Owning your own Shopify business (or online business on other platforms) doesn’t necessarily mean you have to start it from the ground up. The alternative to starting a business from scratch is to purchase an established online business: one that has a proven market and is already making sales.
Buying vs Starting a New Online Business
Advantages of Buying
The difficult early years have already happened
Starting a business is tough: 20% don’t make it past their first year, and a staggering 60% go bust within their first three years. If you buy an established company you can bypass some of these risks and start selling from day one.
Processes will be in place
All of the logistics of the business will be in place: whether it’s a dropshipping supplier, manufacturers or wholesale contacts, the processes and procedures should already be up and running. This extends beyond products to essential elements of the business such as fulfillment and returns.
An existing customer base
The business concept will have been tested in the market and a customer base established. You’ll have full visibility of website traffic, past performance, sales and profit which will help you understand the value of the business and its potential.
Easier to get investment
As the business is already proven, it’s easier to make a business case to potential investors to fuel future growth.
Disadvantages of Buying
Initial investment required
Instead of growing a business from the start where you can invest a smaller amount of money and scale it over time, purchasing an ongoing concern represents an upfront cost when you acquire it from the seller.
Processes will be in place
I mentioned this as part of the ‘advantages of buying an online business’ section, but am including it as a disadvantage as well. It means that if you don’t like any of the said processes, there is work for you to do post-purchase to change them. This can also feel like a lack of control - something that entrepreneurial minds do not always deal with very well. So if you buy a business, bear in mind there may be compromises in terms of how it is currently run that you’ll have to deal with when you take over.
Should You Buy An Online Business?
This really depends on where you are on your business journey and the type of entrepreneurial mind that you have. Some people enjoy the grind and satisfaction of creating something themselves from scratch, putting in the long hours and dealing with the stresses of managing a startup, while others prefer buying an established business and taking on the challenge of scaling it to greater success.
Buying an online business may be right for you if you have the ability to spot weaknesses in an existing business and know how to improve or change them. Or it may be that you have a full time job, and you’re looking for an enterprise that can make money without too much input.
Key Things To Consider When Buying An Online Business
Make sure you consider:
- The time you have available to put into your new business
- Your revenue goals
- How much money you have available to invest in your venture
Do Your Due Diligence
It is so important when negotiating with the seller that you understand what you will get for the agreed price, including items such as:
- The domain
- Associated social media accounts
- Email lists
- Inventory and supplier lists
- Branding assets
- Photos on the site including product photography
As well as understanding key information such as:
- Profit margins of your potential new business
- Financial information and history
- Where the website traffic comes from (paid vs organic)
- Why the current owner has decided to sell the business
- How much time they put into running it
Where Can You Buy an Online Business?
If you’ve made the decision to buy an online business, there are several marketplaces and sites where you can look for the one that’s going to best suit you, from a budget, product, industry, market, and platform point of view. Here are some examples of them and how they work:
1. Shopify Exchange
The Shopify Exchange is Shopify’s own marketplace to buy and sell businesses. It has over 10,000 existing stores available for purchase.
Exchange allows you to see metrics such as site traffic and revenue directly from the Shopify store - this data is uneditable which helps give buyers assurance that the information is all legitimate and correct.
How Much Do Stores Cost On The Shopify Exchange?
There is a huge range of stores available to buy on Exchange - from new start-ups to established businesses with healthy and growing traffic and revenue numbers. As such, this means there are a lot of options to suit all budgets. The cheapest store I saw was only $50, but they can sell for upwards of $1,000,000 if they are well established. There are businesses available that cover a multitude of industries.
How Does It Work?
Once a buyer and seller have agreed the price and conditions of sale, Exchange uses escrow.com for a safe store and financial exchange for both parties. It acts as a third party that protects the money until buyer and seller agree for the transaction to go ahead, at which point the transfer is finalised. After 3 business days the transfer is complete.
Flippa.com is an auction-style site that lets merchants list their online businesses for a one-time fee, then matches buyers and sellers based on preferences. Once a sale takes place, the site also takes a ‘success fee’ which is calculated as a percentage of the sale price (10% up to $50k, 7.5% up to $100k and 5% for sales larger than $100k). As well as Shopify stores, Flippa has Amazon stores, iOS and Android apps and domains.
There is a wide range of industries available in the Flippa market - and prices to match. Businesses from $300 to over $1,000,000 are on page one of the ‘ecommerce’ search alone.
Freemarket.com is another marketplace for buying and selling online businesses. A simple filter lets you search for potential investments based on criteria such as price, revenue and website traffic.
It’s free to list on this one, with commission payable on successful sales (‘the lowest in the industry’ although I wasn’t able to find any firm figures relating to this).
Freemarket is an auction site so potential buyers must bid via the messaging board. Once a sale is agreed, the site manages the handover process.
4. Via Brokers
Website sellers pay a fee for brokers’ networks and experience that they use to help match buyers and sellers, to ensure the best fit for the transaction. Digitalexits.com represents websites making at least $100k a year in profit, so they tend to deal in more established businesses. As brokers, they also do more than act as a marketplace: they put a marketing plan in place, present an executive summary of the business and tend to attract multiple buyers. It gives peace of mind to both buyers and sellers.
To Buy Or Not To Buy?
Purchasing a going concern can be a fantastic way to become a business owner - bear in mind, though, that while you’re skipping the difficult early years, running a business isn’t easy and will require ongoing commitment whatever stage you pick it up from.
If you have the time, money and mindset to purchase and scale a business, this can be a great way to do it. Good luck with your new business and remember, we’re the ecommerce and marketing experts. If you need any help with your Shopify store or marketing tactics, drop us a line.