Do you build a new business or buy an established business? That’s a question that entrepreneurs often grapple with. As an entrepreneur, you can choose to build an e-commerce business from the ground up. Find a niche. Create a website. Market it and build an email list. Create engaging content. Promote affiliate products, create your products or dropship.
However, building a profitable and sustainable online business takes time. The alternative is buying an existing business.
Why buy an established online business?
1. The business has proven to be viable. It has traffic, customers, and suppliers. The risk element is much lower
2. If you already have a business in a complementary or even the same niche, it can mean cross-sell capability, and expansion of your product line.
3. It can be very profitable. E-commerce sites are valued at 2-3 times their annual net profit; this means the return on investment is 33% – 50%. If you already have e-commerce experience, you can grow the acquired business 2-3 times in a year and resell it for a more substantial profit.
That being said, there are many things you need to look for when buying an established online business. For instance, if you looking for a business for sale in Houston, here is a checklist for you:
Audit Financials
To make a successful acquisition, you must verify the claimed revenues and expenses.
Have a look at the monthly shopping cart reports. Also, check the revenue generated in the last 12 months. Cross-check and verify that information against bank statements or processor statements.
On the expenses side, demand every single invoice for every conceivable business cost. Invoices for hosting, stock purchases, paid advertising, email subscriptions and wages. Also, demand reports outlining refunds, processing fees and chargebacks.
You should also look out for hidden costs. Make sure everything is disclosed. Don’t buy a business only to be hit by a $1000 monthly SEO agency fee that you know nothing about.
Evaluate customers
Customer engagement is a vital component of any thriving e-commerce business.
When buying an online business, evaluate customer care and engagement signals, both on and off-site. This includes the number of return customers, the percentage of returning web visitors, the number of product reviews, and the sentiments expressed on product reviews. Look out for excellent customer engagement.
On the customer service side, go through customer support logs. Have a look at the volume of inquiries, feedback and response time. A huge number of refunds can be an indicator of customer support issues.
Are the sales sustainable?
Every few years, there is a big craze. For instance, there are times when kids go absolutely crazy about products like fidget spinners, and for that period, sellers make a killing. But the interest eventually dies off, and products like these are not cool anymore.
Fidget spinners are a great example of where sales are unsustainable. So, should you pay top dollar for a fidget spinner business after a month of high demand? No, not if you’re looking for a business that’s sustainable in the long run.
You want to buy a business with consistent sales all year round, not a business whose sales are driven by short-term hype.
Speak to suppliers
Just because an online business sells X or Y products doesn’t mean the supplier is willing to supply you once you acquire the business. So, it’s prudent that you get a written confirmation from suppliers that they will support you once the business is transferred to you.
Understand sources and costs of traffic
All web traffic is not equal. Some of it comes from search, some from referrals and some from paid search. Before you buy an online business, you should find out where visitors come from and how much it costs to get them in.
An online business can generate, $5, 000 in sales per day. On the surface, that number is impressive. But if most of the traffic is driven in by paid search, and they are spending 50% of the sales revenue to drive it, the sales figure starts to look a lot less impressive.
Before you buy a business, look at the analytics and determine where the traffic comes from and its cost.
You should also ensure that it’s sustainable. If the traffic is from search, you should analyze the site’s backlink portfolio. A poor backlink portfolio means a Google penalty is impending – this means a collapse of sales is imminent.
A business’s past performance means nothing until you determine that it’s sustainable in the long run.
Be cautious and knowledgeable
Buying a web-based business is exciting, but it’s also very risky. It’s a significant investment, and that means, if you’re reckless, there is a huge potential for loss.
For you to succeed, approach business listings with the right knowledge and caution. Ask the right questions and assess whether the business could be profitable in the long run and whether it’s worth the selling price.
