Finding Passive Income Businesses: A Buyer’s Guide

Owning a passive income business has long been the dream of online entrepreneurs and freedom-seeking individuals alike. Not surprisingly, this has led to considerable demand for digital assets that generate income without requiring the owner’s regular involvement.

While owning a passive income business has numerous benefits, it’s not always easy to find one that fits the bill. Therefore, before starting your search, it’s a wise idea to understand the marketplace for passive income businesses.

In this article we discuss:

• What characterizes a passive income business
• The benefits of owning a passive income business
• The different types of passive income businesses for sale
• How to evaluate passive income business opportunities
• Where to find the best deals

Related Article: A Practical Guide to Buying a Business

What Is a Passive Income Business?

As the term implies, a passive income business is one that can be managed passively. In other words, in a passive income business, the owner does not need to actively engage in all of the business’s day-to-day operations. This allows the owner to step away from the business while still enjoying the income that it provides.

There are a few common characteristics that many passive income businesses share. First of all, they’re often quite simple with few moving parts, if any. Affiliate marketing websites are a classic example of passive income businesses. 

Another key element in many passive income businesses is systems. Many passive income businesses have systems and processes in place that allow the business’s operations to be carried out without the owner’s constant involvement. Of course, more complex businesses generally require more systems in order to remain passive.

“In a passive income business, the owner does not need to actively engage in all of the business’s day-to-day operations.”

Benefits of Owning a Passive Income Business 

Most of the benefits of owning a passive income business are fairly obvious. Who wouldn’t want some extra money coming in each month without needing to work for it?

Having a passive income stream allows individuals to enjoy income without selling their time for money online. Without the need to work, there are numerous opportunities that become possible.

Some owners of passive income businesses choose to travel, stay at home with family, or engage wholeheartedly in personal passion projects. Others choose to use their time to make additional income through another business or job. In truth, there are nearly limitless ways to enjoy the freedom that the right online business allows.  

“Having a passive income stream allows individuals to enjoy income without selling their time for money. Without the need to work, there are numerous opportunities that become possible.”

While there are certainly some exceptional benefits to owning a passive income business, many individuals who own one also discover the potential challenges. After a period of time, many owners experience a sense of meaninglessness and existential confusion. In a society in which individuals identify so strongly with work, it can feel bewildering to not have a purposeful livelihood. Perhaps through that experience, a person can discover parts of themselves they weren’t aware of or uncover a new path in life that winds up being immensely fulfilling. We’ll let you take this ontological dialog from here to find the answers that feel most true to yourself. 

Types of Passive Income Businesses You Can Buy

There are a few different online business models that can generate passive income. Before diving into them, it’s important to note not all businesses in these categories will qualify. As always, it’s critically important to look at the specifics of a given business before investing. We’ll discuss ways to evaluate acquisition opportunities in the next section.

From least likely to be passive to most likely, a few common business models include:

• SaaS
• Amazon FBA
• Shopify and other Ecommerce businesses
• Content websites

SaaS Businesses

SaaS businesses that are highly systematized and organized can perhaps be passive. They also generally have numerous moving parts, however, so it may take a bit of work to get a SaaS business to that point.

SaaS businesses typically require customer service representatives, email marketers, ad management staff, and a development team. If a SaaS business truly has those elements in place, the owner may be able to enjoy a truly passive role. 

Entrepreneurs who are intimately familiar with SaaS business operations may want to consider exploring the possibility of acquiring a business and then systematizing it to the point it becomes passive. On the other hand, those who aren’t as familiar with SaaS should probably consider looking at other business models.

Amazon FBA Businesses

Amazon FBA is another business model that can be passive. As with SaaS, it’s very important to examine each FBA business on an individual basis.

Amazon FBA is one of the most popular business models among online entrepreneurs, and for good reason. When you become an Amazon seller, you can utilize Amazon’s extensive infrastructure. This includes capabilities for selling, warehousing, and shipping your products. This leaves you with the responsibilities of sourcing products, managing cash flow, and marketing.

By handling the heavy lifting for many key activities, Amazon FBA allows entrepreneurs to run a profitable business from anywhere in the world. And because there’s an abundance of resources to help Amazon sellers succeed, it’s never been easier to outsource many of the remaining activities required to run an FBA business.

These factors allow many Amazon businesses to be relatively passive if the owner truly outsources the bulk of the activities. Even then, owners need to be very mindful when it comes to managing inventory and cash flow. Systems can go a long way, but most owners still choose to pay close attention to their finances. 

Shopify and Other Ecommerce Businesses

Shopify and other Ecommerce businesses are other options for passive income. By using a third-party logistics company and contractors or employees, owners can hand off many of the responsibilities that ownership would otherwise entail.

The key distinction between Amazon and Shopify (and other e-commerce platforms) is that Shopify doesn’t provide the “one-stop-shop” that Amazon offers. If you use Shopify, for example, you still have to build your own online store on the platform and drive traffic to your product pages. On the other hand, you also can do drop-shipping, which isn’t a possibility on Amazon. Of course, drop-shipping can dramatically reduce the upfront investment required for running the business.

In summary, Shopify businesses can certainly be passive, especially if drop-shopping is involved. It’s important that the owner has outsourced all of the key activities, though, in order to not be preoccupied with operations. 

Content Websites

Content websites are the gold standard when it comes to finding a passive income opportunity. If you own a website that generates substantial traffic and has high-converting revenue pages, you’re in a great position. 

Here, a content website refers to any website that sells digital products. Content websites could include sites that offer paid subscriptions, other digital product opportunities such as an online course, or affiliate offers through becoming part of an affiliate program. Because all offers are digital, the owner doesn’t need to deal with all of the hassles that come with managing inventory and cash flow.

Many content websites are inherently passive. If a website ranks well and has the right offers in place, there’s really nothing that the owner needs to do. This can make them amazing assets for a passive income source or residual income.

“Content websites are the gold standard when it comes to passive income. If you own a website that generates substantial traffic and has high-converting pages, you’re in a great position.”

Of course, if you own a content website and want to grow it, you’ll likely need to engage in growth activities. These can include producing content, doing technical SEO, or adding more offers. But such activities don’t necessarily require careful ongoing management if you have the right staff in place. 

 

What to Look For When Purchasing a Passive Income Business

If you’re specifically looking to acquire a passive income business, there are several key variables you should pay close attention to. These include:

• Owner’s workload
• Ways to improve operational efficiency
• Business risks
• Barriers to transferability
• Growth potential

Owner’s Workload

Of course, one of the most important elements to consider when seeking a passive income website is the owner’s workload. 

If the current owner works 60 hours per week, you should obviously be wary. Long work hours might be fine if you’re looking for a job. However, if passive income is your goal, you should steer clear of businesses that require a lot of time.

Often, businesses that require minimal time or effort from the owner will be marketed as such. For example, in the business listing, you might read, “The current owner works less than one hour per week in the business.” You’ll certainly want to verify those claims, but seeing that in the listing is a great start.

“One of the most important elements to consider when seeking a passive income website is the owner’s workload.”

Once you get into conversations with the seller, be sure to ask about their workload. Asking how many hours they spend working on the business is great, but don’t stop there. Also ask them to list out all of the activities they’re engaged in. Then, follow up on each point to make sure you clearly understand what their role is. You don’t just want to understand how much time they spend, because they might be a faster worker than you. This is especially likely if you don’t have experience running a similar business. 

Ideally, you’ll be able to find a business that is already automated and produces passive income. But even if you don’t, there may be another way to accomplish your goal.

If you’re able to determine what activities the owner engages in on a regular basis, you can start to formulate a plan to replace that role. For example, if the owner manages a team of writers, manages inventory, or handles customers service, you can likely find other people to take care of those responsibilities. Of course, hiring staff will cost money and reduce your profit margin, but it will also reduce your workload. 

Ways to Improve Operational Efficiency

Some business owners work harder than they have to. In other words, it’s not uncommon for businesses to have inefficiencies that require the owner to spend more time working than they otherwise would have to.

When looking for a passive income business to buy, don’t only pay attention to the businesses in which the owner is passive. Rather, look for businesses that can be streamlined to remove the owner’s day-to-day involvement.

“In most cases, implementing standard operating procedures is an important part of the automation process.”

For example, let’s say you’re looking at a content website in which the owner works 40 hours per week. When you ask the owner how they spend their work hours, they tell you they spend 39 hours writing and only one hour is spent managing the books. Then, look at how much it would cost to hire a writer or two to replace the owner. If the business can afford the added writing expense, you’ve just created a passive income business by making a single strategic hiring decision.

Content websites aren’t the only kinds of businesses that you can automate. Although not quite as simple, many e-commerce businesses can be set up to generate extra income by hiring the right staff. Of course, you always want to look critically at the numbers before acquiring a business that needs “automating.” Make sure the business’s current cash flow can support the additional workforce necessary to remove the owner’s role. 

In most cases, implementing standard operating procedures is an important part of the automation process. By carefully detailing how to carry out various roles and activities, it becomes significantly easier to offload the owner’s responsibilities. 

In many cases, software can further increase a business’s operational efficiency. Activities such as inventory management, content brief creation, and bookkeeping are prime examples. As mentioned, each business is different, so it’s important to look carefully at where the opportunities lie for improving efficiency in a given situation. 

Minimizing Risk

Risk is an important consideration in all acquisition scenarios, including when buying passive income businesses.

When buying a passive income business, one of the last things you want to encounter is a sharp decrease in revenue immediately following the purchase. Not only would that cause you to get to work right away, but it could also represent a considerable loss in value. 

In evaluating the riskiness of a business, one important area to look at is revenue diversification. If 95% of a business’s revenue comes from one product or page, that could be an issue.

“Risk is an important consideration in all acquisition scenarios, including when buying passive income businesses.”

For example, let’s say you acquire a content site that generates the vast majority of its revenue through an affiliate offer on one of its pages. What happens if the page stops ranking or affiliate offer gets discontinued? At the very least, such an event would cause a major disruption in the business’s strategy—and likely its earnings. At worst, the small business could go under. E-commerce businesses that rely too heavily on a single product are prone to the same risk. 

This is just one example. Each business should be evaluated on an individual basis to ensure you’re not exposing yourself to an unacceptable level of risk. Even if a business offers passive income, you should throw everything at it if it could also disappear overnight. 

Barriers to Transferability

Let’s say you’re looking a blog that enjoys 100% passive income through several strategic affiliate partnerships. The blog has numerous pages that are ranking well and generating sales, so its revenue is relatively diversified. Also, because the business has several affiliate partnerships, it’s not overly reliant on a single affiliate link for the bulk of its revenue. 

Based on this, the business sounds like an ideal passive income business. However, there’s one major flaw: Every blog post and sales page is written in the first person by the current business owner. The owner’s social media accounts are even tied to the business and represent critical assets. 

If you encounter a business in which the owner’s likeness is inextricably linked to it, that could be an issue. In most cases, the owner should seek to remove their identity from the business, show the business can still succeed, and then list it for sale. Until that happens, you most likely want to avoid acquiring it, even if it looks ideal in every other way. 

“If you encounter a business in which the owner’s likeness is inextricably linked to it, that could be an issue.”

Growth Opportunities

Another important area to look for is growth. If your primary focus is passive income, this might be less important to you. However, you always want to know a business’s prospects for growth before making an offer. 

For e-commerce businesses, common growth opportunities include launching more product lines, expanding to new marketplaces, and improving marketing ROI. For content websites, growth can often be found through creating more articles to increase traffic or by improving its offers. There are numerous other ways to promote growth, so each business should be evaluated on an individual basis. 

In addition to growing the business, it’s a smart idea to also consider how you plan to use the business to continue growing your own personal equity. Many owners choose to implement an income investment strategy to build real wealth and even greater financial freedom. 

Where to Find Passive Income Businesses for Sale

Once you’ve formulated a passive income idea for the kind of business you want to acquire, the next step is to go out and find it. There are a few different routes you can take to accomplish this goal, including: 

• Online marketplaces
• Your own network
• Business brokers

Online Marketplaces

There are a number of online marketplaces on which owners can list their businesses for sale. Typically, they’ll include a summary of their business along with an asking price. 

One of the benefits of looking through listings on an online marketplace is you can quickly check out a variety of different businesses. With a couple of clicks, you can check out affiliate marketing sites, Amazon businesses, and subscription websites. This enables you to get an idea of what’s out there.

The main drawbacks of buying businesses directly from a seller are a lack of credibility and expertise. Unless you know the seller personally, how do you fully know you can trust them? Additionally, unless you have a ton of experience buying businesses, it can be difficult to understand all of the considerations that go into making an informed acquisition decision. 

“The main drawbacks of buying businesses directly from a seller are a lack of credibility and expertise.”

Additionally, in general, most businesses sold directly by the owner aren’t as high quality as those represented by a reputable broker. Therefore, tread cautiously if you’re going at it alone. 

Your Own Network

If you have a network of successful entrepreneurs, that can be another way to find deals. If you know what you’re looking for, you can reach out to trusted friends or colleagues to let them know you’re in the market.

When using your network to find deals, always be as specific as possible. Tell them, for example, you’re looking for an affiliate website with roughly $100k in SDE and at least five active affiliate offers, none of which represents more than 35% of total revenue, and an owners workload that doesn’t exceed three hours per week. Of course, this is just an example of what you might be looking for. Your own criteria may be much different. 

One of the main downsides of relying on your own network is you’ll likely encounter a limited number of opportunities. 

Business Brokers

A third option is to buy a business that is represented by a reputable business broker. When you go this route, you gain access to a vast variety of business listings, each of which has been “pre-vetted” by an industry expert.

Even though business brokers traditionally represent sellers, they add enormous trust and credibility for both parties. When you look at a broker’s listings, you know they’ll be organized, thorough, and complete. This can make the process much easier for you as a buyer. 

Additionally, if you can get on a broker’s radar, they can even bring you deals that match your criteria. Not surprisingly, you’ll need to build trust and credibility for a broker to recommend you to sellers, but this path can be very effective. 

“A third option is to buy a business that is represented by a reputable business broker. When you go this route, you gain access to a vast variety of business listings, each of which has been ‘pre-vetted’ by an industry expert.”

It’s important to note while brokers can instill added confidence in deals, you should always do your own due diligence when examining a business. The importance of verifying all financial documents and performance reporting cannot be overstated.

By getting clear on what you’re looking for and crafting an effective acquisition strategy, you’ll be in a great position to buy a passive income business that can provide you immense freedom and excitement.