How to buy an e-commerce business?
Ecommerce is one of the fastest-growing industries in the UK. Due to government lockdowns, people are now being forced to shop online. This makes e-commerce business an attractive investment.
But how do you go about buying the right business for you. Read on to find out. We will go through some important factor you should keep in mind.
Finding the Right Business
When doing your research and find the right business for you, keep the following in mind:
In order to be successful in any business, you need to be passionate about what you are doing. With an e-commerce business, it is the same. First, you need to think about where your passion lies.
Goals and skillset
You want to find a business that is aligned with your goals and complements your skillset. When you come across a business that you would be interested in, ask the owner how much they manage personally and how much of the work is outsourced; you want to buy a business you are capable of running.
Another vital factor in choosing which products you will be selling. You want to choose a product where the sales will be sustainable. For instance, every few years in the UK, Kids go absolutely crazy for yo-yos which lasts for a month or two.
Some even make fortunes in this period. However, the interest soon dies off. So the sales are not really that sustainable. Therefore, when choosing the right business for you, you want to find such a business that sells products that have consistent demand.
Why is the business for sale
The next important factor will be to find out why that business is for sale. If the owner does not have genuine reasons for selling the business, you need to be extra careful. People don’t just sell a profitable business without thinking it through.
Understanding web traffic sources and costs is crucial to any e-commerce business. If an online business doesn’t have traffic, it will not be able to survive. Further, it is crucial that you understand where the traffic is coming from.
Particularly whether it is being directed from another website or is it heavily reliant on paid searches. If it is reliant on paid searches, you want to check its cost and take it into consideration.
Identifying what you can improve
Once you have found a business that you are interested in buying and learned it’s background, you should then move to figuring out whether you can improve any of the practices enough to increase net income and get a greater return upon your purchase. To increase the business’s net income, consider the following:
- Cost of goods sold – you should find out whether there is an opportunity to lower the cost of goods being sold. For instance, check if the supplier can give you a discount if you buy in bulk or pay in cash.
- Design of the website – the website needs to reflect the business. A sleek website can potentially boost sales.
- Cost of other expenses – you should consider the various business costs and check whether they can be lower or eliminated altogether.
The process of due diligence is one that provides a thorough investigation into a proposed investment transaction. It means you check the investment worthiness, and assess the full claims made by the owner. This check is usually performed by a solicitor and accountant who act on behalf of the buyer. A large portion of due diligence will involve checking financial statements and accounts.
Click here to find more about due diligence.
If you buy wisely and do a thorough research of the background and potential of the business which attracts your interest, you will get immediate access to the existing base of customers and suppliers. This will ensure that you know what you are getting into.
You need a solid contract
You, as the buyer, will have to produce the sale document. This agreement will have to cover the mechanics of the deal – what is being sold, where it is, how it is to be transferred, and so on. This is where warranties come in. Click here to download a business sale agreement if you are purchasing a e-commerce business.
Warranties which are legally binding promise as facts about the business, which provide information relating to the business. Click here to know about how warranties work and why they are important.
Other documents you need
Additionally, you may need assignment and novation agreements to transfer contracts the seller is a party to.
If company shares are being sold, then you will need directors service agreements, board minutes to document approvals to changes, and possibly, a new shareholders agreement and new articles of association.
We can help you find exactly what you need for your circumstances if you contact us and ask.
Last but not the least, you also need to be aware of the legal considerations on the purchase or sale of a business.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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