Author Topic: Buying an Ecommerce Business - Our Journey  (Read 15876 times)

MustachioedPistachio

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Re: Buying an Ecommerce Business - Our Journey
« Reply #50 on: September 24, 2021, 01:36:24 PM »
Just catching up on your progress. Congrats on the acquisition!

I wanted to share my solution for this..
I just got business bank accounts setup but despite it being the year 2021 we still haven't figured out how to move money from one bank to another in less than 3-4 business days (unless you pay for a wire transfer and go to your bank in person).

We use two banks, and I've found the easiest, quickest way to move funds is writing a check from one account and depositing to the other via mobile deposit. Funds credit the following morning. Otherwise, fully agree it's ridiculous there's not an even simpler, expeditious way.

sammybiker

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Re: Buying an Ecommerce Business - Our Journey
« Reply #51 on: October 25, 2021, 04:20:00 AM »
Bump, any updates?  @Michael in ABQ

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #52 on: October 25, 2021, 02:05:12 PM »
Things are going well overall. Definitely struggling with supply chain issues. About have our listings are for products that we don't carry in stock and drop ship from a dozen or so suppliers. One supplier in particular gets a lot of inventory from China and is frequently letting us know that something is out of stock and backordered for weeks or months. With so many products and their inventory changing all the time we're not doing a good job of reflecting when something is out of stock on our website. So a customer orders from us and then we have to tell them after the fact that it's backordered. One of our suppliers sent us a larger order of a few pallets. It shipped from a couple states away on Friday October 1st and was scheduled to be delivered on Thursday October 7th. Every day for a week and a half the delivery estimate would move back a day. It was finally delivered on Monday the 18th. Meanwhile we had customers placing orders early in October that we had told would ship in a few days once our shipment came in. As that kept getting delayed we kept having to revise the date it would ship.

On the plus side, October is trending much higher than last year. We bought the business at the end of July and August and September were basically flat compared to last year. October was historically one of the lowest months for sales but we're on track to beat last October by 50% - making it almost as strong as November/December last year. I credit that to a combination of sending a daily email to our entire list of 40k active subscribers, raising prices, and just continuing to improve our product listings with better descriptions and more keywords on the backend. Also, we're definitely seeing some Christmas orders already. Hopefully it's not just pulling demand forward - though that's still fine. I'd be perfectly happy to sell out of Christmas inventory in November from a cash flow perspective. In fact we had someone just clean us out of a Christmas product - almost 400 units in a single order. This is something that normally sells 1-2 at a time and last year the previous owner sold through about 200. We decided to double that order. Looks like we still underestimated demand.


sammybiker

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Re: Buying an Ecommerce Business - Our Journey
« Reply #53 on: October 25, 2021, 02:45:44 PM »
@Michael in ABQ Great update, that is awesome to hear.  Especially on the Oct-2021 vs Oct-2020...seeing some value back already on your changes has gotta feel good.

Are you seeing supply chain issues improving at all?

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #54 on: October 25, 2021, 05:22:29 PM »
@Michael in ABQ Great update, that is awesome to hear.  Especially on the Oct-2021 vs Oct-2020...seeing some value back already on your changes has gotta feel good.

Are you seeing supply chain issues improving at all?

No, I don't anticipate any improvements until Summer of 2022. We just got an order for a product that's made in Portugal and our supplier said they don't expect another shipment until next summer. So I'm probably going to buy out the rest of their inventory for some other variations of that product.

This next 6-9 months, and certainly the next 1-2 months, it's going to be all about who has the most inventory. Also, inventory purchased today will likely increase in value. Most of our suppliers have implemented price increases, or will do so in the next few weeks. A few have added a freight surcharge of 4-8% which is just another way of saying they're raising prices without actually raising prices.

Dictionary Time

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Re: Buying an Ecommerce Business - Our Journey
« Reply #55 on: October 25, 2021, 07:51:04 PM »
On the plus side, October is trending much higher than last year

I wonder if this is an effect of all the new articles telling us to shop early due to supply chain problems. Anecdotally, a few people have told me theyíre doing this.

Personally, I feel this is a scam by big business to get everyone riled up. And they know if you shop early, you just shop longer and buy more. So it is definitely in their interest.

Also in your interest too, Michael in ABQ, and I hope everyone shops early and often from you!

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #56 on: October 25, 2021, 09:01:55 PM »
On the plus side, October is trending much higher than last year

I wonder if this is an effect of all the new articles telling us to shop early due to supply chain problems. Anecdotally, a few people have told me theyíre doing this.

Personally, I feel this is a scam by big business to get everyone riled up. And they know if you shop early, you just shop longer and buy more. So it is definitely in their interest.

Also in your interest too, Michael in ABQ, and I hope everyone shops early and often from you!

My wife and I just ordered most of our Christmas gifts for our kids off Amazon. I know full well that people are going to run out of inventory, prices will go up, and shipping will be delayed. Good luck trying to find a LEGO set on December 14th that will arrive by Christmas without paying a significant amount higher than you would have ordering a month or two earlier.

maisymouser

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Re: Buying an Ecommerce Business - Our Journey
« Reply #57 on: October 27, 2021, 02:15:35 PM »
PTF. I know nothing about owning or operating a business, but it sounds like you are quickly becoming an expert and I'd like to join you to learn while you ride the waves of being your own boss :)

lost_in_the_endless_aisle

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Re: Buying an Ecommerce Business - Our Journey
« Reply #58 on: October 27, 2021, 06:12:43 PM »
On the plus side, October is trending much higher than last year

I wonder if this is an effect of all the new articles telling us to shop early due to supply chain problems. Anecdotally, a few people have told me theyíre doing this.

Personally, I feel this is a scam by big business to get everyone riled up. And they know if you shop early, you just shop longer and buy more. So it is definitely in their interest.

Also in your interest too, Michael in ABQ, and I hope everyone shops early and often from you!
Container ships have nowhere to berth so they wait off of the coast for days a week+, then once they unload, there is nowhere to put the containers and/or not enough chassis to dray the containers from the port, then once they get to a warehouse, not enough people to unload them. Spot market container rates per FEU from East Asia to West Coast were up from ~$1500 prior to covid to $20,000 a couple of months ago and rates are still hovering around $18,000. LA/LB are pretending to charge ocean shippers for containers dwelling at the port, even though that is total bullshit and will have as much of an impact as LA/LB being "open" 24/7. Next year, the ILWU contract is up so there may be additional work slowdowns or strikes at the ports. It's actually a proper mess.

Dictionary Time

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Re: Buying an Ecommerce Business - Our Journey
« Reply #59 on: October 27, 2021, 07:17:22 PM »
On the plus side, October is trending much higher than last year

I wonder if this is an effect of all the new articles telling us to shop early due to supply chain problems. Anecdotally, a few people have told me theyíre doing this.

Personally, I feel this is a scam by big business to get everyone riled up. And they know if you shop early, you just shop longer and buy more. So it is definitely in their interest.

Also in your interest too, Michael in ABQ, and I hope everyone shops early and often from you!
Container ships have nowhere to berth so they wait off of the coast for days a week+, then once they unload, there is nowhere to put the containers and/or not enough chassis to dray the containers from the port, then once they get to a warehouse, not enough people to unload them. Spot market container rates per FEU from East Asia to West Coast were up from ~$1500 prior to covid to $20,000 a couple of months ago and rates are still hovering around $18,000. LA/LB are pretending to charge ocean shippers for containers dwelling at the port, even though that is total bullshit and will have as much of an impact as LA/LB being "open" 24/7. Next year, the ILWU contract is up so there may be additional work slowdowns or strikes at the ports. It's actually a proper mess.

Let me clarify, I do believe there are supply chain issues.

I just donít believe that itís going to ruin my Christmas. Iíll just get different things, give gift cards or cash even.

If you feel highly vested in getting specific gifts, it can be a problem. Like the earlier prayer who needs a specific logo set. Iím heartless and my kids rarely if ever get the exact thing on their list.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #60 on: October 27, 2021, 07:40:48 PM »
Anything that's out of stock now isn't expected until 2022. One of our suppliers on the east coast said the ship with their container arrived on September 1st and just had to clear customs - they anticipated having some products back in stock within a week or s. It took almost another month before it actually made it to their warehouse.

Another supplier on the west coast said their freight deliveries of a pallet or two for larger orders to the east coast were taking 4 weeks. Our shipment took over two weeks to go two states. When I called a trucking company that is located literally one block from my office they quoted me $600 to pickup three pallets from 5 miles away that were sitting at the other trucking company's depot waiting to be delivered.

lost_in_the_endless_aisle

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Re: Buying an Ecommerce Business - Our Journey
« Reply #61 on: October 27, 2021, 07:42:47 PM »
On the plus side, October is trending much higher than last year

I wonder if this is an effect of all the new articles telling us to shop early due to supply chain problems. Anecdotally, a few people have told me theyíre doing this.

Personally, I feel this is a scam by big business to get everyone riled up. And they know if you shop early, you just shop longer and buy more. So it is definitely in their interest.

Also in your interest too, Michael in ABQ, and I hope everyone shops early and often from you!
Container ships have nowhere to berth so they wait off of the coast for days a week+, then once they unload, there is nowhere to put the containers and/or not enough chassis to dray the containers from the port, then once they get to a warehouse, not enough people to unload them. Spot market container rates per FEU from East Asia to West Coast were up from ~$1500 prior to covid to $20,000 a couple of months ago and rates are still hovering around $18,000. LA/LB are pretending to charge ocean shippers for containers dwelling at the port, even though that is total bullshit and will have as much of an impact as LA/LB being "open" 24/7. Next year, the ILWU contract is up so there may be additional work slowdowns or strikes at the ports. It's actually a proper mess.

Let me clarify, I do believe there are supply chain issues.

I just donít believe that itís going to ruin my Christmas. Iíll just get different things, give gift cards or cash even.

If you feel highly vested in getting specific gifts, it can be a problem. Like the earlier prayer who needs a specific logo set. Iím heartless and my kids rarely if ever get the exact thing on their list.
That is one problem (you can't get what you want) but there are also problems with B2C on-time delivery with FedEx & UPS. Those two also imposed peak surcharges on large shippers, incentivizing those companies to encourage customers to order earlier (and the way those peak charges are calculated actually encourage shippers to prefer less early-October volume compared to late-October/early November). Last year where I worked we paid ~$12M in parcel peak charges, so you can understand much of the concern is around lowering cost rather than necessarily raising revenue.

But ordering early can be a win-win since it smooths Q4 volume out over a longer time-span which benefits a company's fulfillment efficiency, while at the same time, ensuring customers get what they want on time. There was already a huge problem with this last year but seemingly little consumer behavioral change despite some messaging then, so it is being cranked up to 11 this year.

For the record, I don't buy anyone any xmas gifts (and tell people not to get me anything) so I don't know what all the fuss is!

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #62 on: December 03, 2021, 04:30:03 PM »
We're still recovering from Black Friday to Cyber Monday but it looks like our sales were about 50% higher than last year under the previous owner. They didn't do as much discounting but our gross profit was still quite a bit higher even after offering 15% off everything for those four days. October and November are both up about 30-50% over the previous year as well - albeit with some higher advertising spend. A lot of that is from marketing to our email list more. I'm not sure if December will be that much better as we've sold through a lot of our higher-price Christmas items already.

Unfortunately our employee who was handling a lot of the day-to-day (customer service and pick, pack, and ship) took another job out of state last month. We tried to hire a replacement but she didn't work out and left after a few days. So now my wife is coming in almost every day to do the pick, pack, and ship while I handle customer service. We're trying to hire someone but haven't had much luck reaching out to our network. I'm hesitant to just throw it up on some job board because we really need someone who is fairly knowledgeable about the Catholic faith and can speak genuinely to customers who are usually older and looking for something specific that a non-Catholic will probably never have heard of.

Joel

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Re: Buying an Ecommerce Business - Our Journey
« Reply #63 on: December 03, 2021, 08:49:49 PM »
We're still recovering from Black Friday to Cyber Monday but it looks like our sales were about 50% higher than last year under the previous owner. They didn't do as much discounting but our gross profit was still quite a bit higher even after offering 15% off everything for those four days. October and November are both up about 30-50% over the previous year as well - albeit with some higher advertising spend. A lot of that is from marketing to our email list more. I'm not sure if December will be that much better as we've sold through a lot of our higher-price Christmas items already.

Unfortunately our employee who was handling a lot of the day-to-day (customer service and pick, pack, and ship) took another job out of state last month. We tried to hire a replacement but she didn't work out and left after a few days. So now my wife is coming in almost every day to do the pick, pack, and ship while I handle customer service. We're trying to hire someone but haven't had much luck reaching out to our network. I'm hesitant to just throw it up on some job board because we really need someone who is fairly knowledgeable about the Catholic faith and can speak genuinely to customers who are usually older and looking for something specific that a non-Catholic will probably never have heard of.

Get in touch with a local recruiter. Thereís a few religious based large companies in my area that are only successful when using recruiters. Expensive though, typical finders fee at 25% of annual salary.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #64 on: December 03, 2021, 09:29:08 PM »
We're still recovering from Black Friday to Cyber Monday but it looks like our sales were about 50% higher than last year under the previous owner. They didn't do as much discounting but our gross profit was still quite a bit higher even after offering 15% off everything for those four days. October and November are both up about 30-50% over the previous year as well - albeit with some higher advertising spend. A lot of that is from marketing to our email list more. I'm not sure if December will be that much better as we've sold through a lot of our higher-price Christmas items already.

Unfortunately our employee who was handling a lot of the day-to-day (customer service and pick, pack, and ship) took another job out of state last month. We tried to hire a replacement but she didn't work out and left after a few days. So now my wife is coming in almost every day to do the pick, pack, and ship while I handle customer service. We're trying to hire someone but haven't had much luck reaching out to our network. I'm hesitant to just throw it up on some job board because we really need someone who is fairly knowledgeable about the Catholic faith and can speak genuinely to customers who are usually older and looking for something specific that a non-Catholic will probably never have heard of.

Get in touch with a local recruiter. Thereís a few religious based large companies in my area that are only successful when using recruiters. Expensive though, typical finders fee at 25% of annual salary.

Starting pay is $15/hour. This is essentially a warehouse/customer service job - albeit not walking 8 miles a day in an Amazon warehouse, or sitting in a call center for 8 hours. But it doesn't require anything more than attention to detail, computer literacy, and basic customer service skills.

Joel

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Re: Buying an Ecommerce Business - Our Journey
« Reply #65 on: December 03, 2021, 11:15:35 PM »
We're still recovering from Black Friday to Cyber Monday but it looks like our sales were about 50% higher than last year under the previous owner. They didn't do as much discounting but our gross profit was still quite a bit higher even after offering 15% off everything for those four days. October and November are both up about 30-50% over the previous year as well - albeit with some higher advertising spend. A lot of that is from marketing to our email list more. I'm not sure if December will be that much better as we've sold through a lot of our higher-price Christmas items already.

Unfortunately our employee who was handling a lot of the day-to-day (customer service and pick, pack, and ship) took another job out of state last month. We tried to hire a replacement but she didn't work out and left after a few days. So now my wife is coming in almost every day to do the pick, pack, and ship while I handle customer service. We're trying to hire someone but haven't had much luck reaching out to our network. I'm hesitant to just throw it up on some job board because we really need someone who is fairly knowledgeable about the Catholic faith and can speak genuinely to customers who are usually older and looking for something specific that a non-Catholic will probably never have heard of.

Get in touch with a local recruiter. Thereís a few religious based large companies in my area that are only successful when using recruiters. Expensive though, typical finders fee at 25% of annual salary.

Starting pay is $15/hour. This is essentially a warehouse/customer service job - albeit not walking 8 miles a day in an Amazon warehouse, or sitting in a call center for 8 hours. But it doesn't require anything more than attention to detail, computer literacy, and basic customer service skills.

Probably just depends how common people who meet that profile are in your local area. Itís cheap and easy to post on a local job board. Iíve had good luck with indeed for entry level finance roles as they have some very basic tests that can be to assess those kinds of skills.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #66 on: December 06, 2021, 07:53:01 AM »
This seems like a job that someone may feel called to do. Perhaps a Catholic school teacher who could retire if they had a part-time gig or something.

Do Catholic Churches/Parishes have old fashioned bulletin boards anymore? Perhaps a local Catholic Facebook page? The job listing could emphasize the mission/purpose of your business.

WGH

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Re: Buying an Ecommerce Business - Our Journey
« Reply #67 on: December 06, 2021, 11:10:40 AM »
The two banks are both in underwriting. I ended up pulling money from my other business and some additional Roth IRA contributions to strengthen our cash position to at least 10% of the purchase price for post closing liquidity/working capital. One lender came back last week and said that during their pre-underwriting they thought there would be an issue with the collateral since we don't have any real estate to pledge and the business has minimal collateral. I explained that lack of collateral is the whole point of the SBA loan guaranty and we're willing to take the minimal hit to our credit score to push the application through to the underwriters. So at this point our hopes are mostly on the other bank. I've reached out to a few other local lenders as well to potentially get a third application going but most of them are not SBA Preferred Lenders which means they will take 3-4 months as everything has to go through the SBA (which is overwhelmed at the moment) instead of being handled in-house.

I'm curious about this as well looking at some businesses where there isn't real estate or much equipment or inventory in a service sector and the value is a multiple of the net income usually 2-3X. Did you find it very difficult for the underwriters to approve because of the lack of tangible assets and real property? I'm thinking an existing business with a history of cash flow would be an easier deal than startup. How did you arrive at the 10% of purchase price cash position figure? Was it suggested by the bank at all?

Closing is only a few days away. Still a lot of stuff to do. I wish I'd setup a business credit card a couple months ago. Now my banker keeps saying wait until after closing. This means I can't setup new accounts with the couple dozen vendors because I don't want to give them a personal credit card and then resubmit different payment information a week or two later.

How would you have been able to setup a business credit card months before you had ownership of the business? Not trying to be snarky but genuinely curious.

Thanks for posting and all of the detail!

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #68 on: December 06, 2021, 02:53:34 PM »
Quote
The two banks are both in underwriting. I ended up pulling money from my other business and some additional Roth IRA contributions to strengthen our cash position to at least 10% of the purchase price for post closing liquidity/working capital. One lender came back last week and said that during their pre-underwriting they thought there would be an issue with the collateral since we don't have any real estate to pledge and the business has minimal collateral. I explained that lack of collateral is the whole point of the SBA loan guaranty and we're willing to take the minimal hit to our credit score to push the application through to the underwriters. So at this point our hopes are mostly on the other bank. I've reached out to a few other local lenders as well to potentially get a third application going but most of them are not SBA Preferred Lenders which means they will take 3-4 months as everything has to go through the SBA (which is overwhelmed at the moment) instead of being handled in-house.

I'm curious about this as well looking at some businesses where there isn't real estate or much equipment or inventory in a service sector and the value is a multiple of the net income usually 2-3X. Did you find it very difficult for the underwriters to approve because of the lack of tangible assets and real property? I'm thinking an existing business with a history of cash flow would be an easier deal than startup. How did you arrive at the 10% of purchase price cash position figure? Was it suggested by the bank at all?

This is exactly what SBA loans were made for. A traditional bank looks at collateral, collateral, and then maybe cash flow. But they will almost always only lend against collateral. So if you have a trucking company and you own a warehouse and 30 semi-trucks you can get a traditional bank loan. For any other business SBA is usually the way to go. The SBA guarantees 75% (or more) so the bank then feels comfortable with a down payment of 10-20% and some collateral securing the rest. That could be business or personal assets (usually a personal home).

The 10% cash was something the banks wanted to see. A lot of businesses fail due to being under-capitalized. They don't want you to spend your last dollar to buy a business and then fail because you didn't have enough cash to weather a few minor hiccups.

Quote
Closing is only a few days away. Still a lot of stuff to do. I wish I'd setup a business credit card a couple months ago. Now my banker keeps saying wait until after closing. This means I can't setup new accounts with the couple dozen vendors because I don't want to give them a personal credit card and then resubmit different payment information a week or two later.

How would you have been able to setup a business credit card months before you had ownership of the business? Not trying to be snarky but genuinely curious.

Thanks for posting and all of the detail!

We purchased the assets of the existing business, not the existing business entity. So they had XYZ LLC and we created ABC LLC and bought all the assets of XYZ LLC (inventory, equipment, customer lists, emails, website, supplier accounts, etc.). We setup our business entity months before the purchase closed, but it was just a shell with no bank accounts or anything associated with it. Had we purchased XYZ LLC we would have inherited any potential liabilities such as a pending lawsuit, unpaid taxes, etc. If a customer from two years ago claims that we harmed them, we can point them back to the previous owners as we are a completely separate company. Same with  a state sniffing around for sales tax revenue they think we should be collecting and remitting to them - even if we have no nexus in their state.

WGH

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Re: Buying an Ecommerce Business - Our Journey
« Reply #69 on: December 07, 2021, 08:09:18 AM »
We purchased the assets of the existing business, not the existing business entity. So they had XYZ LLC and we created ABC LLC and bought all the assets of XYZ LLC (inventory, equipment, customer lists, emails, website, supplier accounts, etc.). We setup our business entity months before the purchase closed, but it was just a shell with no bank accounts or anything associated with it. Had we purchased XYZ LLC we would have inherited any potential liabilities such as a pending lawsuit, unpaid taxes, etc. If a customer from two years ago claims that we harmed them, we can point them back to the previous owners as we are a completely separate company. Same with  a state sniffing around for sales tax revenue they think we should be collecting and remitting to them - even if we have no nexus in their state.

Right that makes sense in regards to not taking on the liability risk by not purchasing the business entity. But if your new LLC was just a shell with no bank account or credit history albeit with an EIN do you feel like you could have been successful getting a business credit card without using your own personal credit report?

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #70 on: December 07, 2021, 03:26:08 PM »
We purchased the assets of the existing business, not the existing business entity. So they had XYZ LLC and we created ABC LLC and bought all the assets of XYZ LLC (inventory, equipment, customer lists, emails, website, supplier accounts, etc.). We setup our business entity months before the purchase closed, but it was just a shell with no bank accounts or anything associated with it. Had we purchased XYZ LLC we would have inherited any potential liabilities such as a pending lawsuit, unpaid taxes, etc. If a customer from two years ago claims that we harmed them, we can point them back to the previous owners as we are a completely separate company. Same with  a state sniffing around for sales tax revenue they think we should be collecting and remitting to them - even if we have no nexus in their state.

Right that makes sense in regards to not taking on the liability risk by not purchasing the business entity. But if your new LLC was just a shell with no bank account or credit history albeit with an EIN do you feel like you could have been successful getting a business credit card without using your own personal credit report?

That was part of the reason why I didn't do it immediately. I had listened to some podcasts and was getting emails from a company that talked about building up your business credit. They talked a lot about making sure your information matched up and was a business address. Or that you had a website and a real business phone number. Banks get a huge number of fake applications so they look at those kind of data points. Also stuff like your business credit report (Equifax, Equifax, Dun & Bradstreet). Some suppliers will report to those business credit agencies, others won't.

In the end I was able to get a couple of business cards with $25k limits pretty easily. However, I didn't have to lie on the application about my annual revenue which would have been $0 when I first created that LLC. So, a bit of chicken and egg scenario. The reality is they probably looked at my personal credit more since the business basically had no history at that point.
« Last Edit: March 10, 2022, 10:13:42 AM by Michael in ABQ »

sammybiker

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Re: Buying an Ecommerce Business - Our Journey
« Reply #71 on: March 10, 2022, 05:15:19 AM »
@Michael in ABQ   bump, what's the latest?

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #72 on: March 10, 2022, 10:28:57 AM »
Overall, we saw about 10% growth in revenue last year. Month-over-month since we bought the business has been anywhere from flat to up 50% - but overall trending around 10-20% higher. Part of that is price increases due to inflation and our suppliers raising prices an average of 10% or more. Profit is harder to say as we don't have a good handle on our cost of goods sold which is a major expense.

We still have a lot of goals but haven't made as much progress on those as we'd like. Some of the big things for the next month or two is just ordering more inventory - which is difficult when we have a dozen or more suppliers and carry over 2,000 products in stock (plus a few thousand more that we drop ship). After that we need to get our bookkeeping cleaned up. I fired our current bookkeeper at the end of January because the person assigned to our account left (or was fired) and hadn't been doing much since November with some fundamental problems still needing to be fixed (like filing our state sales tax reports for Q3 and Q4). The company apologized and offered two months for free - but they've barely done anything since then - including not filing those back tax reports. They assigned a new person to our account and then a couple weeks later she too was gone. I'm not going to try and salvage it and I've identified a couple of other ecommerce specific bookkeeping companies and had initial calls. Now I just need to pick one, make the transition, and probably spend a few thousand on cleaning up the last 6 months of incomplete/wrong work from the original company. Plus, find a CPA since our current company included tax prep as part of their monthly fee but I obviously won't be trusting them to do that.

After those two tasks, we really need to hire a remote employee to help with catalog management and some other things. Making sure prices are updated, products we list are actually in stock with our suppliers, fix listings, some basic customer support via email, etc. I'm spending way too much time in the weeds doing $10/hour tasks instead of $100/hour tasks.

Our original goal was to move to a new ecommerce platform/shopping cart by this summer. However, that seems very unrealistic at this point until we can get some of these other issues taken care of.

I'm also looking to get some trademarks for a new brand we're starting for our private label products. Those make up about 10% of our sales and since they're exclusive to us, we're not competing against dozens of other stores using the same suppliers.

On the plus side, our suppliers are starting to get things back in stock that in some cases we've been waiting for since the fall. There's still issues but it's not as bad as it was around Christmas.

sammybiker

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Re: Buying an Ecommerce Business - Our Journey
« Reply #73 on: March 14, 2022, 09:26:12 AM »
Sounds good @Michael in ABQ  thanks for the update and congrats on the growth.

The private label route sounds exciting.  Best of luck.

SeeSawSin

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Re: Buying an Ecommerce Business - Our Journey
« Reply #74 on: March 26, 2022, 09:12:34 AM »
Would an existing Amazon FBA business more profitable?

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #75 on: March 26, 2022, 05:01:08 PM »
Would an existing Amazon FBA business more profitable?

It could be. Most Amazon FBA businesses are built on labor arbitrage from China (i.e. buy something that's cheap to make in China because of low labor costs). I'm not interested in that business model for a variety of reasons.

I've seen Amazon FBA businesses with 40%+ net margins but I've also seen some that are making a million dollars in revenue and not profitable because of increased shipping costs, advertising, etc.

One of my criteria for buying a business was something that wasn't dependent on Amazon. It's a great marketplace with huge opportunities, but there's also the risk of completely losing your business to the whims of an Amazon bot that's purposely designed to get 80% of bad actors at the cost of getting 20% innocent sellers. And your only recourse is through a wall of overseas seller support staff who can't do anything but copy and paste form responses and give zero fucks about your problem.

lemanfan

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Re: Buying an Ecommerce Business - Our Journey
« Reply #76 on: March 27, 2022, 01:46:15 AM »
This was a very interesting thread to discover.  I'm getting the urge to start or buy another company some time and this might be one of the models that interest me.  Well not the niche, but the model.

This is mainly a "posting to follow".  :)


Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #77 on: July 01, 2022, 05:04:34 PM »
We're coming up on the one-year mark. Overall, it's been mixed. A lot of the goals I had 6, 9, 12 months ago haven't been met but the business is still running fine and growing. Looking at about 10% year-over-year revenue growth - albeit with inflation and raising prices that's effectively pretty flat. Supply chain issues aren't as bad as they were in Q4 of 2021, but still dealing with a lot of products that are out of stock with our suppliers. One of our main suppliers had their computer systems go down over a week ago and so we can't send any orders to them - plus they've raised their prices substantially to the point where we're not going to reorder some product lines. We just can't justify raising a product from $18 to $25 because our cost has gone from $7 to $13 - especially when we have similar products from other suppliers still at the $7-8 cost.

On the plus side we've been able to keep our advertising costs in line so we're slightly more profitable. The next goal is hiring someone remote to help with customer service and keeping our database updated as far as inventory, what's in stock, costs, etc. After that, probably a local employee to take over some phone customer service and all the pick, pack, and ship in our office/warehouse.

We've also got our older kids helping out a bit more and just put them on payroll. So, some slight tax savings and they can start contributing to a Roth IRA years ahead of their peers (half their minimum wage pay is going to a Roth IRA). Our new bookkeeper is working out great, and a 1/3 the cost of the old one. Our CPA is working on our taxes now and we should get a nice refund, especially with the employee retention credit which will give us 70% of our payroll for Q3 and Q4 of last year. That will be several thousand dollars alone.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #78 on: July 07, 2022, 06:29:29 AM »
Sounds like really good progress on your recurring costs especially during a challenging year. Thanks for the update.

sammybiker

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Re: Buying an Ecommerce Business - Our Journey
« Reply #79 on: July 16, 2022, 09:55:17 AM »
Well done @Michael in ABQ  especially during such interesting times.  Glad to read the update.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #80 on: August 25, 2022, 09:18:40 AM »
One of our major bottlenecks has been our legacy tech stack. Specifically, our ecommerce platform is an older one that doesn't integrate with anything unless it's custom coded. Not a good long-term strategy. We've wanted to move to Shopify which is the dominant player in the market. I finally reached out to a developer to start putting together a scope of work for migrating to a new website with a more modern design. Simultaneously we're looking at a potential rebranding and so I'm also reaching out to graphics designers for a new logo and branding package (colors, fonts, etc.) This is going to run at least $10k+, $20k+ if we purchase a new domain name as well. I was hoping to fund it from cash flow but since we're approaching Q4 we need to purchase a lot more inventory for the Christmas season. I just placed a pretty larger purchase order and still have a few others to place which together will tie up basically all of our cash until December/January.

So now I'm trying to decide if it makes sense to get a line of credit from our bank to fund this project or wait until next year when we hopefully build up enough cash. I'm normally averse to debt but this would be an investment akin to remodeling a retail store. My hope is that not only will this make it easier to operate our business with less clunky manual processes, but it will increase revenue as well. If we can get our conversion rate (percentage of site visitors who actually buy something) to go up from less than 2% to 2% that alone would add probably 20% to our revenue. There's no guarantee that will happen, but we get multiple phone calls and emails each week from potential customers who have trouble checking out on our website. Most are older and not tech-savvy and trying to do it on a phone instead of a desktop. So, it's critical that our new website be easier to use (especially the checkout process) on a phone. I personally don't use my phone for shopping but clearly a lot of people do.

However, I still haven't hired anyone and need to get some final bookkeeping issues from 2021 cleaned up so we can file our taxes and get a nice return.

This still beats working a meaningless 9-5 job where no one can make a decision without 10 meetings and then nothing gets done for months afterwards.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #81 on: August 26, 2022, 05:58:52 AM »
One of our major bottlenecks has been our legacy tech stack. Specifically, our ecommerce platform is an older one that doesn't integrate with anything unless it's custom coded. Not a good long-term strategy. We've wanted to move to Shopify which is the dominant player in the market. I finally reached out to a developer to start putting together a scope of work for migrating to a new website with a more modern design. Simultaneously we're looking at a potential rebranding and so I'm also reaching out to graphics designers for a new logo and branding package (colors, fonts, etc.) This is going to run at least $10k+, $20k+ if we purchase a new domain name as well....

When you say $10k or $20k, are you talking about migrating to Shopify plus the rebranding (logo, etc.)?  Or is that just for the rebranding?  If you can do both for $20k, I suspect it would be a good move and worth taking out a loan.This is even more likely true given those phone calls that you mentioned. Imagine how many are trying to buy but don't bother to call? That means your marketing is working, but they cannot finish the purchase. Yikes.

You mentioned last month that you were looking for someone to help keep the inventory updated - will a new system remove a lot of this problem? (Although I realize that managing the number of physical products you have simply requires some manual/physical oversight.). If you can not hire a person for inventory because of a new system (or even cut back on the number of hours this requires), then you're probably already looking at a quick ROI for the new system. I wonder if there are lots of other tricks that Shopify can do that your current system cannot -- Can you do abandoned cart notifications or other things like that with your current system?

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #82 on: August 26, 2022, 11:41:53 AM »
One of our major bottlenecks has been our legacy tech stack. Specifically, our ecommerce platform is an older one that doesn't integrate with anything unless it's custom coded. Not a good long-term strategy. We've wanted to move to Shopify which is the dominant player in the market. I finally reached out to a developer to start putting together a scope of work for migrating to a new website with a more modern design. Simultaneously we're looking at a potential rebranding and so I'm also reaching out to graphics designers for a new logo and branding package (colors, fonts, etc.) This is going to run at least $10k+, $20k+ if we purchase a new domain name as well....

When you say $10k or $20k, are you talking about migrating to Shopify plus the rebranding (logo, etc.)?  Or is that just for the rebranding?  If you can do both for $20k, I suspect it would be a good move and worth taking out a loan. This is even more likely true given those phone calls that you mentioned. Imagine how many are trying to buy but don't bother to call? That means your marketing is working, but they cannot finish the purchase. Yikes.

You mentioned last month that you were looking for someone to help keep the inventory updated - will a new system remove a lot of this problem? (Although I realize that managing the number of physical products you have simply requires some manual/physical oversight.). If you can not hire a person for inventory because of a new system (or even cut back on the number of hours this requires), then you're probably already looking at a quick ROI for the new system. I wonder if there are lots of other tricks that Shopify can do that your current system cannot -- Can you do abandoned cart notifications or other things like that with your current system?

Our budget for the developer is $5-10k but I expect it to be the full $10k, maybe more. We've got one quote for logo/branding for a couple thousand but I'm going to reach out to a few other graphic designers. We've identified a new domain name that would basically be a shorter version of our current name and the owner wants $10k for that. So, all told we're looking at probably $25k.

A new system will help some with the inventory. A major issue we have is that if we sell a product as singles or packs of 25, we have to manually go in and decrement those 25 (or 50 or 100, etc.) from the number of singles we have in stock. We have a process for that but it's not perfect and we'll go over to the shelf sometimes to pull 100 because our inventory says we have 117 only to find we actually have 92 or just 17.

Another major issue is the fact that we do drop ship some products. This can be really helpful as a customer might place an order for 500 units when we only have 100 and we can usually have our supplier just ship that out directly for a fee of a few dollars and maybe slightly higher shipping costs. The problem is we have no direct link between our system and what inventory our suppliers have on hand. It's all manually updated (and not very often). With a few thousand products spread across a dozen suppliers - most of whom offer no way to check inventory levels except via phone or email - we regularly have to cancel orders or have customers wait weeks or months because something is out of stock. I'm starting to look a lot harder at that aspect of the business. We don't want to completely eliminate it but we have some suppliers that are less reliable or more prone to being out of stock so we may need to stop listing as many products from them - or not allow orders larger than what we have in stock ourselves. But, that creates cash flow issues.

Drop shipping is nice because it has a negative cash flow cycle - that is we get paid before we have to pay for the inventory. The customer places and order for $100 and we get that cash in our bank 1-2 days later. Meanwhile, our supplier doesn't charge us until the product ships and it either goes on a credit card to be paid a few weeks later, or we get 30-day terms before it goes on a credit card. So, we collect $100 and then don't have to pay $50 to our supplier from that $100 for 2-6 more weeks. The other way is that we buy 10 units at $50 each then sell those over several months. We're out $500 in cash up front and it could be a few months before we sell 5 more units to make back the original $500. The last few units are basically pure profit but by the time we get down to 3-4 on hand we need to order more - once again tying up a bunch of cash.

We have an abandoned cart email flow - but our current email system doesn't always recognize when a customer checks out because it's a custom coded integration that's semi-broken. So sometimes we get customers who are confused because they receive an order confirmation and then 20 minutes later an abandon cart email. We had to take the discount code out of that email as it was causing issues where a customer would ask for the discount after they had already checked out. This also means we can't really trust our email system to give us the best data and target customers more granularly based on what they've bought before.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #83 on: August 26, 2022, 12:23:16 PM »
You've sold me on the coding/platform change  and I'm even cool with some money toward branding. Not sure about the $10k for changing your domain name. I hope someone will come along and can speak intelligently about the SEO implications of changing your domain. Would there be any benefit to buying/acquiring several low cost domains and have them feed into your website? I know you have religions items but don't know the specifics, but perhaps $10k would be better spent on domains that may hit some medium to long-tail searches .... like CatholicIcon.com or CatholicRosary.com. ... but now I'm just speculating and don't really know anything about this.

$10k to change to a shopify system when you have thousands of products seems like an excellence use of capital - and even a loan to get started on it right away. I dont' know if I'd mess wiht the system right before Christmas, but ...

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #84 on: August 26, 2022, 02:08:10 PM »
You've sold me on the coding/platform change  and I'm even cool with some money toward branding. Not sure about the $10k for changing your domain name. I hope someone will come along and can speak intelligently about the SEO implications of changing your domain. Would there be any benefit to buying/acquiring several low cost domains and have them feed into your website? I know you have religions items but don't know the specifics, but perhaps $10k would be better spent on domains that may hit some medium to long-tail searches .... like CatholicIcon.com or CatholicRosary.com. ... but now I'm just speculating and don't really know anything about this.

$10k to change to a shopify system when you have thousands of products seems like an excellence use of capital - and even a loan to get started on it right away. I dont' know if I'd mess wiht the system right before Christmas, but ...

When we move to Shopify, essentially every URL will change. So, we have to setup 301 redirects which is a way of permanently telling Google and anyone else where the new page is located. It would be something like changing from old.com/product/1234.html to old.com/category/product 

If we change that new URL to new.com it should pass along all or most of the SEO signals/ranking to the new URL. There's a risk that it won't, but it should.

The main thing the new domain/brand would do is allow us to focus on a broader market as our current domain/brand pigeonholes us in some ways. By keeping it very similar in terms of a new name and branding it should hopefully help current and old customers recognize us as the same company.

As far as buying other domains and setting up content websites - that's a long-term play that we just don't have the bandwidth for. Another benefit of Shopify is we can publish some content like a blog post that could help with SEO. On our current platform we'd basically have to pay a developer to setup any new pages. Definitely not user friendly in that regard.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #85 on: August 31, 2022, 10:18:15 PM »
I just looked at our advertising on Google year-over-year. Even though it feels like we're barely making any headway in the day-to-day grind, when I look at something like that it does show progress. We essentially spent the same amount on advertising in the last 12 months as the prior 12 months (within 1%) but brought in about 12% more revenue. Our ROAS (return on ad spend) went from 4.3 to 4.8. So, for every dollar spent on Google Ads we made $4.8 in revenue. Plus, some of those customers came back through a link from an email or just on their own and that repeat business was essentially free.

And although summer is typically our slow season, we managed to grow revenue almost 30% year-over-year for June, July, August. Hopefully that carries into Q4 which is always a good season for us. It's not the original goal of basically doubling the revenue (and more importantly, profit) in 2-3 years. But if we can keep up steady growth of 15-20% per year we'll double in year 5 or 6.


We have a pamphlet that we get printed locally and sell in singles or packs of 25 or 100. It has very good margins since printing things is fairly cheap and we can ship it media mail for a few dollars even if it weighs multiple pounds. I took a call from a customer the other day who wanted to order 300 as a donation to a priest who was going to give them away. I mentioned how we had another priest in her state who buys 200 at a time and has purchased several times. It turns out, that was how she found out about our product. Nothing beats word of mouth advertising and since we added our URL on the back of the pamphlet I can tell sales have just continued to increase. Lots of our customers purchase products to give them away and end up coming back to reorder. On top of that, the company we use to print them actually dropped their prices recently. Pretty much unheard of when everything other supplier has still been raising prices 10-15% per year (or more).

fuzzy math

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Re: Buying an Ecommerce Business - Our Journey
« Reply #86 on: November 08, 2022, 05:49:31 PM »
Is your wife still putting in a ton of hours? Are you scaling back at your main job any time soon to pivot to only this?

Fascinating journey!! It all seems so foreign to me.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #87 on: November 08, 2022, 08:47:19 PM »
Is your wife still putting in a ton of hours? Are you scaling back at your main job any time soon to pivot to only this?

Fascinating journey!! It all seems so foreign to me.

My wife is working MWF while the kids are at school. I quit my previous full-time job a couple of days before we purchased the business, so I've been all in the whole time.

Today will be our second best (or best) single day since we bought the business. We had two big orders that came in that pushed us to about 2.5-3x an average day.


We had one part-time local employee who was doing piecework sewing some products for us. I asked if she was interested in taking on some additional duties so now she is our new customer service representative. I've been spending a couple hours a day training her and she's already gone through our customer service email inbox and taken it from ~100 unread emails down to about 30-40. She also went through old voicemails (some dating back months) and called back about 15 people today. I'm still dealing with some of the more complicated issues - like taking a big order from a new customer over the phone. I've still got a lot of things I want her to take off my plate but I was spending 2-3 hours a day on customer service so this will free up a lot of time for me.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #88 on: November 16, 2022, 10:16:21 AM »
I was looking at our merchant processing fees (aka credit card processing fees) a few days ago and discovered that the competitive rate we were initially getting was jacked up back in April. I just caught it now, but it probably cost us a few thousand dollars as I wasn't paying as close attention as I should have. I'd been trying to get our bookkeeper to correctly break out those fees and have them reflected in the month they were incurred since they're usually billed on the first or second day of the following month. I was projecting that we could get that fee from about 3.5% that the previous owner was averaging to about 2.5-3.0%. Every dollar saved there goes straight to the bottom line so even half a percent is significant.

So, just a reminder to any business owners out there to keep an eye on your bills to make sure your suppliers/vendors aren't sneaking in a price increase unbeknownst to you.

We were getting interchange plus pricing which basically means we pay the interchange fees set by each credit card company (these are fixed, no business large or small can negotiate them) which vary by card type, plus a premium charged by the merchant processor. We were receiving a competitive rate of 0.15% with no per transaction fee. In reviewing our statements, I see that in April they jacked that up to 0.53% and $0.08 per transaction. So for every $1,000 in sales, we went from paying $1.50 in fees to $5.30 plus the $0.08 fee which probably brings it up to about $7.00. This is on top of the interchange rates which average about 2% or $20 per $1,000 (plus some miscellaneous daily/monthly/annual fees). So that easily works out to about a 25% increase overall (466% on the processing fee itself) just because I wasn't paying attention.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #89 on: November 17, 2022, 08:34:39 PM »
I sent a strongly worded email to our merchant processing account rep yesterday and she responded today that our fees are now back to the original rate. I still probably lost a few thousand dollars but at least I caught it and got it reversed before Black Friday/Cyber Monday. We're on track to have our best month yet in terms of revenue (hopefully in terms of profit as well). Month-to-date sales are up 55% over last November. Of course, it feels like all that profit just goes right back into buying more inventory.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #90 on: January 18, 2023, 08:59:37 AM »
So, just a reminder to any business owners out there to keep an eye on your bills to make sure your suppliers/vendors aren't sneaking in a price increase unbeknownst to you.

I caught another price increase snuck into a recurring bill that's automatically paid. Our property manager for our office/warehouse called me at the end of the year to say we had a small outstanding balance on our account. I thought that was odd since it's setup to pay the balance in full automatically and I'd seen the payments coming out in our monthly financials. When I looked at the detailed transaction history, I saw that our portion of the utilities had gone from $100-150/month to an average of almost $500/month starting in August when our lease renewed. Apparently, the decision was made to bill utilities based on square footage even though one of our neighbors has a far more intensive use (marijuana growing). So, we've been charged about $2,000 extra in the last six months because I wasn't paying attention and questioning the increased bill earlier. Our normal rent and common area maintenance and utilities was a bit over $1,000 per month. So, our utility bill going up $350-400/month is a pretty substantial increase. Our lease is somewhat vaguely worded when it comes to that section - but I think I have a strong argument that we should not be paying the same share for having a few lights and HVAC for 30-40 hours a week as someone running grow lights 16 hours per day and HVAC/ventilation 24/7.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #91 on: January 18, 2023, 03:27:14 PM »
So, just a reminder to any business owners out there to keep an eye on your bills to make sure your suppliers/vendors aren't sneaking in a price increase unbeknownst to you.

I caught another price increase snuck...

Yeah, that's ridiculous. If they don't agree with your logic, I guess you can start a side business where you allow Electric Vehicles to park at your business and you'll leave out an extension cord..... smh

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #92 on: January 18, 2023, 04:45:45 PM »
So, just a reminder to any business owners out there to keep an eye on your bills to make sure your suppliers/vendors aren't sneaking in a price increase unbeknownst to you.

I caught another price increase snuck...

Yeah, that's ridiculous. If they don't agree with your logic, I guess you can start a side business where you allow Electric Vehicles to park at your business and you'll leave out an extension cord..... smh

Our landlord has always been very fair and helpful - though the property manager insinuated that changing how utilities were billed was his decision. That could just be CYA on the part of the property manager since we'd had multiple verbal conversations about how utilities would be based on the increased usage after we moved into the building since each suite wasn't separately metered (used to be a single-tenant building, now there are three tenants). Our lease states that we're responsible for utilities in our leased area - so even though it's not sub metered, any reasonable person would conclude that we shouldn't be paying for the grow lights upstairs. Also, I'm pretty sure there are multiple electric meters and at least part of the upstairs space is on it's own meter as they needed a lot more power than the building was originally wired for with just overhead lights, office equipment, and a rooftop HVAC unit.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #93 on: April 26, 2023, 05:34:37 PM »
We're finally making some traction on our website redesign and migration to a new ecommerce platform (Shopify). Our developer has some good designs for the product and collection pages that we're tweaking now. We're also working on the backend with setting up how to transfer all the data for our thousands of products and tens of thousands of active customer accounts (not planning to migrate the customers who last bought in 2012). We're also working with an SEO (search engine optimization) agency to help us before, during, and after the migration to maintain our organic search rankings in Google. Those bring in about 15% of our traffic and revenue so it's important to maintain that since every single URL is going to change.

Revenue continues to grow on a year-over-year basis by about 20% on average. Still a bit slower than I would like but with faster growth does come cash flow challenges. That means buying more inventory and tying up more cash in that inventory that takes time to sell and get the cash back.

We were finally able to get a line of credit from our bank at just prime +1%. Far better than all the various loan options available online. Most of these are sold as temporary solutions to help manage cashflow but they're basically payday loans for businesses. They'll quote a fee of say 3% on the loan amount and you pay it back over 6 months. Sounds pretty good, that's the equivalent of 6% annually since it's 6 months instead of 12 months, right? In reality the APR is about 15% because you essentially have 6 mini loans each with a fixed fee. So, a 3% fee on a portion of principal that you only have for one month before paying it back now becomes an effective APR of 36%. Month 2 is 18% and so on until month 6 where it's actually 6%. But that's only 1/6th of the money.

Even worse are the loans that take a percentage of your daily/weekly/monthly sales. The faster you pay it back (because you're growing faster) the higher the effective APR. PayPal, QuickBooks, Shopify, American Express, and dozens of others offer this type of merchant advance loans and usually they're even worse than just putting it on a credit card and paying the interest there.

Smokystache

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Re: Buying an Ecommerce Business - Our Journey
« Reply #94 on: April 27, 2023, 09:29:30 AM »
I've seen those offers connected to my business credit cards -- good to know how bad they are without having to read the mice print myself.

BicycleB

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Re: Buying an Ecommerce Business - Our Journey
« Reply #95 on: April 27, 2023, 10:25:49 AM »
Congrats on the line of credit!

Just found this thread, skimmed first 50 posts and the last few. Great reference to understand sample details of buying and operating a real business. I sympathize with needing to track supplier costs to prevent sneaky prices increases. Overall, fine progress; best wishes going forward.

Michael in ABQ

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Re: Buying an Ecommerce Business - Our Journey
« Reply #96 on: April 27, 2023, 10:46:29 AM »
I've seen those offers connected to my business credit cards -- good to know how bad they are without having to read the mice print myself.

Yeah, Kabbage was an early online lender that gained a lot of traction. American Express bought them a while back and just rebranded it. A sales rep reached out to me last year and offered $200 just for connecting my checking account to their platform so they could see our inflow and outflow of cash and use that to make a credit decision. They only offered a measly $2,000 loan initially but it was a 2% fee for 6 months, so I thought that was pretty cheap cash (not realizing the effective annual rate was multiples of that since more of the fee was collected up front). I figured if nothing else once it was paid back, they would offer me a larger loan. After a few months they did finally bump it up to about $40k but by the I had a line of credit from my bank (or the option for a fixed rate loan with a 2-5 year term) and realized that 3% fee from Amex was effectively 15-20% APR.

If you can get a 100% annualized ROI then borrowing money at 20% APR may make sense in some cases - but that's not the case for our business. All of these online lenders are basically counting on the fact that a lot of small business owners are not very good at math and will see a 12-month loan with a 5% fixed fee as equivalent to 5% APR - and therefore way better than a credit card or other source of funds. In reality it's multiple times higher and a business can quickly get upside down and all their cash is going to pay back these loans.