299: How To Buy An Online Business The Right Way With Chris Guthrie

Podcast: Download (Duration: 46:45 — 53.8MB)

Buying an online business means paying a multiple of seller discretionary earnings, typically 2x to 4x for ecommerce and content sites, with the higher end reserved for businesses showing strong year-over-year growth and clean documentation. Chris Guthrie bought a content site for $75,000 producing roughly $2,500 a month and sold it a year later at about $8,000 a month.

Chris was on the show back in episode 53 discussing his WordPress plugin business. He has since joined Quiet Light Brokerage and spent the intervening years buying and selling businesses across content, software, and ecommerce.

This episode covers when to buy rather than build, how SBA financing works for online acquisitions, what drives multiples up and down, and the tax reason he sells businesses he could keep.

Key takeaways

• Ecommerce multiples run from about 2x to high 4s or 5s on seller discretionary earnings, with mid-3s common on seven figure deals.
• SBA loans allow 10% down at roughly prime plus 2.75% over ten years for qualifying US businesses.
• Seller discretionary earnings adds back one owner’s salary for up to 40 hours a week, plus other costs a new owner would not carry.
• He tripled a content site’s earnings in a year by switching from AdSense to AdThrive and improving traffic.
• Holding past one year converts the sale to long-term capital gains, roughly 20% instead of ordinary income rates.
• Buyers pay nothing to use a broker. Fees are success-based and paid entirely by the seller.
• Get operating experience before buying, because spotting low-hanging fruit requires knowing what fruit looks like.
• Eight figure businesses attract private equity buyers and the higher multiples that come with them.

Why Chris Guthrie started buying businesses instead of building them

His first real online success was building Amazon affiliate review sites, writing all the content himself because he had no money.

The friction was time. Every new site meant a long wait before anything ranked in Google and results appeared.

Buying was the way to skip that period and start further along. His early acquisitions were small, in the five figure range about eight years before we spoke.

He then went back to building from scratch for several years to accumulate capital, and returned to buying once he had more to deploy.

When to buy an online business versus start from scratch

The decision turns on your existing skill set, your capital, and your risk tolerance.

If your day job relates to the kind of business you want to own, going straight to acquisition can make sense.

Without that overlap, starting something small first is the better path. Launching a product on Amazon costs relatively little and teaches you the platform before you commit real money to buying.

Chris’s own preference is to build something in a model before buying in it, so he understands what he is acquiring.

His observation about people further along in their careers is instructive. He used to ask why they would not just write content themselves to save money, missing that their constraint was time rather than cash.

How SBA loans work for buying an online business

The SBA program finances online business acquisitions with 10% down from the buyer.

The rate is prime plus 2.75%, which put it around 7% at the time, structured as a ten year loan.

That term matters because online businesses sell at multiples well below 10x, so the business can service the debt and still fund growth.

The qualification requirements are specific. At least a few years of tax returns, filed separately for the business without commingling, and a US-based business, which rules out UK and other international sellers.

Lenders also screen for business risks, since they carry roughly 25% of the exposure while the federal government backs about 75%.

One useful feature is annual rebalancing. Paying the loan down faster lowers your payments, unlike a mortgage where the payment stays fixed.

What to look for when buying an online business

Chris looks first for immediate low-hanging fruit he can improve.

His example is a content site he bought for $75,000 through Quiet Light before joining the team.

The earnings improvement was obvious. The site ran AdSense, and switching to AdThrive or Mediavine would produce substantially better RPMs.

He evaluates both sides of the equation. What can be improved on the earnings side, and what can be improved on the traffic side, with both being ideal.

The long-term plan follows from size. A smaller site might get the quick wins and nothing more, while something with real potential justifies going deeper.

Why you can buy a business in a niche you know nothing about

Chris has bought sites in gardening, crafting, and automotive without expertise in any of them.

His approach is sourcing the knowledge rather than having it. The woman creating content for his crafting site knew a gardener, who then wrote for the gardening site.

What he actually needs to understand is the mechanics. How the site gets traffic and how it makes money.

That is transferable across niches in a way subject matter expertise is not.

How to save a deal when the seller wants to back out

On the automotive site, the seller started seeing earnings tick upward before closing and moved to pull the deal.

Chris restructured rather than walking. He offered slightly more cash upfront plus a 50/50 revenue split on any increase above the baseline.

The seller had a much larger business occupying his attention, which is why he was selling in the first place, and accepted.

The deal closed and Chris then executed the AdThrive switch and traffic improvements that took monthly earnings to roughly $8,000.

Why sell a business that is growing and passive

Chris sold the automotive site about a year after buying it, despite it running well with little effort.

His reasoning starts with experience. Things do not always stay great, and holding a winner indefinitely is how people watch a good result decay.

The second reason is attention. Running multiple projects means something always falls off, so either a business is large enough to justify a full-time team or it eventually suffers.

The third is tax treatment. Holding past the one year mark qualifies the sale for long-term capital gains at roughly 20% for him, rather than his ordinary income rate.

He also wanted the capital available for a larger acquisition he was still hunting for.

The postscript is honest. He sold to a friend who has since grown the earnings past where Chris had them.

How long-term capital gains work on a business sale

The mechanism parallels holding stock. Buy shares, hold more than a year, sell, and the gain qualifies for long-term capital gains treatment.

Business sales work the same way, which is why Chris has never sold anything he held less than a year.

The rates start at zero depending on income bracket, then 15%, then cap at 20% currently.

Running the business instead means paying ordinary income tax on the profits every year, which for him is a considerably higher rate.

Where to find online businesses for sale

Chris has sourced deals both privately and through brokerages, with his most recent purchase coming from a brokerage email list.

Signing up for multiple brokerage lists is the cheapest way to understand deal flow before you are ready to buy.

The listing process is straightforward. Browse listings on the brokerage site to see an executive summary with multiple, revenue, and business shape.

From there you submit contact information, sign an NDA, and receive the detailed financials.

Buyers pay nothing for this. Fees are 100% success-based and charged entirely to the seller, so going through a broker costs a buyer nothing.

What red flags to look for in a business listing

Longevity is the first filter, and its weight varies by model.

A content site ranking for seven years is considerably more attractive than a comparable site with three years of history, because staying power through algorithm changes is demonstrated.

Ecommerce is different, since those businesses can ramp quickly and do well early, so a short history is less damning.

Competitive threats matter next. Quiet Light’s questionnaire asks sellers to name competitors, and buyers should research beyond that list during due diligence.

Technology risk is worth checking specifically. A product built on a technology about to be superseded is a problem the financials will not show.

Traffic concentration is the recurring content risk. Chris has owned sites making great money that stopped making it after a Google update.

What buyers want from Amazon versus multi-channel ecommerce

Buyer preferences split sharply and there is no single right answer.

Some buyers refuse Amazon-only businesses and want wholesale, Shopify, and Amazon channels together.

Others have built teams with operational efficiency around Amazon specifically, with strong processes for ranking products, and want only Amazon businesses.

Chris’s advice to owners is to optimize for your own comfort rather than a hypothetical buyer. If 100% Amazon feels like a risk to you, scale your Shopify or equivalent store to reduce it.

What multiples online businesses actually sell for

Ecommerce businesses can sell as low as 2x trailing twelve month seller discretionary earnings.

The common range on seven figure transactions is mid to high 3s.

Larger multiples appear at the eight figure level, where private equity buyers enter the market.

Seller discretionary earnings is the number being multiplied, and it is larger than net income. The industry convention allows adding back the value of one owner working up to 40 hours a week.

Other expenses a new owner would not have to pay also go into the add-back schedule below the net income line, and the total is what gets multiplied.

What drives a multiple up or down

Strong year-over-year growth is the biggest lever toward the top of the range.

Twenty percent growth is good and 50% or more is considerably better.

Transferability and documentation matter alongside growth, since both determine how easily a new owner can take over.

Declining revenue pushes toward the bottom of the range, because the trend signals the wrong direction to every buyer looking.

His highest multiple transaction had recurring revenue plus a large engaged audience around the products, and a clear constraint. The owners had been living off the proceeds rather than reinvesting in growth, which left obvious upside for a buyer. It listed at 4x and sold near that.

Whether an email list raises your business valuation

Chris’s answer is that assets like email and SMS lists work together rather than adding discrete value.

There is no formula where a certain subscriber count buys you additional multiple.

What matters is how everything functions as a whole to drive the business forward, and what the combined growth picture looks like.

Recurring revenue does move the number, including on Amazon. Consumable products with genuine repeat purchase behavior carry an element of recurring revenue even without customer ownership.

SaaS versus ecommerce versus content businesses

SaaS tends to command the highest multiples, followed by ecommerce, then content.

The reason is margin and scalability. SaaS margins are often excellent, and a business that can genuinely scale becomes a question of how much cash you push back into it.

The SaaS downsides are technical and competitive. Platform dependence means a larger company’s decisions dictate yours, engineering resources are finite and expensive, and success attracts competitors quickly.

Marketing SaaS is also harder. Finding customers who sell physical products on Amazon means working through Facebook groups and podcast audiences, rather than creating content that ranks and monetizing the traffic.

Content’s main downside is that Google is your business partner whether you want it or not. Algorithm updates determine your outcomes.

Chris experienced that directly. A former employee accidentally attributed medically-reviewed posts to his wife, a graphic designer, in the CMS. Google read that author as unqualified and the site’s traffic dropped by half.

Content remains the natural entry point for people without technical skills or interest in physical inventory. It is where Chris started, with no money at all.

Chris Guthrie’s advice on choosing a business model

Never pick a business model based on its exit multiple.

Go in the direction that genuinely interests you. If you like physical products, receiving samples and iterating with suppliers, build that. If you like working with writers or writing yourself, content makes more sense.

His own path across models came from natural progression and curiosity rather than multiple arbitrage.

Frequently asked questions

What multiple do online businesses sell for?

Ecommerce businesses run roughly 2x to high 4s on seller discretionary earnings, with mid-3s common on seven figure deals. SaaS commands the highest multiples, followed by ecommerce, then content.

What is seller discretionary earnings?

Net income plus add-backs, including one owner’s salary for up to 40 hours a week and any expenses a new owner would not have to pay. It is the number the multiple is applied to.

Can you use an SBA loan to buy an online business?

Yes, with 10% down at roughly prime plus 2.75% over ten years. The business must be US-based with several years of separately filed tax returns and no commingled finances.

Should you buy a business or start one from scratch?

Get operating experience in the model first unless your day job already provides it. Spotting improvable weaknesses in a listing requires knowing what good operations look like.

Does it cost anything to buy through a business broker?

No. Broker fees are success-based and paid entirely by the seller, so buyers pay nothing to browse listings, sign an NDA, and receive detailed financials.

Why sell a profitable passive business?

Chris Guthrie’s reasons are that good results decay, split attention causes projects to suffer, and holding past one year converts the sale to long-term capital gains at roughly 20% instead of ordinary income rates.

Can you buy a business in a niche you know nothing about?

Yes. Chris Guthrie has bought gardening, crafting, and automotive sites without expertise in any, hiring writers who have it. What matters is understanding how the site gets traffic and makes money.

What raises a business valuation the most?

Strong year-over-year growth, with 50% or more being considerably better than 20%. Transferability and documentation follow, since both determine how easily a new owner takes over.