How to buy a DropShipping business
DropShipping is a fantastic way to start a business and make money. But starting up a brand new business isn’t the only way to get going, and businesses come up for sale all the time.
Why buy a DropShipping business?
When it is relatively straightforward to set up a DropShipping business, you might wonder why people would want to buy rather than setting up their own. Well, there are definitely some advantages – which is why entrepreneurs decide to invest.
Benefits of buying a DropShipping business
The biggest reasons to buy a business is the significant time saving that buying offers, and the fact that you can start earning as soon as you’ve got the business in your name. But these aren’t the only reasons – so let’s take a look at some of the other reasons to buy a DropShipping business.
No research required
Setting up a business is time-consuming, with one of the biggest tasks being research before you can even get started selling. There’s research to establish your niche, more research to establish that the niche is indeed going to be profitable, more still to decide on your target customers and even more to narrow down your sales channels. Time is money, so for those that have the ability to take a business that is already running and expand it, that is likely to be preferable than starting from scratch.
Existing customer base
When you’re starting a business from scratch, you’re also finding customers from scratch too. That is hard work, especially since there is so much competition already out there. But if the business you’re looking to buy has capitalised on their niche and has a set of existing customers for you to continue to market to, you’ve got a great opportunity. If they continue to love the brand and the products you sell, they will keep buying from you, as well as liking and sharing your social media posts, which will help you to grow the business.
Website and design assets are already created
For entrepreneurs that don’t have strong design skills, there’s an appeal in buying a business that has assets like website and logos ready to go. Hiring a web designer can cost more than you’re willing to spend – and if the cost of the business is low, then it might be cost effective to buy the whole business (especially if social media accounts are included), even if you’re looking to change the direction of the business.
Less chance of procrastinating
For entrepreneurs that want their business as a side operation to their other work, getting started building a business is difficult. Whether it is family life, social life or just being all-round busy, there is almost always a reason to put off doing the research, the design work, or sourcing products. By buying a business that is already up and running, you’re able to start earning from the moment the business is in your name.
Challenges of buying a DropShipping business
Although there are some significant advantages to buying your DropShipping business rather than establishing one yourself, there are some things to watch out for.
Risk to your investment
It is an obvious statement, but you’re going to need to pay to buy your business – but that means your cash is tied up in the business. If you want that cash back, you’ll need to either make enough profits, or to sell the business on. But there are no guarantees that you’ll definitely get that cash back. Realistically, you need to be ready to let that cash go – just in case the business isn’t the success you want it to be.
Of course, there is every chance that your business is going to be a great success – after all, you wouldn’t buy a business and then ignore it to lose money on it.
If you miss something being included with the transaction, there is the chance that you’ll end up needing to put extra time or money into the business, which could be a source of frustration – especially if you have spent a lot to acquire the business. Ensuring you know exactly what is included with the business will help you to plan for any additional resource before you take it over.
If you find the business you’re buying doesn’t have any automation and you’ve identified this as a way to increase profits, then actually setting up those connections can be a challenge. If you don’t have the necessary skills to be able to set up the connections that you need then you’ll need to work with a developer at cost to you or the business – although this may be worth it in the long run.
Employees and contractors
If the business is sufficiently large, additional personnel may have been contracted to provide services. This could mean that you’re left needing to pay someone for work that you can do yourself – which may be an advantage for a time, depending on what you find is required to scale the business. However, if you find that you really don’t need those staff, you might need to let them go.
We’re not saying that someone selling a DropShipping business is definitely doing so to get rid of a debt, or another problem that they’re not mentioning on the listing for the business. But this is always a risk, and is one of the reasons to really make sure you do due diligence to avoid encountering this. Someone selling a business that has nothing to hide will have no qualms about having a call with you to tell you more, and they’ll be prompt about replying to your emails too. At the same time though, be cautious about businesses that sound like they’re too good to be true – because quite often they are.
Suppliers may not continue to supply the business
Typically this isn’t a problem with DropShipping, but be certain to check whether the suppliers are prepared to continue to deal with the business when the ownership changes. If you need to change suppliers, or to expand the business with more products in the inventory, then working with Avasam suppliers could be the solution.
You want to buy a business in order to make a profit – and to determine this, you’ll need to know what is coming in as well as what is going out. Small-time sellers might not keep track of their expenses well enough (or may have their personal bank account as their business account) which could be problematic when trying to understand what the business has to offer.
Where to find DropShipping businesses for sale
There are a number of places that you can find DropShipping businesses for sale. We’re going to touch on a few places here (and there are countless other places you might find businesses listed for sale) but before going ahead with any transaction, be sure to get everything in writing. If you’re spending a large amount of money on a business, it is definitely worth taking advice from a specialist before completing the transaction.
Shopify has their Exchange marketplace that facilitates the buying and selling of businesses. As we write this post there are websites for sale from $500 (these are websites only, without any revenue) through to more than $49,000 for a business with $3900 monthly revenue ($2100 profit per month). Sellers are required to state the reason for selling the business, and what is currently involved in running the business.
Flippa is a website that facilitates the sale of businesses and there are a range of opportunities with plenty of filters to help you find just what you’re looking for. It is based in Australia and the US, so prices are shown in dollars. Despite there being a few grumbles on Trustpilot, it is rated Great – so if you’re looking to buy a business without spending a huge amount of money, this is a good place to get a feel for the market.
eBay has some businesses for sale; however we recommend carefully reading the listing if you’re searching for DropShipping businesses for sale here. There are many listings on eBay that claim to be businesses for sale, but what they are really selling is a guide showing you how to set up a business, with a list of suppliers.
The AliDropship forum has a thread dedicated to the buying and selling of DropShipping businesses. However, this is an unmoderated place to buy and sell businesses, so we advise using caution when looking at buying from a source like this one.
Before you buy
Due diligence is essential before you start talking money. Knowing exactly what is included with the business will prevent any unnecessary struggles after the transaction is completed.
Listings for the business should contain the traffic and revenue from the last year at least, in addition to details of everything that is included in the sale. Assets that may be included could be:
- Physical inventory
- Lists of suppliers
- Email list (be sure to establish whether the email list is GDPR compliant)
- Logo and branding assets
- Social media accounts (and details of posts, followers and engagement)
- Any after-sale support that may be included
- Domain name and website design
- Product photos
There may be other assets that could be up for negotiation – so know what the seller may be willing to include in the final deal. While you’re negotiating, look at whether you can use screen sharing, or to have ‘view only’ access to accounts to verify that everything is as the seller is advertising. If there is nothing to hide and you’re genuinely interested in the business, the seller won’t be worried about showing you.
If the seller isn’t marketing their business any more because they are selling it, knowing when they stopped doing any marketing activity will help you to understand if there has been a downturn in traffic, sales and revenue. You should look to verify as much of the information as possible. This includes understanding:
Traffic to the website and listings
You need to know if the traffic is coming from a sustainable source that you can continue to convert, but that isn’t the only reason to know where traffic is coming from. Identifying where your traffic is coming from will also help you to know where there are opportunities in the business. Can you spot another marketplace that products would sell well on, or could you advertise somewhere that the current owner hasn’t to get more potential customers to the website?
If the store is making plenty of money but in order to do so there are expenses galore, then the business may not provide the returns you want and need. But if that is the case and you can identify opportunities to trim expenses while maintaining profits and growing the business further, then the business could still be worth the investment.
Social media accounts
Having social media accounts that are followed by thousands are incredibly valuable – but if those followers are all bots, then they aren’t worth much at all. Clearing out automated followers, and building a more valuable following isn’t hard, but it does take up quite a lot of time that you could spend on building your business further. Make sure engagement rates are accurate and that there are real people, rather than computers behind the likes.
What the seller is including
If there is an asset that is absolutely necessary for running the business, you need to make sure that the seller is definitely including it. They might have a wonderful Instagram account with thousands of followers that they use to promote their business, but they don’t have to include that – so establish exactly what is included, point by point.
Why the business is on the market
Sellers don’t have to give you a reason, but if you can understand why they’re selling it might give you an indication about the state of the business. If the business has grown too much and they don’t have the time that it needs to take the business to the next level, that’s good news for you – because the business will still be growing. If the seller is cagey about their reasons for selling, it doesn’t mean the business isn’t a great opportunity – but you should definitely be sure to do your due diligence a little more carefully.
Contracts or finance in place
Before you sign anything, it is really important to understand if there are any obligations that are linked to the business. Of course, many businesses get finance for legitimate reasons, but you’ll need to understand what implications that has for the business so that you don’t end up out of pocket.
If there are contracts in place with any suppliers, will they transfer with the business, or are they linked to the current owner of the business? Needing to renegotiate terms with suppliers may take up time unless you have an alternative lined up and ready to start fulfilling orders immediately – such as if you’ve signed up for Avasam, for example.
Use an intermediary service to complete the transaction
Using a marketplace and an intermediary service to handle the transaction protects both parties. Marketplaces are likely to require the relevant information, making it easier to understand whether a buyer wants to look further into the prospect or not.
Intermediary services that facilitate transactions help to ensure that payments are done safely, with payments only being passed to sellers once the relevant information has been passed to the buyer. Buyers have a certain amount of time to confirm the assets have been provided as per the terms of the sale, during which time you’ll have a moment to ask additional questions.
Transferring a business takes an average of three business days, but may take more, or less time depending on the complexity of the transaction. Being prepared will help ease the process, so having a checklist of what needs transferring will help ensure that nothing gets missed. While you’re in the transition period, be sure to ask the seller of the business as many questions as possible. They are likely to only offer support to a certain length of time after the transaction has completed.
Once the transfer process is complete, you should ensure that you have:
- Updated business addresses everywhere it is appropriate to do so, including Companies House if necessary
- Change banking details so that you can process orders on time
- Change passwords on all accounts so that the seller of the business no longer has access
When the process has completed, it is time to get busy growing the business, and to take it in whichever direction you feel best – and to make the most of it!
Buying a DropShipping business takes a lot less time than setting one up from scratch. But you’ll still need to have enough time to find the right opportunity for you, to carry out your due diligence and to negotiate with the seller. Once you have acquired your business, you can look at how you can expand the inventory, increase sales channels and ultimately, grow the profits from your DropShipping activity.
Scaling your new business quickly is easy when you have UK-based DropShipping suppliers ready to dispatch to your customers. Avasam suppliers have thousands of high-quality products in UK warehouses ready to send the same, or the next working day – with none of the issues that you encounter by DropShipping from suppliers in the far east. To get started, sign up for your free Avasam account with no upfront costs, and book a call with a member of our team so we can help you start making sales as quickly as possible.