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How to Buy an eCommerce Business? – Tips and Ideas

11/25/2022 11:28:30 +0000
Although the idea of a 4-hour work week sounds attractive, it's crucial to research intensively on how to buy an eCommerce business before making any drastic move.

Owning and running your own eCommerce business comes with privileges, but these only come after a lot of hard work. It's more complicated if you're starting from scratch—with 20.4% of online businesses closing after only one year of operation.
Buying an existing eCommerce site
Finding someone who has an established business will speed up things for you. This is because you don't have to build the website, find suppliers, set up payment methods, automate emails, etc.

However, you still need to look into several things before buying an eCommerce business. Here are some questions to answer if you want to ensure a return on investment:
 

What business size and stage are you ready for?

Running a business can change your lifestyle. If you're buying a start-up, it's likely you'll work long hours for little pay. You may have to sacrifice time with family and friends as your business finds stability.

Small eCommerce businesses with concrete customer bases are typically pricier, but you won't have to work from the ground up.

If you just want to diversify your investment portfolio, consider incorporated businesses. There's less work required but you'll have to wait for months until the acquisition amount is recovered.

What are your interests?

Identify your expertise and the areas you need to improve. For example, if the eCommerce store you want to buy still lacks branding and you have no prior experience, hire an experienced brand strategist to handle it.

While you can outsource almost any task these days, it's easier if the business matches your interests. You will know what products/services are needed by the target market because you're one of them.

Where should you start the search?

Once you know what type of eCommerce business to buy, it's time to shop around. The type of business you're looking for determines the place where you should shop.

For example, if you want to buy an incorporated business, it's probably best to work with a broker. You can also buy and sell online businesses in any of these 14 marketplaces.

Prices vary widely. Logically, six-figure enterprises tend to come with a hefty price tag.

Why is the eCommerce business for sale?

Business owners sell their online ventures for different reasons. Some are selling for retirement and others have more disconcerting reasons.

Learning how to buy an eCommerce business requires developing an instinct that will tell you if a business is not in good condition.

Have a thorough discussion with the seller and don't forget to ask for the following:

  • Financial reports, cash flow statements, balance sheets, tax returns, etc.
  • List of debts and liabilities
  • Record of supply issues or any issue encountered since they've started
  • Operational business plan
The more you know, the more likely you'd find the most suitable eCommerce business for you.
What is the market value of this eCommerce business?

There is no universal formula when estimating the value of an eCommerce business. An accredited business appraiser can provide you with a reliable valuation report.

At the same time, your measurement should consider intangible assets, such as a loyal customer base and intellectual properties.
 

Is this the cheapest offer possible?

Usually, eCommerce businesses for sale have listed prices. You can negotiate the price and adjust the terms of payment based on the valuation report.

You might have to meet with the owner several times to figure out the best deal for both parties. Remember to maintain respect throughout the process and avoid severely undervaluing their hard work.

How do I submit the offer?

Prepare a letter of intent to formally express your plan to do business with the seller. The letter must indicate who's making the purchase (an individual or a company), the general terms, and the timeline of the deal. For the security of both parties, consider drafting a confidentiality agreement as well.

An LOI can help save time and energy because it ensures that both parties are on the same page before meeting each other.

What are the documents I should go over?

Once both parties agree to negotiate, request a copy of all important documents. These include:

  • Commercial lease agreements (maybe they're renting a warehouse or a small office)
  • Contracts (with suppliers and logisticians, for example)
  • Marketing materials
  • Business tax returns for the past 3-5 years
  • Business licences and certificates
  • Balance sheets, payroll, and income statements
  • Any document regarding pending legal issues
How do I complete the purchase?

It's advisable to have a corporate lawyer prepare a legally binding contract. Every detail you and the seller agree upon should be clearly stated in the contract.

If you're buying an eCommerce business through a marketplace, check if they offer legal services. Some marketplaces have asset-specific template documents and a legal team to make you comfortable with the sales process.
Conclusion
Knowing how to buy an eCommerce business lifts some weight from your shoulders, but you should still meticulously study the business you want to buy. As with any purchase, the buyer has the responsibility to practice due diligence.
About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
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