More people are working from home now than ever. Many are looking to supplement their income with side gigs and selling products online is a great way to do this. Of course, you can open a store on Amazon or Etsy. Or you can do what many other entrepreneurs have done in recent years: buy an existing site.
According to BizBuySell, a site that tracks and facilitates the buying and selling of businesses, merger and acquisition activity increased by 14% over the past year.
Experts project that e-commerce sales will account for more than one-fifth of overall retail purchases and exceed $7 trillion by 2025. That’s why buying an existing site with a history of selling Internet products has created a significant opportunity for entrepreneurs looking to be their own boss.
“Think of all the buyers and sellers that are on Amazon and all the business owners that use Shopify, BigCommerce, WooCommerce, WordPress, the list goes on,” says Blake Hutchison, CEO of online marketplace Flippa. “You have this massive network of small business owners all over the world. Small profitable businesses, from under $500K to $10M in annual revenue that are still hot property. Digital savvy shoppers taking the long view, see the obvious. Digital is not going anywhere.”
One such savvy buyer is Josey Orr, a Berks County entrepreneur who recently purchased two online businesses – Body For Golf and Easier Golfing. Orr, with a partner, bought the two sites because he was “bored” and looking for opportunity. Orr loves golf, but that wasn’t his main motivation. He was looking to sell products online and tap into the growing trend of paid newspaper subscription services. Both acquisitions served these needs.
“We formed a small holding company and looked to buy several small businesses that are complimentary to each other,” he said. “I had no experience buying a business before this.”
Martin Bispels of Phoenixville tells a similar story. After running small businesses and a stint in consulting, Bispels, during the summer of 2020, found himself ready to launch a new career online. So he set out to “find” that new venture.
“The opportunity to buy a company and operate it myself was really exciting,” he said. “We [he and a partner] we looked at all kinds of different businesses until we found what we wanted.” That business was Upper Park Disc, an e-commerce retailer of disc golf bags. “I’ve loved the sport for a long time,” he said. “And so when we had the opportunity to buy a disc golf company, I jumped at it.”
Orr and Bispels researched a number of online marketplaces such as Empire Flippers and Shopify’s Exchange Marketplace where entrepreneurs can buy and sell websites. Ultimately, they both settled on the Flippa platform. Regardless of the market, online transactions usually work the same way.
First you want to think about the type of online business you want to buy – it could be an e-commerce store, an auction site, a digital marketing website or blogs or even just an app or software-as-a-service platform provider. . You should evaluate what is available in an online marketplace like the ones I have mentioned above. Once you find a target, you’ll want to understand its competitors, market trends, and its costs of operations. You can do this by reading industry reports and discussing the business with others who do the same, and of course with your financial and legal advisors.
After contacting the seller (Flippa and other sites offer message boards and in-house assistants to help facilitate conversations) you’ll want to – with your advisors – review the business’s financial statements and the site’s taxes, customer base and its website traffic statistics. You’ll want to interview company employees and look at all major contracts and intellectual property agreements. You can use online tools to get an appraisal and then discuss a purchase price with the owner.
All this is important. But for Bispels there was something else that was even more important: branding and online presence.
“I could have started my own online company selling similar products,” he says. “But if people were to search for my products, they wouldn’t have found this, whereas Upper Disc already had a presence and was optimized for search engine optimization. The retailer had been around since 2011 and didn’t have the time or money to really continue building the brand. I decided to take my resources and experience to build it and he was excited because the site was his baby and he really wanted to see it continue and be successful.” As part of the deal, Bispels retained the previous owner as an equity partner for its consulting value.
Flippa’s “Top 100 Index” suggests that on average each year, an online business is valued at more than double its net profit and 1.7 times its revenue. But transactions can go even higher.
“During the first half of 2022, we had a small business services app sell for 5.45 times their annual net profit, an education platform sell for 5.81 times their annual revenue, and a custom jewelry e-commerce business 4.62 times their annual net profit. ”, says Hutchison. “Year to date we have added $561 million in deal value, which is up 106% over the same period last year.” Flippa currently has 109,000 active buyers.
Buying an online business through an online marketplace is a relatively new model. But the basics remain the same. Getting to know the seller, understanding the numbers, reviewing contracts, getting an appraisal, and then having a purchase agreement legally reviewed are all necessary steps. Good online marketplace platforms will also verify sellers and provide templates and tools to help facilitate the transaction. But in the end, it’s still one person selling a business to another.
“Having a good relationship with the vendor and understanding why they did what they did is very important,” says Orr. “Acquiring a business is a different experience than starting a business from scratch. It’s important not to break what already works.”