The rise of e-commerce has created numerous opportunities for entrepreneurs looking to buy an online business.
Whether you're a seasoned business owner or a first-time buyer, there are several factors you should consider before making a purchase. Avoid the start-up costs and development time needed to create an online business by buying an existing internet based business.
Before buying an online business:
1. Verify the Financials
Before you purchase an online business, it's essential to look at the company’s financials for the last 2 to 3 years. You'll want to look at revenue, expenses, profit margins, and any outstanding debt and trends. It's also a good idea to review tax returns, bank statements, and other financial documents to get a better understanding of the company's financial health. This information will help you determine the business's performance and valuation, and whether it's a smart investment.
2. The Industry and Customer Base
When buying an online business, it's crucial to consider the industry it's in. Some industries are more competitive than others, and some may have a limited lifespan due to changes in technology or other factors. You'll want to research the industry the business operates in to get a better understanding of the market, competition, and potential for growth.
A company's customer base is a critical factor in its success. It's important to understand the demographics of its customers, how loyal they are to the brand, and whether there is room for growth.
3. Website Traffic and Lead Generation
How well does the website rank in Google against its competitors? Is the site well-structured and search engine optimised (SEO). An online business depends on quality traffic, so should have a sound tracking system, like Google Analytics in place. This well show a detailed overview of the site’s traffic. It should also track site visitors, where users are from, what channels drive the most traffic, and other important touch points. The statistics should also show how traffic is generated. Is it mostly through paid advertising or other media channels, such as email or social. What size are the databases and how many followers?
4. What Intellectual Property
Intellectual property (IP) is an essential asset for online businesses, especially those that sell digital products or services. Before buying an online business, it's important to review any patents, trademarks, or copyrights associated with the company. You'll want to make sure the business has the legal right to use its IP and that it's not infringing on anyone else's rights. Confirm you will have full ownership of the website’s digital assets, including photos and domain name.
5. Operations and Business Model
The day-to-day operations of an online business are critical to its success. Before
buying a business, it's essential to understand how it operates, including its supply chain, inventory management, contracts and shipping processes. Does the business have multiple sales channels, partner agreements or other online marketplaces? Ensure the product and services are relevant and secure.
You'll also want to consider whether the current owner has any key relationships with suppliers or manufacturers that could be lost after the sale.
6. Growth Potential
When buying an online business, you'll want to consider its growth potential. This includes looking at the market size, competition, and potential for expansion into new markets or product lines. You'll also want to consider whether the business has a good reputation, a strong online presence and whether there is room for growth through marketing or SEO strategies.
7. Seller's Motivation
Finally, it's essential to understand the seller's motivation for selling the business. You'll want to ask why they are selling, whether they have other business interests, and what their plans are after the sale. Understanding the seller's motivation can help you negotiate a better deal and make a more informed decision about whether to buy the business.
In conclusion,
buying an online business can be a smart investment, but it's essential to consider these factors before making a purchase. By looking at the financials, industry, customer base, web traffic, intellectual property, operations, growth potential, and seller's motivation, you can make an informed decision about whether a particular online business is the right investment for you. Remember to conduct thorough due diligence and consult with professionals, such as lawyers and accountants, to ensure you are making a sound investment.
For more information on finding the right business to buy visit:
NZ Businesses for Sale and subscribe to our free buyer bulletins and newsletters.
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