In 2019, online sales amounted to almost $3trillion. With estimations that the current online economy is approaching $5trillion in yearly sales. This could be why so many entrepreneurs seek to join online business. Along with the hopes of having a flesible business lifestyle. The ability to work the hours they chose without having to be in a physical store. Allowing the business owner to conduct business around their lifestyle. Online bussinesses generally have less overheads reducing the start up capital.
Having not to invest in a physical office or store can make running the business cheaper. Also it will be easier to find staff as you aren't limited to a specific location, if the staff also work online.
The main concern is how to value a business and what you should take in to account when buying an online business.
What to watch for when buying an online business
The first point you should know is that you aren't buying only a website. You are buying a whole business. And the primary trading place of that business is through a website, or an app.
You shoud consider what it is you are investing in. Are you looking to buy an e-retail store, an online agency, a consultancy. As each will have different factors to consider when valuing a business.
With a retail store you will still need storage for the stock. You will need insurance, pay for postage and packaging costs, maybe warehouse staff. If you have an agency or consultancy you will have less costs relating to bricks and mortar. Though, you will still have costs relating to running the website itself. Such as maintaining the website. Then you will have costs relating to your business, you may need specialist software. You will still need to maintain relationships with partners or suppliers. Will you advertise your business? Online business do not get seen by local customers as easy as physical stores can. What about training. Will you know how to run the website or will you need someone to show you how? Sometimes the seller will provide basic training.
Buying a business
Traffic is a good indication on the value of a business but it should be used with other data. You can use the amount of traffic a website gets to estimate how many sales you should be expecting. It should be taken as a very loose estimate and other factors should also be considered. Based on the niche, and more factors you can estimate what percent of your visitors will convert to customers. If you find a business you are interested in has a different percent than the standard you can look into why this is. Does the seller put a lot of work in to promotion which means they get more conversions. If so, you will likely have to replicate this to keep up with the sales. If below the standard, this could be an opportunity or it could be an indication something is wrong. It could be that the seller isn't performing as well as the business should and you could use that to your advantage. In contrast, it could be that the business has a bad reputation or is in less demand than competitors. In which case, you will have to put in more work to get to the industry average.
Are you looking for a business to grow, or are you seeking a business which you can maintain at a stable income? You should get data for the history of the business. It is important to determine how the business has been generating business. Are revenues constant or are they influxing. Is the company increasing in business overtime and if so can you maintain this growth?
If the business takes a growth after you have bought it would you need extra staff or other resources? You need to consider what would happen if you saw an increase in business and how you would handle it.
How are you or the seller valuing the business?
It is not uncommon to find business online that ask for high price. Yes these businesses do not have the sales history to confirm the asking price. You need to look at potential income, and what happens if you do not generate that income. What your ROI is. You should also look at operating costs and any other resources which you might need.
How to buy the perfect online store
Ensure you research the niche you want to invest in. Ensure you have done your background checks on the business you are wishing to buy. You need to look at your ROI and whether the time to return your investment is worth the investment.
Buying an established and already trading business might be a good way to get in to business and you could start seeing results early on.