Whether you’re looking for a bit of passive income or want to grow an existing online company, buying an online business can be a wise investment strategy. Here’s a look at Business Brokers for online businesses to buy.
You should look at the profit margins, how susceptible to risk is it, does it have the potential for growth, what assets are coming with the sale and whether you have some experience in the particular business niche it’s in.
You should also apply your own investment thesis to separate deals that fit your criteria and those that don’t.
Pros and Cons of Buying an Online Business?
There are several advantages to buying an established online business.
You’re getting a business that is proven success with sales and an existing demand. You already know that the business works and can now apply your insight to grow and expand.
It should already have an established customer base who are purchasing items from the online store. There is no need to launch a new product or seek out clients.
The sale should also include a whole host of business assets including employees, distribution systems and digital assets like social media accounts.
There are some disadvantages, too.
It can be heard to change existing systems after you purchase the business, especially in the first few months. Resist the urge to make too many changes at once as this can be hard for employees and customers.
What to Look for When Buying a Business?
You should be very specific when searching for an online business to buy. You want to find something that matches your specific investment thesis.
Here’s a couple criteria to narrow down your search:
- What type of product do you want to sell?
- What industry do you want to work in?
- What size of business are you looking for?
- What annual revenue is ideal for your investment strategy?
- How much profit should the business make?
- How large is the customer base?
You should be very firm when applying your investment thesis criteria to any potential sales. Be firm and use your thesis as an ultimate guide to separate deals that fit your financial plan and those that don’t.
A well-crafted investment thesis can help remove emotion from the equation and separate the signal from the noise.
Why You Need to Find Value?
You want to find a business that you can grow over the next couple years, whether that is by launching new products or by maximizing digital marketing.
That way whenever you decide to sell, you’re going to get back your initial investment plus the growth that you’ve amassed expanding operations.
It’s ultimately a question of value.
You might look at an extremely polished site that has $2 million in sales and wonder how, if at all, you could grow the business.
You could also look at a site that has $2 million in sales but is significantly behind the curve in terms of social media presence and website design.
It’s still generating plenty of sales but you could probably push those even higher with a website tune up and some marketing dollars.
Where you see the value is really up to you.
In general, most e-commerce businesses carry a 3-4X multiple, so even if you don’t grow the business you’ll make your money back in three to four years if things stay consistent.
5 Considerations When Buying an Online Business
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What are acceptable profit margins?
One of the most important factors in determining whether you should buy a business is knowing the profit margins.
If you’re looking to buy a private label business, a typical gross margin is 66% or higher. For a wholesale business, it’s about 50%. A dropship business should come in between 10-30%.
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Is the business model too risky?
You should carefully analyze the business for any potential exposure to risks or factors that you can’t control.
For example, if you’re buying a custom dropshipping store you need to be aware that you don’t own the brands, control the supply chain or price and the margins are fairly low. So you should use the best product research tools for dropshipping.
Does your online business rely on Google ads or is driven largely by SEO traffic? This could be a problem if Google changes its algorithm and you lose the SEO traffic.
It’s best to avoid a business that has a single point of failure.
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Does the business have growth potential?
You should think about your online business like any other investment. You want to grow the business and increase its value, generating more profit and increasing your return on investment if you ever decide to sell.
Are there new markets you can move into? Can you expand product lines? Can you maximize digital advertising to reach new customers?
Are you products available on as many platforms as possible, like Amazon and Facebook? Are you advertising on the proper social media channels?
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Does the business have established assets?
Carefully consider what is included in the sale and what is not.
Are you getting logos, trademarks, social media accounts, copyrights, email lists, etc?
Are the current employees staying on after the sale? Are the suppliers sticking around?
You should also think about how large the customer base is and the relative strength of the distribution system if it’s a wholesaling or dropshipping business.
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Do you have experience in the business field?
Are you buying a business that you are familiar with?
This can be extremely helpful in growing the business by applying the skills and knowledge you’ve gained in that specific industry.
This can ultimately help shoften the learning curve that comes whenever you buy an existing business.
Conclusion
Finding a business online for sale can be a wise investment plan that yields some passive income for years to come.
Work carefully to refine your search to find the right fit for you. Apply your own unique skill-set to grow the business and increase your return on investment whenever you decide to sell.
