All entrepreneurs have to choices: begin a new business or buy an existing one. Many entrepreneurs opt to build a business to save some money, but an increasingly large amount of them are turning to buying e-commerce businesses. With that in mind, here are four things to look out for if you are an entrepreneur looking to invest in an existing e-commerce store.
Why should you buy instead of build?
In theory, an existing business is already profitable and has consistent revenue streams from its customers and suppliers. If you’re the owner of an e-commerce business, there’s a chance we’re talking about big profit here. But if you’re on the verge of opening a business, there’s some more work to be done before the business will begin to be profitable.
Keep in mind that most e-commerce businesses sell for about 2 or 3 times their net profit per year. If the owner has some experience with e-commerce businesses, he can increase the profit in no less than 12 months. The thing with this is payment needs to be made in full upfront. Make sure it’s a good investment first so that you can recoup it and expand upon your initial investment.
Traffic is crucial when it comes to businesses online e-commerce stores. This is the first thing you should be looking into when looking into purchasing an online business. Look for trends and sources. Google Analytics may come in handy when analyzing the traffic data of your site. Check the trends and the top sources constantly, month after month, even week after week if possible. Ask yourself if the traffic is down, up or if it remains constant, and figure out what factors and marketing channels are causing this.
What about suppliers?
Any e-commerce business has suppliers, and it’s important to understand their dynamics that are currently in place. When buying a business, look at the arrangements that the current owner has with the suppliers. Ask yourself if the products belong to one or more suppliers. Then think about the length of the contract and its terms. You also need to factor in other costs such as shipping fees and logistics.
For the best and most stable business relationships, you have to make sure that the concentration of suppliers is low and that the contracts with them are long-term
Bare In Mind The Financials
Make sure you look into the financials. Verify the payments and the dividends. Look at the details. When you are a buyer looking to make a long-term investment, you need to look carefully at the reports of the shopping carts, preferably month by month, to make sure everything is alright.
When it comes to costs, request all the income and all the expense of the company. And we mean all of them – from stock investments to e-mail subscriptions and the wage of your people. Not mentioning the advertising or the refunds and merchant services fees can be misleading. This is why you want to use a trusted e-commerce exchange marketplace like Exchange by Shopify so that all of the financials are independently verified by a third party.
Customers Are Really Important
When it comes to the e-commerce business, customers are the most important thing. So make to check out how the customers interact with the site you are looking to purchase. How’s the percentage when it comes to a visitor who keeps coming back to the site? How many of them are those who access the site regularly? How about the products? Are their reviews good? Is there a large number of reviews?
These are the types of questions you need to ask and research before purchasing an e-commerce business. If you’re able to satisfactorily gain the information to all of these queries, then it may be time to buy. Make sure to negotiable a fair price that keeps in mind all the factors above and hidden costs, and you will soon be the proud owner of an established e-commerce store.
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