The Fundamental Guide on How to Buy an eCommerce Business (2020 Edition)

buy e-commerce busines

Buying and selling small businesses is a big niche industry.

Buy ecommerce business? Why would anyone want to that specifically?

Launching a new business carries a certain amount of risk.

While one might be able to mitigate some of the risk, most entrepreneurs tend to accept that risk is unavoidable in the process of making profit.

One savvy method of reducing financial risk when starting your entrepreneurial journey is to buy an existing profitable website.

Firstly, the overheads for a website based business require a lot less financial outlay as compared to a traditional offline business.

Secondly, instead of going into unchartered territory, you take over an online business with established customers, proven demand and existing profit streams.

How do we decide on the best business to buy?

With traditional offline businesses, it is possible to visit the office or warehouse, touch the products and see the customers coming through the entrance.

When buying an ecommerce site, it is important to do your due diligence and check the seller’s claims.

When analyzing an online company, you would have to look at its digital components in order to assess them.

Looking to Buy eCommerce Business

buy ecommerce business

When taking over a business, it is vital to understand what is included in the sale – assets, liabilities, equipment, inventory, staff, accounts receivables etc.

If your business is on the internet, you will also need to look at

  • the domain
  • the website
  • the social media accounts
  • customer list
  • existing digital marketing agreements

You should understand the ecommerce business model adopted like wholesaling, dropshipping or affiliate marketing; access the financial statements to understand the monthly cashflow and expenses; and be clear about the legal structure of the entity.

Nowadays, it is not uncommon to have businesses adopting a hybrid of online and offline models – they might have their own website, a store on a marketplace platform and have products sold in physical stores at the same time.

You would want to know what aspects of the business are included in the sale.

There are various reasons to buy over an existing business but most would require the entity to already be making a healthy profit after paying off all expenses.

Step 1 – Website Analysis

Go through the ecommerce site to understand the user experience.

Ideally, it should be easy to navigate and be intuitive for the new user. The sales process should be smooth and error free.

You may want to follow this simple website analysis checklist:-

  • Is there an avenue to capture customer reviews?
  • Positive customer reviews have a strong positive effect on potential customer confidence and thus, sales.Is the website mobile optimized?
  • Majority of online purchases are done via mobile devices.
  • If the trend has been increasing.
  • Ensure that people on the go can view and interact with your web store easily.

Step 2 – What Type of People Are Visiting Your Site?

It takes months, even years to build-up organic traffic to a website.

With good existing traffic, you have a strong foundation for scaling the business in the future.

Ensure diversity in your traffic, paid, search, social, direct, organic and referral.

Having diversity reduces overdependence on one traffic source.

A good example of this was when many businesses took a big hit when Google changed its search algorithm, wiping out over 50% of search traffic.

Understanding the traffic sources will also provide insights to seasonal trends, ability to target, optimize and scale the traffic.

Leverage on the strengths of existing traffic and increase profit by adding new targeted traffic sources.

Through optimization, traffic quality will increase; greatly lowering the cost per sale and thereby increasing profits.

This knowledge will greatly affect future growth prospects of the business you buy.

It is wise to engage a professional digital marketing agency to assess and advise you on how you can scale the business.

Once you’ve evaluated the store and its traffic, you can move on to the most important part of any business — its financial data.

Step 3 – Understand your Numbers

Financial data is the most important part of any business.

It tells you about the paying customers and the health of the company.

Unless you have the skill and risk appetite to revive distressed businesses, you will want to stick to sites with consistent and growing revenue. 

Below are some things you should consider when evaluating the business’ financials:

Income trends

Start by analyzing the business’ revenue.

Is the revenue going up or down over the lifetime of the business?

When were the peaks?

Are they seasonal?

Look at monthly and month on month data.

If it’s moving downward, you would want to understand what is required to revive it.

Are there any periods of particularly high or low revenue?

Is there any correlation between revenue and traffic?

Your analysis will give you the necessary information to develop a robust business strategy based on data rather than traditional best guesses.

Customer & Product Diversity

The business savvy owner strives for diversified revenue.

Excessive risk is absorbed when too many sales come from only a handful of customers.

Having a diversified customer base with high value repeat purchases are all signs of a healthy business.

Similarly, your business revenue should not be too heavily dependent on a single product.

You risk losing your business when big players come in to compete or if the product loses popularity.

Studying the products, you will be able to ascertain whether you have any strategic advantage in the products the business is most dependent on for income, whether there is upward demand and how much of the market the business is currently capturing.

Statistics based action will allow you to get a larger slice of the market pie and make more profit in the process.

Cost Analysis

Cost analysis involves mapping the cost involved in running a business. This includes

  • acquiring
  • stocking
  • selling and shipping each product
  • cost of products
  • labour
  • hosting
  • online marketing
  • the cost of refunds
  • restocking returned products

Having a defined understanding of the cost structure will help with future profit projections.

Step 4 – Growth Potential

The majority of website businesses that are put up for sale tend to be owned by SMEs.

At first glance, it would seem that they might have maxed out the business’ potential but a closer look might reveal areas that the owner has neglected.

This is where you, as a buyer, can gain massively in terms of profit.

You can get a business at a discount when you see the true value of an entity beyond what the owner does.

Hire Conversion Rate Optimization (CRO) services like Blazing Conversions to perform audits on the technical aspects of the website like,

  • existing digital marketing channels and agreements
  • SEO
  • social media
  • paid traffic
  • email marketing
  • referral systems
  • customer service chatbots
  • sales funnel conversion rates

Due to the general lack of experience, most SMEs do not conduct such audits on their operations.

Insights into these aspects of the business, together with competitor research on what is available in the industry will allow you to increase the business’ profit multifold.

A grasp of this concept will open up many opportunities for you as an investor.

Step 5 – Business relationships

A profitable website business is more than simple statistics, marketing and products.

It is also the relationships it has with staff, suppliers and customers.

Suppliers

The success of an ecommerce store, especially a dropshipping website, often depends on the relationships it has with its suppliers.

Cost-effective, timely and reliable suppliers can make running the online business a breeze.

Your evaluation should take into account the number of suppliers the business has to deal with, the duration they have been working together and the terms of agreement with each supplier, especially regarding cancelation, refunds and shipping.

The business’ relationship with them as a dropshipping, affiliate or inventory partner will determine the amount time spent on administrative, customer service and logistical duties.

The business will command a premium should most of these duties be taken on by suppliers.

It would accord the online business owner more time to focus on profit generating activities as well as other personal pursuits.

Staff

What is the headcount of the organization?

Are they full time employees or mostly freelancers hired on an ad hoc basis?

It is important to understand the overheads incurred due to labour cost.

The nature of employment determines whether the cost is fixed or variable.

It is also important to know their wages and their responsibilities.

Owner

You will also want to understand what the current owners’ role is in the company.

How crucial are they to the business, do they personally oversee operations?

You would want to know the owner’s reason for selling, whether there are any outstanding legal issues associated with the business, their willingness to help with the transition.

Buying an online business is a big commitment; you want someone you can work well with during the handover period.

Personal Fit

You wouldn’t want to undertake a project that you don’t have confidence or experience in to bring to the next level.

Even if you intend to buy a profitable online business as a passive investment to be managed by a daily operations manager, it should be aligned with your personal character, beliefs, strengths, passions and investment strategy.

Envision working on the business.

Do your skills and experience match the industry and business model? Does it interest or excite you?

It is difficult to find motivation to work on something that you do not have interest in let alone passion for.

While you would streamline and automate your business processes, you would still have to set aside time to run the business.

No matter how passive your involvement is in the business, you would still oversee the growth and direction of the company.

Always invest in due diligence.

Buying a profitable online business is an investment.

It may be profitable but it is still recommended that you only invest money you can afford to lose.

Your budget may include your cash savings, liquid assets, business partner financing, business loans and other lines of credit.

Many entrepreneurs yearn for a business to call their own.

Instead of starting from scratch, you can buy an existing profitable ecommerce business where the first owner has undertaken the start up risk and developed the model into one with proven systems, established in demand products, positive sales numbers and pre-existing relationships.

Buying and selling small businesses can involve big sums of money and time.

But doing so need not be intimidating.

Engaging business auditors can lower much of the risk and make the process both exciting and lucrative.

So, here’s the 5 fundamentals on how to buy ecommerce business, if you want to understand more in-depth of buy ecommerce business to increase your portfolio or sell one of your ecommerce business, we invite you to contact Blazing Conversions

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