Are you interested in buying an ecommerce business?
It’s important to review a company’s finances, but what else should you look out for?
In this post, we examine the pros and cons of buying existing businesses, where to look for websites for sale, and things to be aware of.
Why should you buy an existing business?
As you research how to start an online business or launch an ecommerce store, you may not have put much thought into whether or not buying an ecommerce store is plausible or even possible.
It’s actually one of the best ways to go about getting into ecommerce, so long as you can raise the funds or have the money outright to do so.
When you start from scratch, you have to build your reputation into an established niche, which can take anywhere from a few months to a few years.
When you buy an established business, you’re buying someone else’s reputation. If you do your due diligence, you’re also buying a profitable business you didn’t have to build yourself.
Advantages of buying an ecommerce business
- Brand awareness is already established.
- You get a successful ecommerce business in an established niche.
- Ecommerce is easier to learn this way.
Brand awareness
Brand awareness is one of the most important aspects of owning a business, especially an online business.
Online businesses are only successful if they get noticed outside of their own websites. That’s why businesses spend so much on advertising and why new businesses need a killer marketing strategy from the get go.
If you buy an ecommerce business, you have the opportunity to shop around for ecommerce stores that have already built their reputations online.
Proven track record in an established niche
If you buy an ecommerce business, you also have the opportunity to shop around for ecommerce stores that have proven track records in an established niche.
As a new ecommerce store, not only do you need to attract customers to your business in general, you also need to draw them away from established competitors and onto your website.
Buying an ecommerce store lowers this risk as it allows you to choose a store that already receives a decent number of sales.
Easier learning process
Starting an ecommerce business from scratch truly means starting from scratch. You likely don’t already own an ecommerce business and may have never owned one, so you have almost zero experience with the entire process.
First, you have to choose a niche and target market. Then, you have to choose brand and domain names. You then have to decide what to sell and how to sell it. And this is all before you get to work on creating and hosting a website and processing and shipping your first order.
The current owner of the ecommerce business you buy has already done all of this for you. They’ve already chosen a business model that’s already bringing in a lucrative net profit.
This means you’ll have a much easier time learning the ins and outs of ecommerce because all you have to learn is a process that already exists.
Disadvantages of buying an ecommerce business
- It’s expensive.
- Some problems won’t make themselves known until after you’ve purchased the business and get to work.
- There are no guarantees that the store will continue to profit in the future.
Expensive
Starting an ecommerce business from scratch can actually be pretty cheap, especially if you go the dropshipping route or use a print-on-demand service.
Buying an ecommerce business is no different from buying any other type of business, and business sales aren’t cheap.
For a quality store that’s doing well, expect to pay a six-digit price. Expect to pay a seven-digit price if the store is doing exceptionally well.
This is why you often see well-known companies buying up successful small businesses. They’re the only ones who can afford to pay full price!
But fear not, there are plenty of finance options for you to choose from. You can get a business loan or utilize debt or equity financing.
With debt financing, you receive a cheaper sale price by agreeing to take on the business’ debt and reducing the cost of that debt from the sale of the business.
With equity financing, you pay a lower sale price for the business, but the current owner retains some percentage of ownership.
Some problems aren’t obvious
Some problems within the business may not be obvious until after you’ve purchased it and take over its day-to-day operations.
Problems might include issues with individual employee performance, suppliers not delivering items on time, shipping companies losing packages and similar issues that may seem small and isolated on their own but have the potential to be detrimental if not corrected.
Business owners want to sell their businesses, so they may not speak up about these issues if you don’t spot them before the sale or investigate thoroughly during the negotiation process.
Future performance is not guaranteed
This is the biggest risk when it comes to buying businesses, especially ecommerce and SaaS businesses.
Just because a business is doing well now does not mean that it’ll continue to do well in the future.
Market interest may decline or drop entirely or you may not handle the company’s marketing as well as the previous company did.
Plus, circumstances that are not under your control may affect your ability to do business. These can include natural and political disasters, a negative press campaign that works against your business, or changes in the third-party services you use for operations.
Again, this is why doing your due diligence by conducting proper research before a sale is finalized is so important.
How to find ecommerce businesses for sale
When you buy an ecommerce business, you’re either going to negotiate with the business’ current owner directly or with a broker the current owner hires.
When you negotiate with the owner directly, it’s known as a “private sale.” When the owner enlists the help of a third-party service to help sell their business, that service is called a “broker.”
These terms are also popular in real estate, and just as a consumer is able to hire their own realtor to find a home for them, you can hire a broker to find an ecommerce business for you.
You’ll have to pay the broker for their services, but they can really make the entire process run a lot smoother.
They can find websites for sales that match the niche you’re looking to get into as well as your budget, and they can help the negotiation process and vet businesses more efficiently.
Brokers also help keep business valuation honest so you don’t get taken advantage of by a seller overselling the value of their business.
Where to find ecommerce businesses for sale
Empire Flippers
Empire Flippers is a marketplace where you can buy and sell websites online.
Sellers can use it for selling ecommerce websites (or any type of website), and buyers can use it to fully purchase businesses.
The service helps sellers through every step of the process, including vetting buyers and handling final transfers. Plus, the site vets websites for sales, so you know you’re buying a legitimate business.
Sellers list stats from Google Analytics, profit/loss statements, and more.
Empire Flippers has helped process over $450 million in website sales.
Flippa
Flippa is an online business marketplace in general. Along with websites, the site is a hub for buying and selling apps, domains and even digital services.
For ecommerce, you’ll be able to see a business’ asking price, profits, losses and more.
Many listings are managed by brokers, and Flippa offers valuation services, both of which make Flippa one of the most reliable platforms for buying ecommerce businesses.
Flippa has helped sell over 450,000 businesses.
Motion Invest
Motion Invest is a great source for buying smaller websites that earn a few hundred dollars per month to a few thousand dollars per month.
Even so, the company performs due diligence on each website listed on its marketplace, so you know you’re buying a profitable ecommerce website.
It’s a great way to buy an ecommerce business if you’re working with a very small budget.
How to shortlist potential ecommerce businesses to buy
You may get overwhelmed by the number of options at your disposal when you first browse these marketplaces. It’s important to know what you’re looking for before you start looking because of this.
Consider what niches you’re looking to invest in as well as your budget.
Ecommerce businesses that are already profitable do have processes that are already set up and ready for you to take over, but you’ll be able to grow the business at a much more efficient rate if you know more about the products you’re selling and the content you’re creating.
You should also consider how much money you’re able to or willing to pay upfront. You can always finance the rest.
As you start to look for businesses, consider the following risk-factor attributes:
- What expenses the company has. Do they have the potential to get worse or impossible to manage in the future?
- The company’s reputation. You may be able to get a cheaper price on a business if it’s suffering from negative press, but know that you’ll need help the brand overcome its negative reputation and put a positive spin on its digital footprint.
- Market interest of the company’s niche. Use Google Trends to determine if the business’ niche or product(s) are a passing trend or a lasting want/need in an established niche. You can also use this tool to see if the entire niche has the potential to die out.
- Technology becoming obsolete. As you review the company’s operations, conduct research on each process they use. This includes third-party services and methods for ecommerce, shipping, web hosting and more. If anything the business uses seems outdated, know that you’ll need to spend quite a bit of money updating this technology in the future.
These attributes should help you create a shortlist of potential ecommerce businesses to buy.
How to conduct due diligence on an ecommerce business
Ask important questions
Once you have your shortlist, you can start negotiating with each ecommerce business individually.
Start negotiations by asking the current owner one simple question: why are you selling the business? Profitable businesses are hard to grow, so it’s worth asking why the current owner would want to give theirs up.
You should also ask the current owner for an honest opinion on the business’ future, especially if the business uses dropshipping, an ecommerce method many consumers have negative opinions about.
Market interest is another common concern, so it’d be great to hear what the current owner thinks about consumer interest in the products the business sells.
Ask for proof of success
Ask for the company’s tax returns and financial statements, especially their profit/loss statements.
Review the company’s profit margins, cost of sales and business expenses.
Look for increases and decreases as well as sudden spikes or drops.
Look at how the company makes money and how it’s funded. Does it have a healthy cash flow or does it rely on financing?
You should also ask to view the website’s analytics to see website traffic and traffic sources.
Tools like Semrush and Ahrefs can give you an idea of the company’s search engine optimization standing.
Review operations
Ask for a tour of the business’ operations so you can see how it functions. This can be done in person, but if you’re buying an ecommerce business that uses third-party product fulfillment and shipping, you can simply ask the business’ current owner more questions.
Ask for the following information:
- What type of ecommerce business is it? Does it ship its own inventory or even manufacture its own product? Does it use dropshipping or print-on-demand services?
- The company’s structure. Does it have a small team or does it have departments?
- What services or suppliers does the company rely on? How are relations between the company and its suppliers? Are suppliers willing to extend new contracts to new owners?
- How many units has the company sold in the last quarter as well as the last 12 months? How many units has the company sold per SKU?
- How does the company acquire customers? What is its customer acquisition cost?
Review brand awareness
Tools like Semrush, Ahrefs and even Similarweb can uncover the business’ biggest competitors. This will let you know where the business stands in its niche.
You should also review the company’s marketing strategy as well as its social media accounts. What social media platforms do they use? How many followers do they have?
While profits and losses are most important when it comes to a business purchase, a large social media following can help you capitalize on your new purchase.
Wrapping it up
Buying an ecommerce business isn’t for everyone. There are pros and cons.
Some problems won’t be obvious and future performance is never guaranteed. But there’s no escaping the reality that it’s far faster than starting from scratch.