Ecommerce is a flourishing industry, with expected growth of 10.4% in 2023.
With so many people purchasing online, now is an excellent time to start an ecommerce business, but starting from scratch can be daunting.
Fortunately, there is another option – buying an existing ecommerce business.
However, you should know that up to 90% of ecommerce start-up businesses fail.
Do you want to distinguish between successful and unsuccessful online businesses?
Here's what we'll talk about:
Keep reading if you are ready to learn more and become an outstanding business owner!
Building a thriving business in the ecommerce space is typically a long-term challenge.
However, there are several things you can do right now to lay the groundwork for a successful ecommerce company purchase.
Depending on the company size you want to purchase, your initial investment in an ecommerce business could be pretty significant.
You'll want to ensure you're making a decent investment before you spend a large sum of money.
But what exactly should you look for when considering purchasing an ecommerce business?
Before looking at businesses to buy, you need to determine your budget.
How much money do you have to invest in a business?
Remember that you will not only need to pay for the business itself but also any necessary improvements or changes, such as marketing or website redesigns.
You should also factor in ongoing expenses such as inventory and shipping costs.
Once you have a budget, you can look for businesses that fit your criteria.
Ecommerce businesses can have many different business models, such as dropshipping, wholesaling, private labeling, B2C, B2B, etc.
You should understand how the business acquires inventory, processes orders, and handles shipping and returns.
You should also be aware of any contracts or agreements the business has with suppliers or manufacturers.
Companies change hands for a wide variety of reasons.
The current owners may be retiring, but there is always the chance that the company is not in good standing for other, more serious reasons.
Talk to the outgoing proprietors and find out why they're selling.
It includes looking at its financial statements, customer reviews, social media accounts, and other relevant information.
Keep in mind that once you take over the reins of this company, the good times and bad will be your responsibility.
After you've decided on a business, the next stage is to determine its market value.
It would help if you also looked into the business's market.
Knowing this information will help determine whether the business is a good investment.
It requires calculating the seller's discretionary income (SDE).
First, you can review the company's balance sheets and income records to learn more about its receivables and payables.
Then, compare the result to the industry-specific SDE multiple.
The financial statements of the business are critical in determining its value.
You should analyze the income statement, balance sheet, and cash flow statement to understand the business's financial health.
You should also look at any outstanding debts, taxes, or legal issues that could affect the value of the business.
💡 Analyze the business's books.
💡 Examine the tax records.
💡 Review profit and loss statements from the last three years.
💡 Read any permits, licenses, or proprietary documents.
To get a better grasp of the company's actual earnings, look at the following:
1. Total units sold to find out which products are making money.
2. Gross income is the total of all the money that comes in. It includes everything the business makes from all its sources of income, minus costs like returns or discounts, to get a more accurate number.
3. Gross profit is the difference between gross sales and the cost of sales. It includes fees for processing payments, third-party fulfillment (3PL), and delivery. When you take these costs out of the gross income, it's easier to see how much it costs to get the products to the customers.
4. Expenses represent the operating costs that should include everything the business needs to run. For example, web and domain name hosting, contractors and employees, and software.
5. Net income is the exact amount of money the business makes each month. It is the difference between the gross profit and the expenses.
The net income shows how the company is doing: is it getting better, staying the same, or getting worse?
Put together all of this data and the reasoning behind the company's sale, and you'll know what the company is worth.
When looking for an ecommerce purchase, remember that you want to make improvements so that you can either sell the company in the future or keep it as a long-term investment.
But it may need some tweaking.
The website is the face of an ecommerce business.
Evaluating the website is essential to determine if it's user-friendly, visually appealing, and easy to navigate.
You should also check if the website is mobile-friendly and optimized for search engines.
Marketing is crucial for ecommerce businesses, so it's important to evaluate the marketing strategy of the company you're interested in buying.
Look at the company's social media accounts, email marketing campaigns, and other marketing channels.
Are they effective? Are there opportunities for improvement?
You should also look at the cost of the current marketing strategy and factor in any changes you may need to make.
Knowing the customer base of the business is essential.
You should also determine the customer acquisition cost and the customer lifetime value.
This information will help you understand the business's potential for growth and profitability.
The products sold by the business are critical to its success.
Therefore, you should evaluate the product offerings, including their quality, price, and demand.
You should also look at the competition and any trends in the market.
Are there any new products the business could add to its lineup?
Are there any products that should be removed?
Buying an ecommerce business is a significant investment, so seeking professional advice is important.
Consider hiring an accountant, lawyer, or business broker to help you with buying.
These experts can help you figure out how much the business is worth, negotiate the price, and meet all legal requirements.
There are several ways to buy an ecommerce business:
1. Online marketplaces: You can buy and sell ecommerce businesses in several online marketplaces, like Flippa, Exchange Marketplace, and BizBuySell.
2. Business brokers can help you find an ecommerce business that meets your needs and assist you with buying.
3. Direct contact: You can also find ecommerce businesses for sale by contacting owners directly.
4. Industry events: Attending industry events and conferences is also an excellent way to connect with ecommerce business owners who may be looking to sell.
Once you have thoroughly evaluated the business and are ready to make an offer, you should negotiate the purchase price.
You and the seller will likely send offers and counteroffers back and forth.
During this step, you'll also start to figure out the general terms of the sale, like whether you want to buy the business's assets or just the stock.
If you do not have enough capital to purchase the ecommerce business outright, consider different financing options.
1. Asset-based lending (such as Myos) provides quick access to cash with minimal risk for online sellers. With lower interest rates, no credit checks and assets as collateral, these loans are a great way to provide working capital fast.
2. SBA loans are suitable for those who can put up collateral and have good credit.
3. Traditional bank loans provide either a secured or an unsecured loan. This path usually requires a good credit history and a few years of running a business as an LLC.
4. Alternative financing – Most online business loans are less strict than loans from the government or banks and offer fast financing on good terms.
5. Leveraged buyout (LBO) is when a private equity firm buys a target company with a mix of its own money (equity) and debt financing.
6. Debt assumption can be risky if the business does not continue to profit under new ownership. Before proceeding, consider the liquidity danger it may entail.
7. Seller financing is a credit provided by the business's seller rather than an outside lender. For example, the seller may offer to sell their company to you in exchange for a down payment and monthly payments at a fixed interest rate until you pay off the business.
8. Crowdfunding sites like GoFundMe, Kickstarter, and Crowdfunder help new businesses get off the ground.
9. Private investors, like angel investors, friends, or family.
It's important to carefully review the terms and conditions of any financing options to ensure they suit you and that you can afford the payments.
After you have purchased the ecommerce business, you will need to plan for the transition.
It includes transferring ownership of the website, accounts, and any other assets.
In addition, consider any changes you want to make to the business, such as marketing strategies, product offerings, or website redesigns.
Communicating with the previous owner and employees ensures a smooth transition.
After the transition, it's essential to monitor the business closely.
Track the financials, customer reviews, and website analytics to ensure the company performs as expected.
Continue to evaluate the marketing strategy, products, and customer base to identify opportunities for growth and improvement.
There may be legal issues to consider when buying an ecommerce business, such as contracts, licenses, and intellectual property rights.
Therefore, it's important to consult with a lawyer to ensure that all legal requirements are met and that there are no outstanding legal issues that could affect the value of the business.
There are several advantages and disadvantages to consider when buying an ecommerce business:
✅ An established customer base can help you generate revenue faster than starting a new business.
✅ The proven business model that you can leverage to continue growing the business.
✅ Established systems and processes that make it easier for you to take over and run the business.
✅ Lower start-up costs because many initial costs, such as website design and development, may already be in place.
✅ Access to expertise: The previous ecommerce business owner may have valuable knowledge and experience that you can leverage to grow and improve the business.
❌ Cost: Buying an ecommerce business can be expensive, and you will need to have enough capital to cover the purchase price and any additional costs associated with running the business.
❌ Limited flexibility: When you buy an existing ecommerce business, you inherit the existing business model, systems, and processes, which may limit your ability to make significant changes to the company.
❌ Unknown risks: You may be unaware of hidden risks, such as legal liabilities or operational inefficiencies.
❌ Competition: The ecommerce industry can be highly competitive, and other businesses may offer similar products or services.
❌ Reputation: If the ecommerce business has a poor reputation or negative customer reviews, it may be challenging to overcome this and attract new customers.
To sum it up, buying an ecommerce business can be a great way to start your entrepreneurial journey.
First, however, you should carefully evaluate the business and understand its potential for growth and profitability.
Then, it’s also important to prepare for unexpected challenges, like changes in consumer behavior, economic downturns, or supply chain disruptions.
Therefore, having backup plans and being flexible and open-minded about running your business is essential.
And finally, by following these basic considerations, you can make an informed decision and successfully purchase an ecommerce business.
As we said, alternative financing is one way of obtaining sufficient funding.
Myos offers Stock financing, a type of financing that uses part of your current inventory as a way to get new growth capital quickly.
You give a portion of your stock as a deposit, and receive financing in return.
Your products are evaluated according to their popularity in marketplaces using AI, without additional paperwork or credit history checks.
Then, with flexible payments up to 24 months, you pay back as you make money.
To be eligible for financing, you should meet the following requirements:
Sign up today and let Myos be your trustworthy partner on your way of business success.
With an existing ecommerce business, the owner has already built a website and found customers, you just need to maintain it. So, it is a worthy business idea.
You can sell your company for 20 to 60 times its average monthly net profit, or you can figure out how much you need to make each month to get that price.
In some ways, selling an online store is much simpler than a physical store, but there are additional challenges. It depends on your niche, products, revenue, etc.
6 Best Ecommerce Loans To Consider for Your Business
6 Best Digital Banks for Ecommerce Business in 2023