The shopify exchange is a platform where ecommerce store sellers can list there sites directly through shopify without having to go to a third party brokering site like empire flippers, flippa, or website closers. Company revenue is pulled directly from the sellers store for maximum transparency.
So, you just saw a store with insane monthly revenue on the shopify exchange and your drooling at the mouth to acquire it. You’ve bookmarked the listing, told your wife your tired of the 9-5 grind, and went to go test drive a lamborghini. Not so fast! If you’ve never bought a business before read this entire guide. Lets go over the basics first.
How Does The Exchange Work?
Once a seller lists their store on the exchangemarketplace anyone can inquiry about it. Unlike other brokering sites there are no barrier to entries. For instance empire flippers requires you to put a significant down payment to inquire about one of their websites. Other sites make you sign an NDA at the very least to see information about the business. The exchange is a place where you work out all the details with the buyer.
Creating an account
To create an account click on sign in -> connect via facebook/google
Searching for a company to buy
You can browse all listings or click on each individual category
You can also click on sitemap at the bottom of the page to see a full directory of all of the pages you can visit. THis may be a better option if you don’t like the dropdown layout in the menu bar.
Click browse all you get the benefit of filtering listings by Price, revenue, age, business type & industry.
Sort by business health, revenue: high to low, revenue: low to high, price: high to low, price: low to high, & most recent.
Get these advanced filtering options for any category by clicking on “browse businesses”
Sort by rank instead of listing image. You will be able to skip the poorly performing sites. The image of the website literally doesn’t matter.
The Perfect Store
In a nutshell the perfect store is sustainable with a great reputation. These are some of the characteristics of a really good ecommerce business.
- Multiple winning products
- Big email list (20k+)
- High AOV ($50+)
- Multiple suppliers
- Exclusive products
- No Amazon listing
- Low Facebook CPA’s (Cost Per Action)
- Multiple ad accounts
- High reviews & ratings
- Monthly recurring revenue
- Standard operating procedures (SOP) clearly documented
- Revenue trending upward
Finding a store with all of these features will be almost impossible. However at the very least make sure the revenue is trending in an upward direction.
These are some red flags you should look out for when considering to buy a business. As someone who has been in acquisitions for 4 years having to deal with the side effects to these items listed below is a super headache.
- Ad account disabled
- Traffic mainly coming from facebook
- Poor shipping speed
- Poor customer service
- Sales coming from 1-2 products
- Cogs not matching P&L
- Lack of documented operating procedures
- Lack of return customers
- Low AOV ($15-$20)
- Revenue trending downward
As your can see in this screenshot this particular store’s revenue has went from 1.8M in 1 month to negative 5k in a month yet the list price is 400k. Obviously stay away from these types of stores if your looking to pay a premium. Your money is best spent on something else. Most of the red flags can only be found out on a due diligence call. The more calls you have the better.
Here is an example of a store that has 90% of their traffic coming from facebook ads. Buying a store like this would be like playing russian roulette. One small facebook policy change could mean the end of your newly acquired business.An even traffic distribution is a good sign of a healthy business Click To Tweet
How To Read An Income Statement
Simple Investing Definitions
P&L – Short for profit & loss. This document shows you everything you need to know about business such as revenue & expenses.
Gross Revenue – Gross revenue is cash earned before fees ,cogs, or expenses are calculated.
Net Profit – Net profit is cash earned after all expenses are calculated.
EBITDA – Stands for earnings before interest, taxes, depreciation , & amortization. Essentially its the net profit before taxes are taken out from the government. Typically not calculated with ecommerce stores. Still good to know.
Expenses – All expenses that keep the business running. Cogs not included.
Cogs – Stands for cost of goods sold. This is the “inventory” of the business. Dropshipping stores don’t have inventory so cogs are paid the same day orders are made.
Margins – Margins are calculated by subtracting revenue minus cost of goods divided by revenue. For instance if a seller made $75,000 in october and their cost of goods sold was $27,000 their margins would be 64%. High margins mean you can spend more on advertising.
An amazing quote from jeff bezos:
Your margins are my opportunity
Profit & Loss Template
Ecommerce P&L’s are different than traditional income statements. They are way easier to document finances & can be done with much fewer fields than lets say someone who owns a laundromat.
One thing about the exchange is that they don’t require for sellers to upload a P&L which will make your job a tab bit harder. Luckily I put together a P&L template that you can download for free below.
The seller doesn’t want to put together a P&L, now what?
Sometimes a seller won’t have a P&L to show you and may not be willing to put one together. Don’t ask why, typically you will be dealing with people who aren’t used to putting together financial statements. On rare occasions you can put together a P&L for them to make their life easier. This is how you get people to sell their store faster. All you need for this method is to know what are the revenue, cogs, and advertising expenses. You can guess the margins. This is more advanced so use it with caution. You have to be able to look at the important parts of the business and be ok with numbers being a little off since its a guestimation.
With the lazy seller method it’s actually beneficial if they are selling only 1-2 items. This will make your life way easier since you won’t have to account for multiple products all priced differently.
Can you get a loan to purchase a shopify business?
The short answer is yes. However its not that simple. Ecommerce businesses are the hardest type of businesses to get funding for. You will understand why in this chapter.
Let’s face it, not everyone buys stores with all cash. An ecommerce stores fundability index greatly determines how many buyers will be interested in pulling the trigger on doing a deal. Here are some things to look for to better your chance of getting funding.
An ecommerce business with inventory is more valuable than one without inventory. This is because Asset based lenders like Summitfr are able to leverage against the companies assets as collateral just in case you don’t pay back the loan. Your able to get up to 85% of inventory value typically.
Sort by stores that have inventory by clicking on Browse -> business type -> inventory
Below is a screenshot of the funding requirements from summitfr an asset based lending company. If the company has no assets they will just laugh and say they aren’t interested in lending to you.
Another big factor in getting funding for an ecommerce store is its site age. A store that was only started a few months ago has literally 0 chance of getting funding unless your ready to sign a personal guarantee. In the screenshot below this particular store is only 3 months old with only $500 worth of inventory. You wouldn’t even be able to get a 10k loan for this.
You can also double check the site age of the website itself by using tools like whois.com The shopify store may say 1 year however you may find out the domain actually existed for much longer. They could have sold items on another ecommerce platform. These are things you need to know.
Sadly most dropshipping stores are not set up properly. Transfering the website is no problem however if your looking to leverage against a shopify stores assets they have to have be incorporated for it to work. One way around the LLC issue is to merge the business with your entity. If your serious about buying ecommerce stores make a holding company and age it. This way your not sol when it’s time to buy a business. Depending on how the accounting is setup it could be a chore to do it all yourself. Go on upwork to find an accountant who specializes in mergers & acquisitions. I’m in talks with a really good one who gives me all types of advice over the phone at a good rate.
Just be careful with merging with another ecommerce brand. According to a study conducted by ResearchGate 45% of companies that fold were apart of a merger & acquisition.
|Cause Of Company Death||Mortality %|
|Mergers & Acquisitions||45%|
My favorite subject..Similar to a business being incorporated having tax documentation is super crucial to being able to get funding. A profit and loss is simply not enough information for the big institutions. You will need at least a year’s worth of tax returns to be taken seriously by investors.
Out of everything on the list this is the only thing that is your responsibility. Your credit score. Without a decent credit score it will be hard to borrow money even if all of the above items were checked off the list. A personal guarantee is when you
Financial Institution List
Congrats!, you just found a shopify store that meets all of the above criteria.
- Has inventory
- Older than 1 year
- Has tax returns
- Personal credit score above 700
Here is a list of places where you can get funding to buy a (good) shopify store
The bottom line is it’s tough to find the perfect ecommerce business to get substantial funding. The good news is you have more options when it comes to working capital. So if your looking to get easy funding after you buy a shopify store read my shopify review where I talk about the top lenders who are ecommerce friendly.
Now that you see a business your curious about & have explored potential funding routes it’s time to send some outreach messages.
Click on view listing -> contact seller.
“Hi Name/Storename ,
Great listing, do you happen to have a P&L for the business? I can sign an NDA if needed. I’m a serious buyer looking to close on something this month. Thanks
Great listing, im fascinated about [niche] name and was looking for a business like yours to buy. What times are you free to chat this week?”
If they respond get them to hop on a call with you. Don’t chit chat too much on the exchange platform. Make sure to keep track of who you have talked too. Unfortunately the exchange doesn’t make it easy to go back and check. Each message is has the listing # only and not the seller name so you will need to create a custom spreadsheet. Use this CRM spreadsheet until they come up with a better UI.
How to conduct the proper due diligence
Being able to quickly do DD is a skill. Once you’ve ran multiple stores you know what to questions to ask and what warning signs to look out for. This is how you properly handle due diligence.
Schedule multiple calls
Your going to want to schedule at least 3 calls with the seller. You can do skype, zoom, google hangouts, or even old fashion telephone call. Get something set in your calendar and get your questions ready. As a buyer you need to have a list of things that answer all of the major concepts that you need to know. Read the sellers listing in detail before asking the following questions. A lot of it can be found in the brief.
PS use calendly to schedule your appointments. It’s better to get something written in stone instead of going by verbal agreement. People are human so they forget. This will make you stand out from the other buyers.
Questions To Ask On The Calls:
- What percentage of the traffic comes from facebook ads?
- How many suppliers do you have?
- Have you ever been banned from facebook?
- What’s your shipping time?
- Where does your supplier ship from?
- What’s your facebook feedback score?
- Why are you selling the business?
- Do you plan to sell a similar item?
- Who is doing customer service?
- What’s your AOV?
1st Call: The first call is going to be mainly about building rapport with the seller and getting a feel for why they started the business in the first place. If the seller doesn’t seem like someone you would be willing to do business with then you may want to consider looking for another website. You want there to be some good vibes because the seller is the one who will be helping you during after the sale. If they are mean, grumpy, or rude you should expect not to here from them after the sale has been complete. Shopify isn’t responsible for them helping you either. So pick wisely.
2nd Call: The second call is when you will dive deep to verify the numbers. See if there are any weird inconsistencies or missing components that would make the business not operate as it should. Go over the red flags list multiple times before the call.
3rd Call: The third call is a double check procedure. Making sure nothing has changed since the last meeting. You would be surprised at the type of funny business that can occur during due diligence. Make sure they haven’t stopped their facebook ads. As you may know it takes facebook time to reoptimize once ads are off.
4th Call: The fourth call is onboarding & transfering of the accounts. You will need access to every asset that is attached to the business. Do not let the seller keep any of the assets unless worked out verbally. We let a seller we knew keep a social media account because we didn’t see use in it and we’ve done business before. However when your getting started don’t get fancy, have them send over everything.
How Much Access?
You may be wondering “How much access should you be expecting?” Well as a buyer you have more leverage when it comes to the acquisitions process. When you find a really good store you want sign an NDA and request access to the following things
- Shopify reports & dashboard access (partial access)
- Facebook ads access (as an analyst)
- Google analytics access (full access)
- Helpdesk access (To check customer service, full access)
If your a seller giving I suggest just giving people access, its not that big of a deal. Just use common sense. I’ve personally never had an issue letting a buyer double check the stats. When your selling bigger stores you will be dealing with legit people. This is why the first due diligence call is so critical. If the buyer sounds like an 18 year old that just wants to get competitor intel then don’t let them see anything. However if they are an someone that talks with sophistication then you go right ahead.
Your also going to want a non compete agreement signed. The more you pay for a store the longer you should stretch out the non compete duration. For your safety. A lot of dropshippers are smart, they will sell the same thing the first chance they get so be strict on your agreement. If you have a lawyer let the seller know know. Rocket Lawyer has a nice non compete template.
Hope this guide helped! If your looking to buy a new shopify business & need marketing help feel free to drop us a line. We are a full service ecommerce marketing agency that makes good brands great. Schedule a call here and get a free audit.
I recommend getting your email sequences built out first after you buy a website. This is the most painless way to increase your revenue without increasing ad costs.
Frequently Asked Question
How trustworthy is shopify exchange?
Shopify is partnered with escrow with handling the transfer of the assets. Shopify itself is trustworthy. It’s more the sellers you have to look out for. Although the revenue numbers directly come directly from shopify it doesn’t mean you will make anywhere near what the store has historically made. With a 90% facebook traffic distribution you can expect lots of ups and downs and even the business folding overnight which I’ve seen millions of times to buyers.
How to see if a shopify store was purchased on the exchange?
Simply type the shopify store name in google and see what comes up. Sites like the exchange and flippa.com have very high domain authority so if a site is listed with the store title in the listing it will rank in google. This all depends on how long these sites keep old listings in their database. I know flippa used to keep data for a long time. You can also check the backlink profile of a website with ahrefs to see if it has gotten a link from any of the buy & sell websites. Super ninja tactic. This may change though so don’t take it as gospel.
I’m a seller, what info do I need to give to the buyer?
Make sure to have your profit and loss ready. This is the bare minimum documentation needed. Bonus points if you can provide a balance sheet, , tax returns, incorporation proof, & seller certificate. The latter are not needed especially for ecommerce stores. Just remember the more fundable your store is the higher your chances of selling it for a lot.