Considering buying an online business?
The cost of starting an online business now is extremely low compared with traditional businesses.
That said, success in online business is not a given.
As with any entrepreneurial venture, launching a new business carries risk.
Many things can go wrong. For example your product might not sell well, your logistics partner may have inventory problems or your marketing plan may not achieve your projected numbers.
Reduce your start up risk by looking for online businesses for sale.
Instead of risking time and money on an unproven idea, you can take over an established business. This way, you will immediately start with a database of customers, products that sell and a healthy profit.
Instead of waiting to break even via an unproven start up, you can buy an online business that will deliver profits immediately.
Before you excitedly type into Google “online business for sale”, it is important to remember to do your due diligence. Check the seller’s claims.
Buying An Online Business – Essentials
Understand what the Offer is:
- What is the owner selling? Some entities may be complex. It is best to establish what exactly is included in the sale. It might include the domain, website, existing inventory, staff, customer list, accounts receivables, intellectual property and all social media accounts associated with the site.
- Profitability & Financials: After signing a non-disclosure agreement, you should have access to verified bank statements and any other documents that reflect the business’ health. Look at cash flow, revenues, expenses and profits.
- Sales channels: How are the business’ products sold? — through its own webstore or marketplaces (like Lazada or Amazon)? Are all the sales channels included in the sale?
- Business model: What business model does the store employ? Are they product suppliers, resellers, wholesalers etc.
- Legal: Understand all the legal issues associated with the business. How is it structured? How many shareholders are there? Are there any outstanding legal concerns?
Visit the online store. By going through the pages and buying process, you’d be able to get a feel of the user experience (UX).
Evaluate website speed, mobile responsiveness. Surfers have no patience to wait and tend to leave slow website quickly. You want to establish that it is technically optimized.
Testimonials and complaints
You’d expect a well established business to have both positive and negative feedback.
Look at the reviews from both sides of the coin. How does the online business respond to comments? It will show how the owners treat their customers and give an indication of how the business is run.
Website traffic takes time to grow. Make sure that the online business owner is not manipulating traffic sources to mislead would be buyers.
Request to see store analytics to get a detailed picture of the growth rate of visitor volume. If a webstore has high organic traffic, you’ll have strong foundation for future growth.
Look out for traffic trends – are there specific times of year when there are a lot of sales? Which country and regions do sales come in from? Is the traffic coming from desktop or mobile devices?
Understanding the sources of traffic will help you understand whether the business can be scaled.
For example, if much of the traffic comes from paid advertising, then you’ll be able to increase sales volumes directly with your ad budget.
If your traffic is mostly organic (SEO), then you can expect constant sales without having to spend much on marketing.
Ideally, the website should get traffic from multiple sources. This would mitigate the risk associated with overreliance on any one channel.
Traffic metrics like average time on site, bounce rate, number of page views, degree of scrolling and new vs returning visitors help to evaluate the quality of traffic being delivered.
Financial Audit – Necessary when you intend to buy Ecommerce Business
Financial data gives you information about the webstore’s buyers list.
Understand the revenue trends – ideally you’d want a business with rising year on year revenue.
Sales and traffic should have a positive correlation. If you are getting visitors from optimised sources, then you should see more revenue with increased traffic.
Identify the traffic source with the most sales. It will give you an idea of how much you can scale the online business.
If revenue patterns are seasonal, you will adjust your expectations for planning purposes.
The successful business owner will want many high paying customers who buy frequently. This would reduce the risk of overdependence on any one individual or group.
Analyse revenue by customers. Look at the average order value per sale, percentage of repeat purchases, frequency of reorders, average order size of repeat sales, profit margin per customer.
Good businesses do not overrely on sales of one product. Having a wide product range lowers the risk of cash flow issues when demand for specific products fall.
Revenue by product – identify bestsellers and the percentage of revenues they account for. See whether product demand trends rising.
Are supply sources of bestsellers varied? Is the popularity of low demand products growing?
Good businesses do not rely on sales of one product alone. Having a wide product range lowers the risk of cash flow issues when demand for specific products fall.