Self Employed Web

ASK Priority: Be Wary of Web-based Businesses

Posted on Tuesday, July 11th, 2006 by


Q.Be Wary of Web-based Businesses
I read your answer to the advice for the purchase of a business and what questions to ask. But what if I am considering purchase of an internet-based business? What should I ask and what do I need to know before I buy one? —GK, Santa Cruz, CA

A.
The same guidelines that apply to evaluating potential non-Internet based businesses apply to those that make the information superhighway their home. However, the lack of physical facilities and assets often makes a thorough examination of Internetbased businesses a lot more difficult than traditional enterprises. You need to ask how the business has been valued? By whom? And based on what standards?

Have the business’s financial statements been prepared by a Certified Public Accountant? Does the business have a demonstrated, verifiable track record of generating income that you can confirm? Does it have customers whom you can contact to inquire about their experience with the company? These are questions that apply to both Internet and non-Internetbased businesses, but are particularly important when considering an Internet-based business since such information can be more easily exaggerated or falsified online.

Be cautious of “turnkey” Internet businesses, which typically sell the buyer little more than a web site and some promotional material promising fast income for little effort. These “businesses” are usually cookie-cutter template web sites sold to as many people as will buy them. Claims of fabulous weekly or monthly revenue generated by such sites should be treated with considerable skepticism. Other turnkey operations offer not only a web site but merchandise to sell on it. Again, such sites are sold to as many people as will buy them, diluting significantly whatever market may exist for the products in the first place. Such operations often charge large fees for hosting the web site and providing the products. Remember, if it sounds too good to be true, it almost certainly is.

Finally, when it comes to Internetbased businesses, the most important thing is to understand exactly how the business actually functions. When dealing with the Internet, some people become dazzled by the technology (and others by the hype) and forget to ask the most basic questions. Exactly how does the business generate customers? Customers must be attracted to the web site and that requires some form of advertising (listing in search engines, banner ads, links on other, popular web sites, etc.).

How will customers pay for the products and services offered? What are the expenses of the business? Anyone selling a business should be able to answer these questions clearly (without resorting to hitech jargon) and without hesitation or diversion. If not, look elsewhere.

QHealth Care Concerns
During the past year, a number of my small business’s employees have made substantial claims with our health insurer and I’m worried that my health care provider will drop my coverage because of this. Is there anything I can do to prevent this? Also, if I voluntarily chose to forego providing health care to my 10 employees what are the potential downsides? —JO, Colorado Springs, CO

A.
If you already have a health care plan for your small business, it cannot be canceled because your employees get sick. This is standard in most states and is termed guaranteed renewability. However, as many small business owners have learned recently, health care providers are not afraid to substantially raise your premiums after even a relatively small number of claims.

If you choose to stop health care coverage but then restart it later, the vast majority of small employers in Colorado with at least two but not more than 50 employees cannot be turned down by any group health plan. This law is referred to as guaranteed issue. However, insurers can require that a minimum percentage of your eligible employees sign up for coverage. They can also require you to pay a minimum share of your workers’ premiums. And if you are buying a group health plan for 51 or more employees, your small business can be turned down. (To find out about other states’ regulations, go to healthinsuranceinfo.net).

In the end, minimizing or ending your employees’ health care coverage may seem like a worthwhile cost-saving measure but in the long run it can undermine your business’s morale and productivity. In a recent Harris Interactive poll, 36 percent of small business owners acknowledged that the cost of health care had negatively affected their company’s bottom line, but 49 percent said that they could not attract and retain quality employees without offering competitive health benefits. That’s something to consider before asking employees to fend for themselves with regards to health care.

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