Is It Time to Buy and Sell Online Businesses? You Bet!
There has never been a better time to buy an online business. And that also means, there has never been a better time to sell one!
Even before COVID-19, the number of people shopping online was growing at its fastest ever rate. In 2017, 85% of Australians were hooked up to the internet and more than 12 million of us were using social media regularly.
The latest figures show that by 2021, global eCommerce sales will have reached 4.5 trillion. That is double what it was in 2017.
In the beginning, most eCommerce sites were extensions of existing bricks-and-mortar stores. However, with ever-increasing rents and overheads, many businesses have gone straight from zero to online.
The demand was there for sure, with consumers seeking more choice and more competitive prices. But when COVID-19 hit, and we all went into various stages of lockdown, online shopping went through the roof.
Some of these sales were directly related to the pandemic, with huge demand for items such as face masks and hand sanitizer. We also sought out new ways of keeping ourselves occupied, buying up books, puzzles, craft, and DIY supplies.
With most people afraid to go out, online food, drink, clothing, and homeware sales also climbed and don’t appear to be going back down any time soon.
The latest Inside Australian Online Shopping Industry Report shows there has been a rapid growth in online shopping in regional areas, and that we are buying a wider variety of goods online.
Christine Holgate, Group Chief Executive Officer & Managing Director Australia Post, said: “Almost three-quarters of all Australian households are now shopping online, and we expect that around 12% of all consumer spending will be conducted online by 2021.”
Buy now, pay later payment options have certainly helped with that growth, as well as improved eCommerce website design, more use of social media and better quality goods.
Ben Franzi, General Manager, Parcel & Express Services/Intermediaries Australia Post, said: “Australia is embracing eCommerce at an accelerated rate, with online goods spend reaching 10% of total retail at the end of 2018, two years ahead of our prediction.”
Whatever way you look at it, investing in an eCommerce business now would be a smart move. However – because there is always a ‘however’ – due diligence is still vitally important if you are buying an online business. And, if you are selling one, you still need to do the preparation to get the best price.
If you are unsure whether to buy an existing online business, or to start your own, there are some key points to consider. There are plenty of advertisements at the moment, offering to get your online business built and launched for ridiculously low costs. As tempting as that may sound, you have to be realistic.
Yes, these companies may be able to design you a basic eCommerce site for around $1000, but that is all it is: a basic site. Stocking your online store, marketing your products, and reaching audiences can all add up to a lot of money, pushing that start-up cost much higher. And it will take time for that site to become profitable.
Start-up vs Established
There are two more alternatives, depending on how much you want to spend buying a business. The next stage up from that basic start-up is a brand new eCommerce store with all systems and marketing plans in place – and possibly some stock – but no trading figures.
After that, you are looking at an established online store, where the current owner can provide you with the financials, just like a bricks-and-mortar business.
Of course, the online store that has been up-and-running for years and showing a profit is going to come at a higher price.
It basically comes down to this: if you want to walk straight into a profitable online business and start earning with very little work, you need an established eCommerce site. But, if you don’t have much money to spend now, and you’re happy to put in the hard yards, you can still pick up a great business.
What Questions to Ask
If you are looking to buy an online business now, don’t rely solely on what the current owner tells you. Do your due diligence, not only on the business, but also on the demand for the products it sells. These are the questions to ask:
- Is the business growing?
- Has revenue been consistent?
- How much traffic is the site attracting, and from where?
- Does the business have multiple products – and therefore multiple income streams?
- What marketing is in place?
- How much profit does the business generate?
- How many hours does the owner work in the business?
- How much room is needed to run the business?
You should also question where the customers are coming from. For example, are they coming from social media, email database and generic traffic to the website, or through Pay Per Click (PPC) and Google advertising?
The best way to attract customers is through social media and building databases, but this takes time to build. On the other hand, PPC costs are continually increasing to the point it can become non-profitable.
Selling an eCommerce Business
If you are selling an online business, you first need to value it. Valuing an online business is a little different to valuing a bricks-and-mortar business, so it’s best to seek professional advice.
A good business broker understands the market and knows what buyers will typically pay for your type of business. A broker can also help you get the best price, knowing which areas of the business could be improved to raise your multiple.
Avoid Hasty Decisions
The more time you can put into preparing your business for sale, the better. If you’re selling in a rush, it is unlikely you’ll get top dollar. Equally, if you over-value your business, it could end up losing you money in the long-term.
Grow the Business
To get the best price, you could focus on growing the business prior to the sale, by boosting your SEO and social media marketing. It also pays to be across trends in the marketplace by using Google Analytics.
Whether you’re looking to buy yourself a job post COVID-19, or you simply want to try something new, there has never been a better time to consider an eCommerce store.