Billions of pounds are spent online every year, thanks to the convenience of technology which enables trade to move online. A majority of entrepreneurs now own online businesses, which they find convenient thanks to the flexible working hours. Additionally, as an entrepreneur, the pressure of having the perfect location is also eliminated and the business is accessible to countless other potential customers who shop online. The fact that online businesses have lower overheads compared to brick and mortar stores makes this model even more attractive to entrepreneurs. In addition to reducing ongoing risks, online businesses tend to be more profitable.
Buying an already established eCommerce business is one of the most lucrative investment options today. An established business already has proven profitable concept, instant customers and consequently, instant revenue. Successful online ventures have established business models and possibly outsource a majority of the operational tasks. As an investor, all you have to do is prove that the business statistics and operational models are accurate and sustainable.
Before you buy an online business, you need to be conversant with the rules of eCommerce. You need to know how to tell apart genuine statistics and inflated numbers. You need to know what makes great operational models when it comes to maintaining the success of an eCommerce business. Additionally, you need to tell apart seasonal fads from sustainable businesses. Once you are conversant with eCommerce business language, you are can go ahead and browse around for potential businesses to invest in.
The hardest thing about buying an online business is that it may look all rosy at first glance, only to unearth serious issues with a little probing. If you are not very conversant with eCommerce, you may not catch some of these issues during the preliminary enquiries. It is always advisable to work with an experienced professional if you do not feel adequately equipped to accurately evaluate the online business you are considering to buy. Here are some few guidelines to help you with your due diligence.
Before you even go to evaluating finances and website statistics, you’ll get a chance to talk with the owner. It is commonplace to do eCommerce business purely online, meaning that you may not get to talk to the owner one on one. However, you still get a chance to talk to the seller and get a feel of who they are like.
One of the major red flags when purchasing a business is aspirational pitches. Watch out when the seller says something like “If you do task x, you’d easily double or triple the income”. Here is the question, if it was that easy, why wouldn’t he do it himself and get the triple profits instead of selling the business? Such phrases are meant to play with your mind and make you overestimate the value and potential of the business.
The most important information about an eCommerce business is the statistics, right from the start. Look at the numbers; sales, profit margin, net income and operational costs. It is important that you stay focused on the facts so that you are not swayed by a glowing sales pitch. Do not buy the business based on potential; buy it based on a professional estimation against industry standards.
Let’s say you find this eCommerce business that you really like. It has everything right at a glance and the brief says it rakes in a tidy profit on a regular business. Why would the owner want to sell a business when it is doing so well?
While most sellers will have legit reasons such as seeking retirement or selling off one business to concentrate on another, some sellers may not have an outright answer. If you ask a seller why they are selling and they do not have a genuine reason for seeking a buyer for their business, you may need to proceed with caution. There are countless snake-oil salesmen out there trying to sell worthless businesses for hefty sums.
Once you are satisfied that the owner has a genuine reason for selling the business, chat about sales. It is important to understand that an eCommerce business can be built on a trend, and be extremely successful. However, once the excitement for the product or service dies down, so does the business. One of the most important things is to assess the sustainability of the business.
The future of an eCommerce business lies in sales sustainability. Therefore, it is extremely vital to ascertain that there is consistent demand for the services and/or products that the business is offering. The business statistics will help you in confirming relatively steady sales growth. Granted, there will be an occasional bump in sales thanks to changing seasons. However, sales ought to be generally steady over time. You need to be very conversant with online trends so as to sniff out a fad before you waste money on it.
Traffic is not just traffic; different sources determine the value of the traffic. The people visiting the eCommerce platform may be from differing sources; paid searches, referral websites or as a result of a query on search engines. Here is why the source of the traffic to the website is important.
You may find a website that relies heavily on paid search networks. This means that customer acquisition costs will be high. While the sales numbers may look high, the net profits will be lower.
The aim of the thorough scrutiny of the traffic sources is to ensure that it is sustainable. You have to know who is checking out your site, the demographics, where they are and what percentage of the leads converts. If a big percentage of traffic is organic (from un-promoted search results) and a good percentage converts, you can then look at the site’s SEO profile. Always look at these statistics from a point of “how will it be in future”. Do not get swayed by past performance; check where the future is likely to be. Focus on long term profitability and adaptability to current and future tech changes.
There are businesses with incredibly high gross merchandise volume which doesn’t always translate to high profits. A seasoned business buyer knows that the secret to business success is in the profits, not gross sales. Therefore, do not get so derailed by the $50 million gross merchandise volume that you fail to see the $5,000 profit.
If you notice a seller pushing the GMV figure a little bit too much, it is time to look at the profit margins carefully. Be sure to incorporate all operational costs, both fixed and variable, when calculating net profit.
The key financial reports of any business are;
• Profit and loss statements
• Business agreements (with suppliers, employees etc.)
• Business tax reports
If you are not an accountant, it is important that you get one to help you figure out the financials. This information will determine whether the business is worth buying or if it is a waste of money.
At this point, you should decide what your deal breakers are. Are you looking for high-profit margins and lower stock risks? Are you looking for an established brand that you can improve? What sort of relationship does the business have with its suppliers and employees? Are payments done on time? Such details will give you a better understanding of the existing relationships in that business, and how long these relationships may last.
P&L statement is one of the most vital business records. It is a comprehensive report that communicates the business position in terms of operational costs, revenue as well as net income. It shows you exactly how the business is run. If a seller is unwilling to give you this statement and doesn’t have any justifiable reason for it, you might want to take that as a red flag. Additionally, if the figures on the P & L statement do not relate to the website analytics and there isn’t any logical explanation for the discrepancy, the P & L statement might be doctored to look more appealing.
Now that you have a good idea of the business financials and operations, you are in a position to determine if there are areas that you can improve so as to achieve a higher net income. Income is simply revenue take away expenses. You can play around with these two elements to increase net income; lowering costs and increasing sales volume. You can opt to lower the costs of the goods sold, improve the site’s design for higher conversion or increase the number of sales channels. It the business has areas that you can improve on for better profitability, you might want to consider it as an investment if all other numbers are okay.
Buying a business is one of the most exciting yet riskiest undertakings. It is a major financial decision that could see you lose a good amount of money or get a regular good income. Apart from the financial and site statistics, it is extremely vital that you have the relevant market intelligence, knowledge and skills needed to run the business you intend to buy. If you are not fully conversant with running a profitable business in that particular industry, be prepared to hire professionals who are experienced in the industry. If you lack the knowledge and skills needed to succeed in the industry, you will definitely run the business to the ground.
In order to be successful when selling online, you need to prepare for global ecommerce aspects such as having a multicurrency and multilingual platform. It is also advisable to be very conversant with the import and export regulations of the countries you are dealing with. If you want to sell to EU customers, you have to be compliant with the stipulated tax laws. As at now, there are endless speculations on how Brexit will affect cross border business with EU member countries. You can always check out the official HMRC website for more information should Brexit affects any of the set regulations. We will look at some of the common set regulations.
The “importer of record’ should take care of taxes and duties if they buy products from a non-EU seller. The parcel carrier asks for VAT and other import charges before the order is delivered. This often leads to higher costs which customers often aren’t pleased with. After all, the item might end up being so expensive that it beats the purpose of importing.
You can mitigate this challenge by registering for VAT at the first EU entry port. This way, the records will show that you are the importer of goods and therefore be liable for the charges upon entry. Then you can reclaim the VAT when you file your returns. This allows the customer to pay the full price inclusive of VAT and isn’t hit with nasty surprises. The registration improves sales by reducing the number of returns you get.
You can opt to have a warehouse (also referred to as a fulfilment centre) in any of the EU member states. This will help you fulfil your orders efficiently and affordably. With a fulfilment centre, the stock becomes taxable supply which calls for VAT registration. Warehouses are not subject to thresholds. The best part of his arrangement is that with the distance selling rules, you can sell in the EU as if the business is owned by a citizen of a member state of the EU.
According to distance selling rules, all businesses that are VAT registered can supply goods without registering for VAT in any other EU country, unless they exceed a set threshold. The threshold differs from one country to the other. In most EU member states, the threshold is set at €35,000. In other countries such as the Netherlands, Germany and Luxembourg, the threshold is €100,000, while in the UK it is £70,000.
If the sales that are within the set threshold of the country you are exporting to, domestic VAT is required if you have VAT registration. If not, VAT is not required. If you decide to operate after VAT registration, make sure you file returns according to the country from which you operate. You are also allowed to de-register VAT if you so wish.
If you decide to operate from the UK, distance selling rules only apply if you are a sole trader, have not registered for VAT and are only selling through market places that do not take VAT responsibility.
The USA is one of the largest and most technologically advanced and competitive economies in the world. Its GDP has continuously grown over the years, with a consistent 1.8% or more annual increment since 2011. Additionally, online shopping in the USA is pretty commonplace. This makes it one of the UK’s top export destinations.
It is important to note that the UK is not the only country eyeing the USA market. For starters, it has the largest private sector. There are some advantages to having USA customers namely;
• Being an English speaking, language barrier is rarely an issue
• There are low regulatory barriers
• There is a strong rule of law protecting both sellers and consumers
• There is access to the global supply chain. This opens up other export markets
Taxes in the US can be complicated, especially since the federal government and the individual states impose differing rules. The Internal Revenue Service (IRS) is responsible for federal taxes. UK businesses that wish to export products to the US will be subject to both direct and indirect taxes. These taxes are dependent on whether you wish to trade through a US-based office or agent, through a subsidiary, or you want to ship directly from the UK to the US.
If you choose to conduct business entirely from the UK, the imports will be subject to withholding federal income tax. The US-UK income tax treaty, however, affords you a range of benefits. There will be instances where you will be wholly or partially exempt from this income tax when operating under the treaty. The UK and the US have also signed a double taxation agreement that ensures that one income is taxed in only one country.
USA doesn’t have a VAT (Value Added Tax). Each state independently determines how the sales taxes will be collected depending on individual cases. In order to familiarize yourself with the kind of taxes that you may be responsible for, you can check out the Federal Tax Administrators website. If you are registered for VAT, most of the items will be zero-rated when exported to the US.
The beauty of an eCommerce business is that you can have customers from all over the world. But the fact that you can sell all over the world means that you may need to familiarize yourself with the tax and import laws of the countries to which you export your products. Most countries charge the receiver or importer an equivalent of purchase tax or VAT. The products you export out of the UK can be zero-rated if you follow these rules.
• If the products leave the UK within three months of order; keep evidence of the exported items
• You can produce corresponding accounting records to ascertain that the export transaction has taken place
• Keep a copy of the official communication of the export. You can have official Goods departure message and the Export Accompanying Documents (EAD). The EAD must bear the official exports stamp from the Office of Exit
VAT treatment heavily depends on whether the goods will be exported directly or indirectly. Understanding VAT in Europe as well as in the export countries is essential in the success of global online business. Remember to declare all your sales on the VAT returns. If your sales exceed the set annual threshold, you will be required to submit Intrastat returns on a monthly basis. It is important to note that Intrastat thresholds are reviewed every year.
It is important to note that some countries will offer reduced or no tax for specific items from differing countries based on the trade agreements. As such, you will be required to produce proof of origin that enables one to take advantage of the duty-free offers. Before you export to any country, make sure you are aware of their tax laws regarding import of the particular items you will be sending over. You can get more information on UK export laws on the official HMRC website.
Simply put, business intelligence is a general term for software that is used to collect, analyze and present data that affects your business. Business intelligence sphere is quite vast, and you’ll realize that there are countless software and programs that take loads of raw information and give you pertinent data that matters to you. The resultant BI data can be used to aid all business functions especially customer service and sales and marketing.
Here are some of the basic BI tools you’ll need for your eCommerce business
• Warehousing and data mining
• Reporting software
• The online analytics processing tool
The tools that organize and analyze data are referred to as warehousing and data mining tools. Data warehousing software is used to collect data from various sources, organize it and analyze in a way that makes it easily retrievable. The software pulls out patterns that are relevant to your business operations. The best thing about these tools is that they take even the slightest patterns that can prove invaluable in making decisions on business operations.
Reporting software presents the analyzed data in easy-to-understand personalized reports. You can customize the reports so that you get the information you need in your preferred format. You can make good use of dashboards to further explore the information on the report. You can interact with the reports on the dashboard and set it to display preferred key performance indicators as well as more in-depth analytics.
Online analytics processing BI tools allow you to choose what data to work on as you try to evaluate it from different angles. The analytics software allows you to go through the data in sections. For example, you have the option of looking at customers’ online habits per week or per month as opposed to having the entire year’s data presented to you all at once.
You can always get an all in one business intelligence software. You can get Oracle Business Intelligence or Microsoft Business Intelligence Suite. These software suites are multifunctional and allow for data to be seamlessly shared between the tools in the suite. This eliminates the unnecessary transfer of information from one program to the other. The best thing about business intelligence software is that you can have it tailor-made to suit your preferences. You can always research the different types of programs and software available today and pick whichever offers the features you are looking for.
A recent study conducted by UiPath in collaboration with the Economist Intelligence Unit has revealed that UK organizations are leading in business automation adoption. 67% of the UK executives in the study reported their satisfaction with the automation initiatives in their workplace. 73% of the UK firms under study expected to significantly lower their operational costs as a result of the automation efforts. As you’ll also find out soon enough, you cannot afford to skip automation.
Business process automation is a term that is used to show the use of technology in making a process simpler, faster, cheaper and more efficient. BPA focuses on the business processes that tend to be repetitive and follows a specific procedure or predictable pattern to achieve the required results.
Every business has its own rules governing its processes; there is no one size fits all solution when it comes to automation. Therefore, when picking an option, have it based on the business’ logical rules and data (both structured and unstructured). Here is a quick guide to the types of BPA you can consider.
This refers to the automation of simple tasks that requires a centralized point of information. For starters, you can have a system that relays updates about a specific task to all relevant parties. With tasks such as tracking orders and any queries pertaining to that order, it is important that everyone in the team handling order tracking and customer service have access to updates so as to give accurate information to the client.
This refers to making any business process more transparent, efficient, consistent and cheaper. You can get software tailor-made for the processes you want to automate. Be on the lookout for software that automates more than one process. For example, it’s easy to find software that automates BPM and CRM such as bpm’online.
Integration automation requires simple programming to input a command after which the system will repeat the action indefinitely. The key to integration automation is if the rules of the integration are well defined right from the onset. Once you program a system to perform a task and define your parameters, the system will follow the instructions to the letter indefinitely, or until there is a need to change parameters. One of the most common examples is the automation of customer support checklists especially during a live interaction with customer support personnel in situations such as complaints or follow-ups.
Artificial Intelligence Automation
This automation brings together the benefits of big data processing and machine learning in order to produce an incredibly efficient business process. Based on historical data and outcomes, AI automation continually improves the process and outcomes of the tasks done. A popular example of AI automation is fraud detection, purchase prediction, news generation as well as online customer service.
Here are some live scenarios of business process automation.
• BPA for sales allows the sales personnel to send message/emails to prospects with one click personalized propositions. This is time saving, effective and streamlines processes so that the personnel has time to focus on other aspects of their work
• BPA for marketing automates nurturing leads to conversion through data driven personalized email campaigns. The data also allows automation of content creation that resonates with the target audience.
• BPA for accounting or finance allows automation of tasks such as risk management and payment processing and supplier account managements. When dealing with marketplaces, system gives periodic reports of the sales and returns as is required. The automation also keeps track of data to ensure compliance with contractual terms.
Business process automation creates order and efficiency in internal processes which in turn increases productivity. Automation also fosters information sharing in the departments, accountability as well as help in eliminating human errors, minimizing costs and saving time.
When buying an eCommerce business, you will be in a position to tell whether it is self-hosted or a SaaS platform is used. There are a lot of reasons why SaaS platforms are preferred.
These platforms offer security and protection from online rogues. They also offer professional customer support in addition to proper training on how to make the most of the platform.
A brief guide to picking SaaS Platform
• Order process should be equipped with advanced search filters and real-time order tracking
• The catalogue should support CSV import as well as inventory management. It should also offer time-based catalogues such as when running offers and discounts
• The SaaS platform should have global support. This means that it should be multi-lingual and offer a myriad of globally accepted payment gateways
• In marketing, the platform can incorporate discount promo codes, social media logins as well as SEO best practices
• The platform should offer easy integrations so as to enhance analytics and real-time chat support
Software as a service (SaaS) is a mode of online service delivery, particularly offering web hosting applications. SaaS platforms are now known as easy to operate and it helps you build an online store easily and at affordable prices. The best thing about SaaS platforms is that they are easy to customize so you can outsource some of the business tasks to the platform’s efficient applications. Your online store will always be updated, equipped with the latest technologies and adapting to the most advanced analytics.
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