A Comprehensive Guide on How to Value a Small Business
May 31, 2023
If you’ve been wondering how to value a small business, the team at Advanced Business Brokers is here to help. As a full-service business brokerage
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Buying an Ecommerce Business? Ask These 5 Questions
If you’re thinking about buying an ecommerce business, there are a number of important questions you should ask before you commit. Just like any financial investment, purchasing an online business requires careful consideration, investigation, and planning. Before you pull the trigger, you need to figure out if the business you’re looking at is a legitimate moneymaker or an unprofitable, debt-ridden trap.
But, what are the pitfalls? To help you identify and avoid them, we’ve put together a list of helpful questions that you should be sure to ask before you sign on the dotted line.
1. How long has the business been around?
Establishing the value of a business becomes easier the longer it’s been around. When considering an ecommerce business, be wary of any that have been around for less than a year. In the online space, this just isn’t enough time to determine whether or not the business is stable and positioned for long-term growth.
Ideally, you’ll want to look at companies that have been around for three or more years. At the three-year mark, it becomes much easier to complete a valuation of a business to ensure that you’re making a sound investment.
2. Are you buying an ecommerce business that’s growing?
When buying any business, it’s always best to buy one that’s growing. But, there are a lot of reasons that businesses become stagnant. Maybe the owner has decided to retire and their interest has waned. Perhaps they struck gold with another business and need to focus their efforts. It could be anything.
Flat revenue isn’t always an indicator of a bad investment. But, it should be considered a red flag.
If you’re considering buying an ecommerce business that isn’t experiencing yearly growth, work out why it’s not growing. Could your expertise help it turn a corner? Are there marketing efforts you could initiate to jumpstart its revenue? What steps are necessary to put it back on track and are they worth it?
3. Can you get access to the business’ analytics?
More than any other type of business, online businesses require tracking, monitoring, and analytics. These tools are necessary to gauge the effectiveness of the business’ marketing efforts and, more importantly, to iterate on and improve those efforts.
As a first step, you should request direct access to the business’ Google Analytics. The data Google provides will give you insight into the business’ traffic, conversion rates, and user behavior. Beyond that, you should also request analytics for every platform that they sell on, such as Amazon, Etsy, Facebook, and Wal-Mart.
If you’re not able to get direct access to a business’ data, be wary. You can’t get a clear picture of the value of an online business without full access to its data. It’s fine to use screenshots to gauge your initial interest but don’t make a decision without exploring the data yourself.
4. Does the business have a solid reputation online?
It’s impossible to understate how important reputation – and reviews – are for ecommerce businesses. Before committing, check the business’ reviews on all of the platforms that it sells on. Whether their products are listed on Google, Etsy, Amazon, or eBay, you should be able to get a good idea of their reputation by reading customer reviews.
It could take years to repair the damage caused by bad reviews. A company with a bad reputation could end up being more trouble than it’s worth.
Beyond the company’s sales platforms, make sure you’re not on the hook for any ongoing lawsuits, recalls, or product returns. These factors can be costly and, unfortunately, can contribute to a business’ failure before a new buyer ever gets a chance to repair them.
5. Why is the owner selling the ecommerce business?
It’s unwise to assume that someone is selling their business because it’s failing. In fact, owners sell their businesses for a number of reasons. They could be looking to retire. They could be experiencing health problems. Or, they could just be losing interest in the business’ day-to-day operations.
If you’ve done your research, you may already know the real reason the owner is selling. But, if you don’t, put in some work to find out. The last thing you want is to be saddled with an unprofitable business because you didn’t work out a proper valuation. Of course, Advanced Business Brokers specializes in brokering privately owned businesses and is more than happy to assist if you get stuck.
At Advanced Business Brokers, we pride ourselves on helping individuals buy and sell small- to medium-sized businesses.
Do you need help buying an ecommerce business?
With our worry-free process and team of experts, you can be confident that you’ll receive all the information necessary to make a sound decision. Whether you’re looking at buying an ecommerce business, a manufacturing company, a distribution center, or any number of other businesses, you can count on our team to provide the informed, expert guidance you need.
Work With An Experienced Business Broker
If you’re thinking about selling your business and don’t know where to start, consider speaking with our team here at Advanced Business Brokers. We specialize in brokering and advising exit plan strategies for various sizes/sectors of businesses.
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