce business.

And people will see that on maybe some of the marketplaces and some of the numbers on how much that business may actually be fudged right or not actually accurate. And the website looks good; it looks like there are products on the website. Maybe after doing further due diligence, you realize that the website isn't really selling many products and that they don't have a marketing plan in place. They don't have a system that predicts how much that business is actually going to make.

So people may go away and buy what they think is an online business; what they're actually doing is buying a startup, which may be just a website with some products on it for sale that's not actually making a profit or not really making much money. It may have done it in the past, but maybe it's not doing it right now. So you need to be very careful with that. Same with content sites. People may see that it's a content site and that it's making money. It may not actually be making money anymore, but it may just have a bunch of content on the site and a couple of ads, and it's not really making that much money because it's really not getting that much traffic.

So you need to really look into the business and do your due diligence. I'm going to put a bookmark here. If you haven't gotten my due diligence framework, go away and get it. I will put a link in the show notes. A lot of people have been raving about it, and it's the due diligence framework that I use and all my clients use to go away and buy businesses. So make sure you understand how to do your due diligence. So that said, there's a big difference between a startup and an online business.

Startups have a 90% return on investment, so you are usually not making much money, if anything. Online business is a predictable system that makes money. If you're a smart investor, you usually want to buy something with the least amount of risk and the least amount of effort. So you're probably going to want to go away and buy an online business. So that said, if you've got more than the $10,000 price range, what should you do? Also, if you've got less than $10,000, I'm going to tell you what you can do shortly as well. But for those of you who have over $10,000, where do you start? What level?

How much do you actually spend? Well, it's completely dependent on what you're comfortable with in terms of risk. But I have a recommendation for a lot of people, and I say don't spend 100% of your available capital in this asset class on an online business. I recommend allocating whatever capital you have to this asset class. Maybe spend 60% to 80%, maybe even 85%, of your money. Now, why not 100%?

Jaryd, some people go away and take what I say as actual gospel, and everybody's in a different situation. So it's going to vary depending on who you are, where you're from, and where you are financially. Now, the main reason I say not to spend 100% of your money is because you need some contingency money now, not just contingency money for the business, in case the business needs some more resources put into it to grow or something happens to the business. And you need to get the business back to where it is currently, and you need to put resources into it from your contingency money. But life happens as well. I would hate to see somebody who has $50,000—that's all the money they've got—go away and buy a $50,000 website business.

What happens when you do that as well is that not only do you not have any contingency money if something happens to your health, your family, or the business, but you're also putting a lot of pressure and stress on yourself and on the business to provide and to make money. And it would be a good investment. And when you've got that pressure and stress on yourself, what usually happens is that we go away and don't make the best decisions because we're stressed out.

So I don't want you to go away and make your life harder by spending 100% of your money on an online business. So I'm going to use $100,000 as an example. If you had $100,000, don't go away and spend that $100,000 because that's 100% of your capital. Maybe spend that 60 to 80, maybe even 85% max. Obviously, as you go down, if 50K is the same, don't go away and spend 50K. Maybe you could spend 30 to 40, maybe 45 max. I would suggest that's probably getting pretty close to maxing out at 45. So maybe it's just in between the 20K and 40K ranks.

Depends on what your level of comfort is. But please make sure you have some contingency money there as well. Now, what if you don't have $10,000? What if you've got less than $10,000? Now, everybody is in a different situation. Everybody was born in different areas of the world, and sometimes it's a lot harder for somebody to save up $10,000, $5,000, even $1,000, or even any money. And I totally get that, and everybody is in a different position.

So this is going to be dependent on where you're at and what's actually available to you based on some of the suggestions that I have for you. People come to me from usually developed countries and say, Jaryd, what can I do to get myself set up to buy a business? I don't have that much money. I have some suggestions for those people who are in developed countries, have access to work and jobs, and can earn an income. I ask them, What are you doing for work? You need to consider, are you making enough for the work that you're putting in at your job? If you have a job, can you actually ask for more money from your current job, or how many hours are you actually working?

Can you go away and spend more time working to make more money at the current job you have? Can you get overtime, or can you go away and find another job? Personally, I've worked multiple jobs at once. When I was younger, I was very hungry to earn as much money as I could so I could buy a car without using finance. And then I continued to have a really good savings habit. So once you get into a good savings habit, that really, really helps.

The next thing you can do is go through your expenses. So back when I used to do more one-on-one coaching than I do now, I used to go through and get people's income, look at their income, and then look at how much they were actually saving. And work out. Where are the holes in this leaky bucket? And where are you spending money that you don't actually know you're spending? What is that money being spent on, and is it valuable and worth it? So what I'd suggest you do is go through your expenses and cut out some possible entertainment expenses that you don't necessarily need.

If you're trying to get closer to being above that ten K price range and buying a business, you can start smaller if you really want. It's up to you. It depends on how much risk you want to take and how much work you want to put in. But what I suggest is that you definitely go through your expenses, and a lot of people may be listening and just going, Oh yeah, I'll just go through your expenses. I've heard this. No, seriously, you may have heard it so many times, but how many times have you actually gone through your expenses?

How many times have you actually looked at how much money you're making versus how much money you're actually saving from the money you're making? You may actually be alarmed, so please just do it. Go through your expenses and just cut out some of the ones that you may not necessarily need. For example, I have been able to assist people nearly every time I help them save $100 to $200 to $300 per week. And that can end up being $5000 to $10,000 to $20,000 a year at times. So depending on how much you're making and how much you're actually spending, it will depend on how much you can save and how much you can cut out.

But where I have been able to help people cut some money back is through their bills, right? Maybe they can get different bills, like a phone bill. Sometimes people are paying hundreds of dollars on their phone bill when you can be spending ten to $15 a month on your phone, data, and whatever else it costs. And then there's some other entertainment expenses you may not necessarily need. So be brutal. Go through this.

If you actually really want this, you really want to get a result, and you really want to buy a bigger and better business, then it's worth going through that. It doesn't matter what stage you're at; even if you're making two hundred thousand a year, it's worth going through your expenses. Now, some people may be listening and asking, What if? Jaryd, I have over $100,000.

What if I Have, say, between $100,000 and $500,000 or more? How much should I be spending on my first business? And this could be something for people who don't have that type of money yet to aspire to as well. But let's Say you do have, let's say in the middle, about 250K. If you have around $250K, then I Wouldn't suggest going away and spending 80% of it or 60% to 80% on one Business.

What I would suggest you do, depending on the type of business you want to buy, and then depending on the different types of business models, how Much Work You want to put in, and how Much you want to diversify and reduce risk, is that it could be an option for you to buy two businesses. You could spend two hundred thousand on two businesses that are worth 100 thousand each.

That way, you've got some contingency money for Both, and You've got your risk spread between the two. I'd Suggest that if you're buying content sites or an Ecommerce business, it may be different. If you're buying a SaaS business, it may be different. But if you have over $100,000, what I do suggest you do is reach out to me. Email me. I'd Love to help you with a strategy that's Personal to your situation and can set you up for success.

And that's what we all Want here, is we all want to do what we can and do the best we can with our money without Making life too hard. My Goal is to teach you Guys and to help you guys have a better Life, not Just make a bunch more Money, because you can do that by working A lot more hours.

But I want to teach you to have a better life with less stress and risk. Now to the financial part. Just because you can go away and get finance for an online business does not mean you should actually go away and do it. Personally, I don't like to use Finance when buying an online business myself; I Would consider myself to be quite experienced in this. I've helped Hundreds of people buy Sites, and I bought so many Sites myself. But there's a risk when buying an online business.

And if you're going to use Finance, then I would highly suggest you have at least some leverage and some confidence. So what does leverage mean? What does confidence mean? First and Foremost, leverage means you should be able to either do it yourself or have somebody Else, like a team, have the skills to be able to add Value to the Business. Let me give you an example. If you're buying An Ecommerce business in, say, the Pet space and you come from the Pet Space, as a Digital marketer, you have leverage because you know the Psychology of how to sell those particular types of products and what channels to be selling them on.

Maybe you're a good media buyer. Also, if you are maybe a writer or an SEO and you go away and buy content sites as an SEO, you've got leverage because you can go away and instill that skill straight into that content site. The second part is confidence. You may have leverage, which is cool, but you also need to have confidence. You want to have the confidence that you can execute on those growth strategies that you know how to and actually achieve the desired result, right?

That's for those of you who are thinking about going away and buying an online business with finance; of course, there are different caveats to this. But if you're using finance, I would suggest you really know what you're doing or get professional help. Now, I talked a lot about how much you should spend, why, how much money you could save, and maybe working a little bit more. There's a difference between buying a startup and an actual business; that's the key to this, don't just go away and buy a business. First, you want to understand how to do due diligence.

If you haven't gotten my due diligence framework, go away and get it. There'll be a link in the description. This is the framework that I use and that many of my clients use to go away and buy websites. It's helped a lot of us become very, very successful, and it takes the guesswork out of buying a business. I hope you guys enjoyed this podcast episode. It was a short but sharp and very valuable one, I feel. If you do have any suggestions on other topics that you'd like me to cover for yourself as an experienced investor in online businesses, or if you're a complete beginner, maybe around what type of business should you buy? If you're a beginner, what type of niche? All these different sorts of questions you may have Reach out to me at [email protected], and I'd be happy to answer your questions, maybe in a podcast that may be coming up short. I hope you enjoyed the episode, and I'll speak to you very soon.