ENTREPRENEURSHIP THROUGH ACQUISITION
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The Top 5 Ways to Finance Buying an Existing Business
Are you looking for innovative ways to finance buying an existing business? Read on to learn about some common ways to finance buying an existing business.
Buying a business
Here are five ways to financing your acquisition
Are you looking for innovative ways to finance buying an existing business? Read on to learn more.
Finance buying an existing business
In a lot of ways, running your own business is the ultimate fulfillment of the American dream. You set your own hours, act as your own boss, and get to spend your days doing something you love. But how can you become a business owner without all the risk that comes along with starting something from scratch?
What do you do if you want to finance buying an existing business?
There are a number of ways to approach business financing. From making arrangements with the seller to getting a standard loan, you can choose the option that works best for you. Read on to learn about some common ways to finance buying an existing business.
1. Seller Financing
Depending on who you’re buying your business from, you may be able to get the seller to finance the sale of the business. Like with a loan, you pay an agreed-upon amount every month for a certain period of time until you’ve paid for the business in full. This gives the business owner a guaranteed source of income for the life of the loan, and it allows you to avoid the initial up-front expense of buying them out.
2. Partnership
If your seller won’t finance your purchase but you want to avoid a traditional loan, you may be able to go into business with a partner. Each of you would pay for a portion of the business, and you would run it together. This effectively doubles the amount of capital you have to invest in this business and gives you some help in running it.
3. Sell Stock To Employees
If you plan on having a number of employees, another financing option may be to sell stock to your employees. You’ll have to organize the business as an S-Corp or a C-Corp, and we would recommend selling non-voting stock so you retain ownership. But this option can get you a huge discount – possibly as much as 90 percent – on the business price.
4. Lease The Business
As with many other large purchases, one of your options with buying a business is to lease it. This will require cooperation with your seller since you will take over running the business and pay them a fee each month, while they still retain ownership. But it gives you time to build up capital in the business before you make the big purchase.
5. Get A Loan
And, of course, a very popular option for financing buying a business is getting a loan. You can get a term loan, a Small Business Administration loan, or asset-based financing, depending on your situation. You can also use a combination of the three to get the right solution you need to buy your new business.
Learn How to Finance Buying an Existing Business
Starting a business is challenging enough, but knowing how to finance buying an existing business is a whole different ball game. There are a number of different approaches that will work, depending on your needs. Talk to your seller and your bank and see which option will work best for you.
If you’d like to learn more about entrepreneurship through acquisition, check out the rest of our site at BizNexus. We have tools to help you buy or sell a business or franchise. Check out our posts about buying a business to start planning your entrepreneurial success today.
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BUSINESS ACQUISITION
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Tips on Selling Your Business With a Business Broker
When the decision to sell a business is final, business sellers often try to go it alone to save themselves the cost of a commission.
Want to Sell Your Business?
Connect with the RIGHT intermediary and leverage their niche expertise
When the decision to sell a business is final, business sellers often try to do it alone to save themselves the cost of a commission (or because they don’t even know what a “business broker” is, which indicates a larger awareness issue in the industry…).
Today, business acquisition & sale markets are awash with high-tech platforms that claim to make selling a business less labor-intensive and stressful. At BizNexus, we don’t allow sellers to post directly on our platform, and we do that because we believe in the value a great intermediary can provide when it comes to vetting, pricing, and negotiating a unique transaction. If you’re a would-be seller thinking of going along, it’s best to understand the resources available to you to help make a successful transaction actually happen before you jump in on your own.
Data and Reviews
We’re big fans of people, -real people who absolutely should be involved in any company sale process. Use reviews to help you build your deal team. Lawyers, business brokers, CPAs…. It’s 2020 people, -if there’s no data on the interweb about a professional you intend to work with there might be something off, so be sure to check with references and verify, verify, verify before you sign any contract. When a business owner has a business for sale, the process can get sticky leading to a potential transaction close, and we strongly recommend having experienced, capable professionals on-call to help you get your transaction over the goal-line.
Finding the Right Marketplace to advertise a Business for sale
There are certain features to consider when it comes to finding the best marketplaces to advertise a business for sale. These include:
Do you have clarity on who potential buyers actually are?
Does the marketplace simply allow you to post a business for sale for a fee? Or is there a professional involved at some point in the process for valuation and listing?
Is there any degree of confidentiality? Can you anonymize your information, location, etc., and still get in front of the right buyers?
An Online Site Based on People & Professionals
When the decision to sell a business is final, we recommend you try to get matched with the best intermediaries for you based on industry, location, deal size, and real-time transaction data. Check out BizNexus, and get matched up with your perfect business intermediary. We’re a platform for active business sellers and business brokerages active in the industry.
BizNexus - A Solution For Busy Entrepreneurs
If you’re busy running the day-to-day of your business, you might not have time to give the selling process the TLC it deserves. It’s a classic situation of not being able to focus on what’s important because you’re buried with everything urgent. BizNexus is a marketplace created for entrepreneurs, and it only takes a few seconds to get matched up with the best business broker for you, so give it a whirl if you want to get the ball rolling on setting yourself up for a great exit.
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PREPARING TO EXIT YOUR COMPANY
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to Buy a Franchise: 5 Best Practices for Buying a New Franchise Opportunity
There's a lot that goes into investing in a new franchise. If you want to learn how to buy a franchise, check out some of these best practices.
How to Buy a Franchise?
5 best practices for buying a new franchise opportunity
There's a lot that goes into investing in a new franchise. If you want to learn how to buy a franchise, check out some of these best practices.
How to buy a franchise
Wondering how to buy a franchise?
Trying to decide if a new franchise opportunity is a good choice for you?
If you're starting a new business, buying a franchise is one of the best options available. It can be less risky than starting completely from scratch.
As opposed to buying an established franchise opportunity, becoming a part of a new franchise can be even better in some ways. However, there are a lot of things you'll need to think about to ensure you're making the right choice.
Below we'll tell you about the 5 best practices for how to buy a franchise.
1. Research the Franchisor Extensively
When you're thinking about buying a new franchise opportunity, it's important that you do plenty of research on the franchisor to make sure they're worth your time, effort, and money.
You should find out everything you can about the franchisor's history and track record as well as the people behind the scenes. You should also find out what you can about the franchisor's financial well-being to ensure that they'll have enough capital to help with your growth.
You should do some digging online to find out more about a franchisor. You may also want to speak to some of the current franchise owners as well.
2. Ask Questions
When thinking about buying a franchise opportunity it's important that you feel open to ask questions. If you have any concerns, bring them up.
You'll want to speak plainly with the franchisor to find out exactly what you can expect from working with them. Ask as many questions as necessary to find out what you can about marketing methods, training tools, technology, operations, and provided support going forward.
3. Be Ready For Legalese
When thinking about joining a franchise, you should also be fully prepared for looking over the franchise disclosure document. You'll want to review it carefully to ensure that you understand exactly what your legal responsibilities and rights are.
If dissecting legal documents isn't your strong suit, you may want to hire a franchise attorney to help you look over it. While it will cost you to hire an attorney, it will be well worth it and can help you avoid big problems later on down the line.
4. Know Your Worth
One of the best practices for buying a new franchise opportunity is to remember that you have value. New franchisors don't hold all the chips and chances are that they need you just as much as you need them.
Because of this, you may have a bit more wiggle room when it comes to negotiating a franchise agreement and getting a deal that is right for you. New franchisors may be willing to work with you a bit more than an established franchise will, as long as they can still maintain the consistency of their franchise brand.
5. Understand Your Market
In addition to knowing everything you can about the franchisor, you also need to think carefully about the market at large.
Look at the trends locally and nationally and be realistic about whether you believe the franchise truly has a place in the marketplace. Look at your community as well as the economy and consider what your community's interests and needs are.
You need to be sure that the franchise you're considering will be appreciated. Don't just rely on wishful thinking or your own personal preferences when deciding to buy a new franchise.
How to Buy a Franchise With These Best Practices
If you're ready to be a business owner, buying a franchise can be a great place to start. However, while learning how to buy a franchise isn't hard, making a profitable choice is much more difficult. It's important that you remember these tips if you want to be confident that you're making the right decision with your purchase.
Ready to get started with buying a franchise? Click here to start looking for a new franchise opportunity now.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Top 10 Entrepreneurs Tips & Ideas for Buying an Existing Business
One thing that differentiates entrepreneurs from other people is the ability to see opportunities and take them. Opportunities exist in different forms and buying a business is one of the uncommon ones. There are people that erroneously assume that for a business owner to desire to sell, something must be wrong with a particular business.
How to Take a ‘Sprouting Seed’ and Make It Grow
Ideas for buying an existing business for sale
One thing that differentiates entrepreneurs from other people is the ability to see opportunities and take them. Opportunities exist in different forms and buying a business is one of the uncommon ones. There are people that erroneously assume that for a business owner to desire to sell, something must be wrong with a particular business. However, real entrepreneurs do not reason that way.
There are myriad reasons founders may like to sell their businesses. Some may just be bored of the business and are looking for new challenges. Others are particular about getting ideas off the ground and moving into the next idea in their heads. There are businesses that are in the form of ‘sprouting seeds’ with real potentials to grow into great companies. An entrepreneur may decide to buy such an existing business instead of starting a new one from scratch.
Actually, there are several advantages of buying an existing business. The chances of failing with an existing business are slimmer than the chances of failing with a new startup business. This means it is less risky and can be extremely rewarding when handled the right way. Before buying an existing business; however, it is important that a true entrepreneur performs his/her homework. There are so many things to know about an existing business before buying it.
From the time you decide to buy a particular business till the first few months of running it, you have to get so many things right in order to succeed. It may be a little less risky than starting a business from ground zero, but a single wrong move can lead to failures too. Here, we will discuss some tips that can be helpful in setting you and your ‘sprouting seed’ up for success:
Understand Why the Business Owner Really Wants To Sell
This may sound a little disconnected from the picture we painted above about why some founders may want to sell their businesses. We will be living in denial if we don’t point out that there are businesses for sale that are actually not in great shape. There are instances where business owners want to sell because their businesses are going down or are facing some legal or licensing issues. Take your time to understand exactly why the business you want to buy has been listed for sale. This will save you from buying a business that is bound to fail.
Be Sure the Business Is What You Really Want
Before setting out to buy an existing business, it is important that you define what you want in a business. You also need to make sure that a particular business you are interested in meets your requirements before considering it. The most important factors to consider include the location of the business, the size, the industry, and its suitability to your lifestyle and aspirations. It is important that the business you are considering buying meets the majority of these important factors. This will help you to buy a business that you will enjoy running. You should also consider your short-term and long-term goals.
Consider Working With a Business Broker
No matter how experienced you are in business, it is not advisable to go on the road alone when it comes to buying an existing business. In fact, it is impossible to do that. There are a number of people you will need to complete the transaction. It is not compulsory to have a business broker as part of your team but it is very important. There are so many things a business broker can do for you: a reputable one will help you avoid pitfalls while buying an existing business. A business broker can even help you find a business for sale that meets your requirements. He/she will also stand by you to ensure that the process is completed smoothly.
Ensure You Have a Strong Acquisition Team
Asides from your business broker, there are several other professionals that you need to complete your due diligence and buy the right business that you can grow to an organization you will be proud of. You need to assemble a strong acquisition team with members you trust. You will need an acquisitions attorney, a professional accountant, as well as an independent business valuation team. You don’t need to leave anything to chance, have the right professionals by your side to make the entire process smooth.
Take Business Valuation Seriously
There is a mention of an independent business valuation team in the tip above. The point is only stressed here to give you an idea of how important it is. Even if you are very conversant with financials, there are things that can confuse you when you are looking at the records of an entirely strange business. When you have an independent team that is focused on business valuation looking at a business you intend to buy, you will have a better understanding of the business standings and make a better decision. Hiring an independent valuation team will give everyone the impression that you are serious. Take a step further by stressing to the team you’ve hired what you really need.
Consider the Reputation of the Business Seriously
Asides from the financials of the business and its true value, you also need to consider the reputation of the business you are buying. How is the image of the business in the eyes of customers and suppliers? Do not assume that once you take ownership, people’s opinions about the business will change. There is no need to gamble with a business that has a shattered image. To know more about the reputation of the business you are trying to buy contact such important stakeholders as customers, suppliers, and banks. Steer clear if the image is severely damaged.
Consider Current Employees and Organizational Chart
While knowing everything about the financials of a company is very important, the human factors behind the figures are also important. The current employees of a business can be its biggest asset in some instances. There is also the possibility that the employees of a business and the organizational structure is the reason behind its poor performance. Look at the organizational chart, consider the current management practices and the management-employee contracts besides union agreements. Make sure you understand all legal contracts with the employees in time.
Have a Clear Vision of What You Want For the Business
Identifying a good business with potentials is never enough. If you are truly taking ownership of any particular business organization, you must have a clear vision of how to take it forward. There are instances where entrepreneurs that have prepared their businesses for sale will offer a growth plan in their marketing package; you can consider this a bonus. It is important, however, that you have your own vision of how to transform what you have at hand into what you are hoping to achieve in the future.
Sort Out Your Funding Options from the Beginning
Unless you are independently wealthy or have a very wealthy financial backer, there will be a need to sort out your funding options when trying to buy an existing business. You won’t get any good business that is in great shape cheap. Any business, irrespective of size, that has real potentials for growth will be considerably expensive and you must figure out how you will meet the price. It will be necessary to do your math and sort out your funding options before agreeing on a fair price for any existing business you truly want to buy.
Pay Attention to the Sales Agreement
Drafting the sales agreement may be the most emotionally charged aspect of buying an existing business, but you need to set your emotions aside and approach it as an entrepreneur. If you have considered all the factors that matter to you most and have decided to buy a particular business for a certain price, you need to make sure that the agreement is well drafted to avoid any surprises. This is one of the reasons you need an acquisitions attorney as part of your team. If there is any aspect of the agreement you don’t understand fully, speak up until you are sure of what you are signing. Do not leave even a single ambiguity as it could lead to issues at closing or even after the acquisition has been concluded.
As an entrepreneur, you must realize that buying an existing business can offer several benefits. You also need to understand that there are several things involved in it and you need to take all of them seriously. The tips discussed here can be very helpful in taking that ‘sprouting seed’ and making it grow.
Are you finding it hard to decide if buying an existing business is actually worth it? Log in today at BizNexus. Our trusted experts are always available to speak with you and provide suitable answers to your questions and concerns. A fantastic experience awaits you.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to Buy a Business: Best Practices for Buying a New Franchise Opportunity
How to buy a franchise business: Are you interested in buying into a franchise? With the system and procedures, it seems challenging. Business owners prefer franchising because you are inheriting an established brand. Moreover, a franchise has a proven business model. Like any business, it is important to select a franchise that you are passionate about.
How to Buy a Franchise
Best practice guide
How to buy a franchise business: Are you interested in buying into a franchise? With the system and procedures, it seems challenging. Business owners prefer franchising because you are inheriting an established brand. Moreover, a franchise has a proven business model. Like any business, it is important to select a franchise that you are passionate about.
Franchise opportunities under consideration should mesh with your past business experience and acquired skills. It is not cheap to buy a franchise and significant capital is required. This leaves prospective franchise owners searching for financing options. Buying a franchise is not particularly easy and sometimes professional assistance is required. Business owners are able to quickly leverage off the franchise's brand and product line.
Here is how to buy a franchise:
Franchising remains a great business opportunity in 2019. In fact, there are nearly 760,000 franchise establishments in the United States.
Business owners prefer franchising because you are inheriting an established brand. Moreover, a franchise has a proven business model. You can review actual sales and profit data to verify that the concept is growing rapidly.
Read on to learn how to buy a business. Explore this comprehensive guide on buying franchises including topics such as financing, research, and getting a good deal.
Find a Franchise Opportunity You Are Passionate About
The first step in buying a franchise is identifying the right opportunity. Like any business, it is important to select a franchise that you are passionate about.
Start off by considering industries that you are familiar with and understand how they operate. Also, franchise opportunities under consideration should mesh with your past business experience and acquired skills.
Franchise Analysis
Before you invest in a franchise, substantial analysis is required. Of course, you want to look at sales data and what profit margin is realized. There are many other business indicators to evaluate.
What are the startup costs and franchise fee? What type of operating expenses does the franchise have? Are there any additional fees such as royalties or advertising costs?
This all falls into the category of performing a comprehensive cost-benefit analysis. There are other factors to consider in a franchise analysis.
Perhaps one of the most important factors is the location of your prospective franchise. This is so critical because not all locations are considered equal.
Each geographic location comes with its own set of state and local taxes. There are also state wage laws to consider, as well as rent and population density.
Financing Options
It is not cheap to buy a franchise and significant capital is required. On average, initial franchise fees range from $20,000 to $35,000. Depending on the brand, it could cost upwards of $100,000.
Not many entrepreneurs have that type of cash lying around. This leaves prospective franchise owners searching for financing options.
Some opt to apply for a bank or Small Business Administration (SBA) loan. Others use their retirement savings using a mechanism called a rollover for business startups (ROBS).
ROBS allows you to withdraw retirement savings from your 401k, IRA, etc. without penalties or taxes. Lastly, some franchisor offer financing options.
Professional Assistance
At this point, you may be feeling overwhelmed. Buying a franchise is not particularly easy and sometimes professional assistance is required.
There are subject matter experts available for franchising placement and finding the right opportunities. They perform in-depth analysis such as reviewing the franchise’s financial health. Among many other services, they also evaluate the Financial Disclosure Document (FDD) and Franchise Agreement.
A Recap of How to Buy a Business
There are many reasons why entrepreneurs choose to buy a franchise. Business owners are able to quickly leverage off the franchise’s brand and product line.
However, the franchise acquisition process is littered with landmines and complexities. A professional service company can ensure that you make a sound investment. If you want to learn more about how to buy a business, log in today.
6 Critical Questions to Ask Sellers before Buying a Business
Buying a business or an established business operation that is already generating cash flow is a great way to fast-track your way into business ownership and CEO creds. Here are six critical questions to ask sellers
6 vital questions to ask sellers when buying a business
Are you buying a business?
Buying a Business? Here are six critical questions to ask sellers
Buying a business or an established business operation that is already generating cash flow is a great way to fast-track your way into business ownership and CEO creds. If you do it right, you’ll also be buying into contracts or relationships with productive, loyal customers and veteran employees who already know the ins and outs of the business.
If you have found a business that you think you might want to buy, the next step is to ask the seller some important vetting questions before you make any final decision. This helps ensure you’re making the right move to acquire the business or run for the hills, -fast.
Here is a list of six questions that you should consider when talking to a potential seller:
Ask for three years covering the business financial records
Get a feel for profitability, for margins… Ask the seller to provide you with the financial statements going back to three or five years . A reputable firm should audit the financial records for larger deals. If a seller doesn’t have organized financials, that’s probably a red flag for other mismanaged Easter Eggs bound to pop up down the road.
What are the high-potential prospects?
No entrepreneur wants to invest in a business with a stagnating or declining top-line. Ask the seller to provide you with a realistic, explainable projected sales analysis, and a list of their potential clients or customers that they intend to sell. This will give you an idea if there are workable client accounts or whether you have a real shot at accelerating growth.
Why are they selling their business?
Selling a business due to retirement or because an owner is investing her time and money into another venture, are common reasons a business owner might want to sell or exit their current business. Careful, -a business owner could be selling their business because it’s not turning a profit or they don’t like wants coming down the road with the macro economy. Make sure that you understand well why the business has been put up for sale. Accessing the financial statements and the sales records will ensure you a better understanding of the business and its potential.
What happens to outstanding contracts?
After exchange of business ownership, contracts that have been in place may cease to exist or transferred to the new owner. There are no guarantees that the current clients will want to continue working with the new owner. It is important to make sure that the current contracts or projects of these long-term clients won't become void after you acquire the business.
What are the challenges?
Every business comes with challenges and most of them are hard to deal with at best. Some business owners will absolutely try to hide any negative information that could depress a selling price, complicate terms or flat-out 86 the deal. It is your responsibility to conduct proper due diligence, so be forewarned.
Buying a business that is profitable and fits your potential can be life changing.
Follow these tips and you’ll be on your way (a first step anyway). You can also seek assistance from a business broker or accountant to ensure your getting a profitable business.
How to Buy or Acquire an E-Commerce Website for Sale
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
How to Buy a Digital Business?
E-Commerce Website for Sale
Buy an E-Commerce Website for Sale
Want to own and run your own online digital business? You basically have two options:
Establish a new company and start from scratch.
Skip the startup cluster consider acquiring an existing e-commerce website business already on a clear upward trajectory, and apply your creative entrepreneurial pivots and experiments while enjoying the benefits of “cash flow” (something startups were expected to think about prior way back in the dark ages of the early 21st century).
In this guide, we are focusing on how to buy an e-commerce website business that’s for sale. We will go through the entire process so that you can make the most out of the purchase and set yourself up for success.
What Type of Business Do You Want and Can You Buy?
If you are planning to buy an e-commerce business, it is important to sit down and think about two things – your lifestyle goals and financial needs. Your goal here is to analyze your current situation and try to stay true to your budget, day to day operational involvement interests, and values, -all keys to successful entrepreneurship over the long-term.
What Are Your Future Objectives?
You should never stop dreaming big, but when it comes to setting the objectives, it is important that they remain realistic. Ask yourself, why are you buying an e-commerce business? This will help you to stay focused with realistic objectives that will shape up your business model.
If you are a beginner, you may be purchasing a company to learn all the tricks of the trade before you engage in starting a business from scratch. In this case, you may want a helpful and experienced e-commerce entrepreneur that wants to sell their e-commerce website who is willing to share essential details about how they made the e-commerce venture that you are consider buying into a profitable business.
You may also think that you have the necessary resources and skills, which is why you want to save time and buy a company that has already positioned itself in the market. This way, you can invest improving resources, and scale the business to the next level.
It is also vital to consider how much time you can dedicate to the business that you are buying. If you plan for this to be your full-time job, that’s great. But if you consider e-commerce business as an additional income, it is important that it won’t take you more than a couple of hours in a day to operate the e-commerce website.
What is Your Passion Aligned with Your Skills?
When choosing the market in which you will purchase an e-commerce business, it is vital to consider two areas – your passions and skills.
We all have our favorite market segments within an industry – some of us are crazy about clothes, others are health freaks that care about staying in shape, or you may be into tech products and gadgets. It would be great if you could buy a business in one of the market niches that you are passionate about. This way operating the e-commerce business won’t be merely a job, but it is aligned with your passion as well.
It is also important to consider your knowledge and skills. If you have graduated from an art university, you may consider selling homemade art or crafts and other related products.
It can also be very helpful if you have tech-related knowledge. Knowing more about website optimization and SEO can help you with search engine page ranking. Being a good writer can be of great importance in preparing unique content to promote brand awareness and increase conversion rates.
The crucial thing is to ensure that you have the right skill set to run the business. If it's necessary, consider hiring someone else but make sure that you can incorporate that expense into your budget.
Think About the Resources You Have
Yes, you need to consider financial capital, which means that you should have enough money to purchase and invest in the business to take it to the next level.
But we are also talking about other resources. You need to ensure you have enough time to run the business, a computer or laptop you will use for administration, etc. You can also use your current social media accounts if you are popular on Facebook or Instagram.
How to Determine the Price for an Ecommerce Business
It varies from one e-commerce website business to another, and ultimately depends on your estimation and business valuation, but the general rule says that an e-commerce website business can be valued anywhere from 10 to 24 times its monthly profit. In other words, if you have a business that secures $3,000 per month, you will need at least $30,000 to purchase it. The price may vary depending on the potential of that e-commerce business’ ability to increase profit.
The main idea is to buy a business that is profitable and can remain profitable as this should be your primary goal when running e-commerce business. The estimated monthly earnings should be high enough to motivate you to work on growing the company.
Here is more about how to evaluate the worth of an ecommerce business
Naturally, business owners wouldn't want to sell their business for less than its worth. There are a number of valuation methodologies you can use to determine the fair value of a business. Let's take a look at what it takes to fairly evaluate an e-commerce business for its worth.
There are a few ways you can determine the value of an e-commerce business.
Multiple of Seller Discretionary Earnings. You might evaluate a business's worth by looking at their historical earnings. When favorable factors are agreed on, the businesses expected worth will be higher during the valuation.
Discounted Cash Flow (DCF) Analysis isn't the primary way to evaluate the worth of an e-commerce business, but it is a useful analysis.
Online business sales fluctuate more widely than those of traditional businesses, which make this analysis less suitable for e-commerce. These can include a company's size, years in business, yearly revenue, and so on.
A company with an active customer base and positive market outlook will be worth more than a company without active customers or a profitable niche.
Evaluating the worth of a company doesn't come easy, however, it's a necessary step you must take before finalizing a sale.
Where to Find an E-commerce Website Business to Purchase
Once you have the required capital, the preferred market niche, and other desired variables, it is time to look online and find an e-commerce business to buy. The good news is that there are numerous marketplaces where you can buy and sell e-commerce websites.
However, we advise you to stick to the reliable ones, such as:
Shopify Exchange – exclusively designed for Shopify stores, and an excellent place to find a website fast. The great thing about this website is that it is free, and there is no success fees or other charges.
Flippa – you can choose between thousands of different business, which means you have a vast range of websites to pick from when buying.
Empire Flippers – it is interesting to note that every website put up for sale passes through the screening process of the administrators.
BizNexus - Inventory of online businesses for sale 100% vetted by expert online brokers from all around the world. Sellers are prohibited from posting directly on the site so there is a built-in level of vetting required as every listing on the site is a business that a broker see’s as sellable, and that a broker has initially vetted themselves.
How to Be Sure You Made the Right Decision
You’ve found e-commerce business that seems like an attractive purchase, but you are not 100% sure that you made the right choice. If you want to be certain in your decision, just follow these steps.
Don’t Hesitate to Ask Questions to the Seller
The chances are that the seller has listed some basic information about the website and themselves, but it is always wise to ask for more details. Start by trusting yourself and conducting online research on the owner and the business.
See if the seller has LinkedIn or other social media profiles, and ensure that they are a real person, and not someone hiding behind a fake identity. Do an online search for the business, too, as it may encounter user reviews and other valuable information.
Here are some other questions to ask the seller:
How long has the business been running – the longer the better and bigger chances for success. Businesses with longer operation period provides a lot more data for making an informed decision.
Why they are selling the business –look for an authentic reason. Perhaps they bought another company, or they got a better job. Maybe they are moving to another country. Whatever the reason, you need to make sure that they are telling the truth.
Tell me more about yourself – that includes the previous experience in e-commerce business, other business they own, and anything else that may be relevant to your purchase decision.
It is also vital to acquire as much information as possible about how the business is operated. Some e-commerce websites have documents that are official standard operating procedures. That will make you're taking over a lot easier as you have a set of rules to follow. Additionally, ask them if they run the business themselves or hire additional staff.
Ask for Sales Data and Website Visits
You should always demand the seller to send you a profit and loss statement for the previous year. That includes detailed information about revenue, gross profit, cost of goods sold, operating expenses, net income, etc. In other words, you want a comprehensive financial report that would prove the claims that the seller makes about earnings.
Furthermore, you may want to check the website traffic. The best way to do that is to ask for access to Google Analytics. There is no need for the seller to worry about anything as the access can be read-only option for this tool, and this is all what you need...
Here are some things to keep in mind:
If you notice a bounce rate less than 30%, or higher than 90%, and session duration lower than at least 45 seconds (or less than two opened pages per session), it may be a sign that the traffic sources are untrustworthy.
You want to ensure that the website has had a constant number of visits over the last several months. If the number has significantly increased lately, make sure to determine the reason for that.
Make a difference between organic, referral, direct, and paid traffic, as well as the one coming from social media. Any option that seems legit and doesn’t require any investment is acceptable.
Finalizing the Sale
If you think you made the right choice, and want to finalize the deal, it is time to enter the negotiation phase. Since you asked so many questions to the seller, it is only natural to introduce yourself. Tell them a bit more what makes you a reliable and trustworthy buyer.
Once you establish trust, you can talk about your plans with the business. It is something that a seller might want to know, especially if they care about their e-commerce business. Finally, ask them about the price, or give your offer. However, make sure to explain why you’ve chosen to offer that amount of money (estimated monthly earnings, future potential, etc.).
Now, once you agree on the price, you may want to ask an attorney to analyze all legal aspects of the deal. That might not be necessary if you are buying small e-commerce online business and using a marketplace as a mediator. However, make sure that the seller confirms there are no lawsuits currently related to the business.
Finally, determine all the details about the payment. You may want to pay in installments, but the seller needs to agree on that. You should also ensure to agree on a support period during which the seller is obliged to answer any question or concern that you have about the business. Also, make sure to negotiate social media accounts, mailing lists, product images, and other resources that may be a part of the transaction.
Final Take
If everything goes right, you will soon become the owner of an e-commerce website. As you can see, the process is not complicated. However, it will take a bit of time and effort to choose the right company, and make sure everything goes smoothly. Once you finalize the transfer, it is time to design a strategy to skyrocket your e-commerce business and boost your profits.