Building on Success: Buying a Pre-Existing Online Store

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Purchasing a pre-existing ecommerce website is an excellent way to quickly launch yourself into the online market and build on an already established foundation, though it’s not without its own particular difficulties. This article will examine some of the advantages and pitfalls involved with buying a pre-existing online store.

Advantages of buying an eCommerce store

As you might imagine, there can be many advantages to buying a pre-existing online store.

  • It’s less risky. There’s less guesswork involved with evaluating how successful the business is or might be, and you can purchase something that has already been proven to perform and generate revenue.

  • You don’t need to build it from scratch yourself. Having the pre-existing site structure in place means that you can focus on sales, growing the business, creating new partnerships, expanding inventory and much more.

  • You can access more resources to grow your business. As Entrepreneur points out, while buying a pre-existing business can initially prove to be more expensive than starting one from the ground up, “bankers and investors generally feel more comfortable dealing with a business that already has a proven track record.”

  • You have a built-in customer base. You already have dedicated consumers who can be counted on to frequent the site and shop there.

Disadvantages of buying an eCommerce store

There are, of course, downsides to buying an already existing online business to weigh against the advantages.

  • Finding the right online business to purchase can be a long road. Not only do you want to purchase an online store that is reasonably successful, you’ll need to find something within your budget that offers a good value. You’ll also want to make sure that the customer profile, quality of product and overall feeling of the store reflects your core values and business philosophies.

  • It can be difficult to verify the stated success of the business. Confirming the accuracy of what the seller says about the business, particularly when it comes to the financial statements, is an involved process at the very least.

  • It won’t run itself. No matter how successful the business that you’re buying is, you’ll still need to make sure that you are ready to dedicate yourself to its continued success and growth.

  • You may have to fix someone else’s mistakes. What at first blush appears to be a well-built and functioning site might be rife with small errors or problems that will need to be addressed by you, the new owner. Some important issues to consider are:

    • Has the site been built to your satisfaction, and are both the front and back ends for the most part solid? Some websites and panels use outdated code or technologies that one would not choose were they building from scratch. Beyond navigating the site as a customer would, you might ask to take the operation management system out for a “test drive” prior to buying.

    • Is all current content original and varied? For SEO and SEM purposes it is important that product descriptions vary from the generic content provided by manufacturers/vendors.

    • Are you inheriting a significant amount of outdated inventory that will be difficult to unload? If so, you may want to negotiate the purchase price down and put the onus on the current owner to get rid of overstock.

Where to Buy

You’ve decided to purchase a pre-existing online store – now where do you find it? There are several sites that exist solely for the purpose of buying and selling already built websites. Flippa and Ebay are a couple of the more widely used marketplaces for purchasing sites, although neither is without inherent issues, with some of the more common complaints including the general quality of product and pricy fee structures. Alternatives for savvy buyers include WebsiteBroker and the Experienced People forum, or you can turn to a specialized website broker such as Broker Corp or Website Properties, who will help you in pre-qualifying purchasable sites.

You can also try going directly to the source. Perhaps you’ve seen a “going out of business” sign on an established local brick and mortar that has an online component, or you’ve received a final days of business sale email from a favorite online retailer. Purchasing a business that you know and like can be an excellent way to start with an ecommerce site that is already close to your sensibilities. Once you approach the owner and determine their interest in selling you the online portion of your business, you can follow the same due diligence methodologies outlined below.

3 Rules For Determining the Value of An Online Business

  1. Start with the basics. As with any other business, you’ll want to look at revenue, cash flow, financial leverage and return expectation. You’ll want to value the business based on the debt paying ability, that is, the cash flow and expected return of the business calculated against the acquisition price and your desired salary.

  2. Evaluate the value of the real metrics specific to the online nature of the business. Most serious online retailers will utilize Google Analytics, which will give you detailed information on site traffic, visitors, keywords and much more.  If Analytics has not been integrated, you can get a rougher approximation of website traffic and information on public sites like Alexa and Quantcast (note: smaller sites may not be quantified in Quantcast). Other numbers you’ll also want to look at include total e-newsletter subscribers, overall customers and repeat customers.

  3. Realistically forecast the viability of the business. Whether you are purchasing an online business for a niche or general market, you’ll need to seriously evaluate how viable it is for both the short and long term. Is it part of an overwhelmed and oversaturated market, like Groupon-type deal sites? Does it require a large amount of costly inventory? You’ll want to compare that viability to purchase price and current profits. Depending on those numbers and your personal financial goals, it may or may not be worthwhile for you to purchase that particular business.

Have you bought or considering buying an existing eCommerce store? Tell us about it below, and follow us on twitter to stay updated!

[Photo credit: natloans]

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