Ecommerce is a fast-growing industry. With the government lockdown forcing people to shop online, ecommerce businesses are currently an attractive investment. However, there are many important points to consider, ensuring it will be a good fit for you and also succeed.
Finding the right business
Firstly, ask yourself why you’re buying an online business so you have a better understanding of what you’re really looking for. Are you passionate about a particular product or are you doing it to simply make money? Buying a pre-existing ecommerce business is a much faster way to reap the financial rewards, rather than building one from scratch.
Find a business that aligns with your goals and complements your skills. Ask the current owner how much they personally manage and how much of the work is outsourced. You need to buy a business you’re capable of running. Consider how much you can personally take on in comparison to the current set up.
If you are a store owner with stock during this lockdown, you may want to consider buying an ecommerce business that allows you to move your products online. Or if you are searching for your business from scratch, look for one that sells products that are consistently in demand.
For example, buying an online business that only sells toilet rolls may seem like a great idea now. However, long term, when we are out of this crisis, it may not seem like such a good investment!
Once you’ve identified the right ecommerce business for you, there are plenty to choose from.
Traffic is crucial to an ecommerce business. Without traffic, an online business simply can’t survive. It is important to look at where the current traffic is coming from. Is it being directed from other websites or does it rely heavily on paid searches? If the latter, check how much this is costing and take it into careful consideration.
Be sure to research the traffic’s trends and use a reputable service like Google Analytics to carry this out. Analyse the trends on a weekly, monthly and yearly basis. Are there any spikes that can’t be accounted for? If so – it is worth investigating further. Consider hiring an SEO consultant to examine this in more depth and work with you in the future.
Keeping your customers engaged and coming back to the site is essential to the success of your online business. Look at the number of repeat customers and consider marketing drives to encourage new buyers.
Assess the current customer services in place, looking at feedback from happy and potentially dissatisfied customers. How quickly are their problems dealt with? Are there any requests for refunds or complaints with the product and service? This will indicate whether there are underlying issues that need to be addressed.
Speak to the current suppliers to ensure they will continue to stock the business once you take over. Make sure you get written confirmation on this, else it might be worth looking at other suppliers or even pulling out.
Go through the stock in detail with the current owner. How often do they replace their stock? How many products are they removing and adding? How many suppliers do they have? You need to be confident you are buying a business that can continue and thrive in your hands.
Facts and figures
Do your due diligence. Look into the net income, profit margins and operating costs of your prospective business. It is easy to be drawn to a company that has a high turnover (and this is the figure that sellers and brokers will likely push). But beware, the running costs on these may be high and the profit margin slim. Make sure you hone in on the gross profits so you can work out what the company actually makes, once all the running costs are deducted. Also, consider what you could realistically improve to increase the gross profits. You may spot scope to change or finesse the existing working practice.
You should do a thorough business valuation before buying your ecommerce business and research the various valuation methods available.
It is also important to ascertain why the business is being sold. It is common to see failing online businesses attempting to be sold for an extortionate price. However, if you do your due diligence, you won’t be caught out. If the current owner doesn’t have a plausible reason for selling then you should be wary.
Having done your research, you should be confident in finding the right business for you that is going to be profitable and sustainable.