Tips for Buying an eCommerce Business

So you want to buy a business, but rather than hassle with a physical storefront and the stresses of a brick-and-mortar store, you’re looking into e-commerce. Smart move! By 2027, it’s expected that 23% of retail purchases will take place online. Your store can make sales even when you sleep, and you’ll likely have reduced overhead as the owner of an e-commerce business.

Here are some things to consider before investing.

Know What You’re Looking For

E-commerce companies come in all shapes and sizes, so knowing what you want ahead of time can speed up the process of finding it. Is there a particular industry you’re interested in or have experience in? What are your revenue goals? How involved do you want to be? How much do you have to spend on this business?

The more granular you can get on what you want, the easier it will be to find it.

Get to Know the Business

Once you find an e-commerce business you’d like to buy, spend time with the owner understanding the ins and outs. Who are the customers? What are average monthly revenues and profits? What kinds of expenses are there?

You’ll also want to ask for financial statements so you can get a better picture of how the business has been earning and spending money. If there are any red flags, they will likely show up here. 

Understand the Fulfillment Process

E-commerce businesses primarily have two ways of fulfilling orders: the first is to do it in-house, i.e. going to your warehouse and putting the ordered items in a box, then shipping them.

The second is called drop-shipping, and this involves third parties (like Amazon, for example) who ship the items on your behalf.

Find out which (or if there’s a hybrid model) the current owner uses, and get to know the costs and processes involved.

Look at the Competitors

The online selling space is a crowded one, since you’re not limited to geographic boundaries to find customers. Find out who the company’s main competitors are, and why customers go to them instead of this brand. Also, look at what’s lacking with the competitors. Maybe reviews say the customer service isn’t great, or the products are of inferior quality. This information can provide you with ideas for how to create a competitive advantage once you step in.

Uncover the Unique Selling Proposition

An e-commerce company that wants to thrive must have a unique selling proposition (USP) or something that sets it apart from the crowd. This absolutely should not be that it sells the cheapest product in the market! There will always be another company that can sell for a lower price.

Instead, look for a USP that provides fabulous customer service, free shipping, or outstanding product quality. If you can’t easily identify the USP, that doesn’t mean it’s a bad idea to invest…but you may want to overhaul the company to create a USP.

Find Out Why It’s For Sale

Another place you might uncover a red flag is the owner’s reason for selling. If the market has gotten too crowded to sustain a profit or if his expenses are exceeding his revenues, he may be keen to get the business off his hands. If that’s the case, you certainly don’t want to take on the burden.

Realize that the owner may not want to give his reasons if he thinks you’ll be turned off by them, so listen to your intuition. If you get the vibe that he’s desperate to sell because the business isn’t doing well, move on.

Look at the Marketing Strategy

It’s smart to see what the current owner is doing to attract business. How much does he spend a month/year on marketing, and what channels is he using to connect to his audience?

Look at the brand’s social media presence to see how customers are reacting. Are they raving about the brand, or are there crickets where there should be a buzz?

Find out if the owner does his own marketing or if he outsources to a marketing agency or professional. You can keep the same plan or make your own, depending on your experience in marketing and your budget to spend on hiring help.

Get a Business Valuation

The business sale price has already been discussed, but you need to understand if the company is actually worth this amount. It can be difficult to place a value on an e-commerce company, because much of its assets are intangible, other than inventory.

Often, professionals will multiply the last year of net profit by an industry multiplier to determine the value. If this number doesn’t align with what the owner is asking, it’s time to negotiate.

Get to Know the Supply Chain

What does an average inventory look like? What kind of vendor agreements or contracts are in place? You’ll want to understand the relationships the company has with suppliers, as well as whether you can continue under those same terms.

On the other hand, this may be a good time to look for other suppliers who may offer more favorable terms, provide a better-quality product, or offer a lower per-unit cost.

Consider the Changes You Want to Implement

You may want to keep everything as it is, but you likely will have a few ideas for improving what will become your e-commerce business. List out the changes you’d make. That might be overhauling the website, adding new marketing channels, creating new products, raising prices, or hiring staff.

Make a budget and a timeline for what these changes will require so you know before you buy the business how long it’ll take to reach your goals.

Look at the Technology

You’ll want to get an understanding of all the software and programs required to run the business, from the website to the merchant card processing software to the sales and inventory system. Build in time for the owner to train you on using all of this before parting ways.

Consider Your Financing Options

Now it’s time to consider how you’ll finance the purchase of this business. If you have the money on hand, fantastic. But even in that case, you may consider taking out a business loan to cover the costs of overhauling the brand if you have big plans for it.

You can also look at bringing on investors or taking out a private loan.

Get a Plan for Scaling

Again, you can keep things status quo, but likely you’ll want to increase the number of customers you serve with your new business. It can be helpful to create a business plan, even before you’ve purchased the e-commerce business, so you have an idea of how you will grow the company.

Put a Transition Plan in Place

What happens once you’ve signed the sales contract? Does the owner cash the check and head to the Bahamas?

If possible, build in some time for him to stick around and train you on all aspects of running your business. Build in time for the inevitable questions that will arise. That way, you minimize disruptions for your customers and can learn firsthand how to successfully run your new e-commerce business.

Final Thoughts

Buying an e-commerce store provides you with the opportunity to make profits with lower overhead costs. But before you jump on the first deal that comes along, carefully analyze the company to make sure it’s truly got potential and won’t overwhelm you with debt and problems.