Online business

Two Philadelphia Entrepreneurs Prove It’s Better to Buy an Online Business Than Start One

More people are working from home than ever. Many are looking to supplement their income with side gigs, and selling merchandise online is a great way to do that. Of course, you can start a shop on Amazon or Etsy. Or you could do what many other entrepreneurs have done over the past few years: buy an existing site.

According to BizBuySell, a site that tracks and facilitates the buying and selling of businesses, M&A activity has increased 14% over the past year.

Experts predict that online sales will account for more than a fifth of all retail purchases and exceed $7 trillion by 2025. That’s why buying from an existing site with a history of Selling products online has created a significant opportunity for entrepreneurs looking to be their own boss.

“Think of all the buyers and sellers who are on Amazon and all the business owners who use Shopify, BigCommerce, WooCommerce, WordPress, the list goes on,” said Blake Hutchison, CEO of online marketplace Flippa. . “You have this huge network of small business owners all over the world. Profitable small businesses, with an annual turnover of less than $500,000 to $10M, which are still hot goods. Savvy digital acquirers taking a long-term view see the obvious. Digital isn’t going anywhere.

One such savvy acquirer is Josey Orr, a Berks County entrepreneur who recently purchased two online businesses – Body for Golf and Easier Golfing. Orr, along with an associate, bought the two sites because he was “bored” and looking for opportunities. Orr loves golf, but that wasn’t his main motivation. He was looking to sell products online and capitalize on the growing trend of paid newsletter subscription services. Both acquisitions met these needs.

“We formed a small holding company and sought to acquire small businesses that complement each other,” he said. “I had no experience buying a business before that.”

Martin Bispels of Phoenixville tells a similar story. After working as a business executive at QVC and a stint in consulting, Bispels, over the summer of 2020, found himself ready to embark on a new online career. So he set off to “discover” this new company.

“The opportunity to buy a business and run it myself was really exciting,” he said. He and a partner “looked at all kinds of different businesses until we found the one we liked.” That company was Upper Park Golf, an online retailer of disc golf backpacks. “I’ve loved the sport for a long time,” he says. “And so when we had the opportunity to buy a disc golf business, I jumped on it.”

Orr and Bispels studied a number of online marketplaces, such as Empire Flippers and Shopify’s Exchange Marketplace, where entrepreneurs can buy and sell websites. In the end, they both settled on the Flippa platform. Regardless of the market, online transactions generally work the same way.

First you need 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 site or a blogging site or even just from an app or software-as-a-service platform provider. . You should evaluate what is available in an online marketplace like the ones I mentioned above.

Once you’ve found a target, you’ll want to understand their competitors, market trends, and cost of doing business. You can do this by reading industry reports and discussing the company with others who are doing the same and, of course, your financial and legal advisors.

Once you’ve contacted the seller (Flippa and other sites provide internal messaging forums and assistants to facilitate conversations), you’ll want – with your advisors – to review the site’s financial statements and tax returns, its customer base and website traffic statistics. . You will want to interview company employees and review all major IP contracts and agreements. You can use online tools to get an appraisal and then discuss a purchase price with the owner.

All of 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 business selling similar products,” he said. “But if people were looking for my products, they wouldn’t have found it, while Upper Disc was already there and optimized for search engine optimization. The seller had been there since 2011 and didn’t have the time or the money to really continue to grow the brand. I decided to take my resources and experience to build it and he was thrilled 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 a partner for his advisory value.

Flippa’s Top 100 Index suggests that, on average, an online business is valued at more than twice its net profit and 1.7 times its revenue each year. But transactions can go even higher.

“In the first half of 2022, a small business utility app sold 5.45 times its annual net income, an education platform sold 5.81 times its annual revenue, and a custom jewelry e-commerce sold for 4.62 times its annual net profit. “, Hutchison said. “Year-to-date, we’ve added $561 million in transaction value, an increase of 106% over the same period a year earlier.” 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 the contracts, getting an appraisal, and then having the purchase agreement legally reviewed are all necessary steps. Good online marketplace platforms will also verify sellers and provide templates and tools to facilitate the transaction. But at the end of the day, it’s always one person selling one business to another.

“Having a good relationship with the seller and understanding why they did what they did is very important,” Orr said. “Acquiring a business is a different experience than building a business from scratch. It is important not to break what is already working.

Gene Marks is a Chartered Accountant and owner of Marks Group, a technology and financial management consultancy firm in Bala Cynwyd.

Editor’s note: An earlier version of this story incorrectly described Martin Bispels’ prior work experience. He was a senior executive at QVC.