The Internet marketplace has seen accelerated growth with rapidly evolving e-commerce technology. The availability of several low cost marketing and advertising resources like the social and professional networking sites has no doubt changed the way we live, interact and shop. It has therefore opened up more opportunities for doing business on the Internet.
The low-cost, high impact e-commerce opportunities has seen several new entrants to the Internet marketplace; some of which have only an Internet presence without the brick and mortar store. Like any other business strategy, there is an upside and a downside to this. This article is focused on the exclusively online seller of tangible products.
The greatest incentive to do business entirely online is no doubt the much reduced cost when compared to running a physical storefront. These savings can be realized in several operations of the business.
Firstly, operating a sales outlet online requires comparatively minimal startup time and investment. This is especially crucial for the small business owner. Continuous improvement and reduced cost of required technology amplifies this advantage.
Secondly, the Internet offers realistic effective low-budget marketing techniques. Using the web to market products offers a twenty-our hour daily worldwide reach at a nominal price tag. Online marketing techniques (like pay per click, affiliate marketing, and the age old word of mouth referral which has been given a technological boost through Internet networking sites) all offer cost effective marketing. Simply being on the Internet though, does not guarantee sales. The business must articulate its marketing strategies and techniques, as well as deploy these strategies properly.
Other areas of cost saving are in inventory management, overhead and employee cost. Effective deployment of technology to supply chain management (the management and movement of goods from vendor to customer), can see inventory holding cost reduced dramatically in some instances the seller does not need to have physical inventory of an item to sell it. He simply acts as a retail storefront for a producer or wholesaler and simply gets the goods shipped directly from the producer or wholesale to the end user when it is ordered.
On the flip side, the very advantage of low barrier to entry brings many more players into the field, quickly creating stiff competition and reduced profit margin, since the business model can easily be duplicated. A small business which is exclusively online must articulate its long term strategy for survival over the competition.
The exclusively online business will be limited in the product offering because the very nature of certain products makes them unsuited for Internet sales. The perishable nature of food typically excludes it from online trade. The online sale of pet food was unsuccessful largely due to the bulky nature of the product making shipping cost prohibitively high. An online business would need to eliminate low margin items in deciding its product offering.
Because the online store is open round the clock, offering customer service becomes a challenge, since customers usually equate quality customer service with personal interaction. The absence of this rightly or wrongly leaves a wrong impression on the customers mind.
Another challenge for the online store is the cost of shipping especially on bulky items. Internet shoppers are basically bargain shoppers, and so would prefer the 'store pick up' option in saving on shipping cost. This is an option not provided by the exclusively online store. The 'store pickup' gets even more attractive because it eliminates the difficulty and expense of making a return.
For the most part, experience has shown that many client prospects still view the Internet primarily as a place for research rather than purchase. Herein lies the major drawback for the Internet only seller. In order to increase its sales, in 2007 DELL, which hitherto was primarily a direct marketer harnessing amongst other resources the power of the Internet, decided to partner with 'brick and mortar' stores. This became necessary because, research showed that a number of shoppers would do initial investigation on the Internet and then go into a physical store to make a purchase. This is a business model that IKEA USA has also used to its great benefit. In the USA, IKEA typically has very few shops in any locality. Most clients make their choice online, and then go into the store for pickup.
The Internet no doubt provides a real possibilities, especially for the small business to attain a market reach that up until now would have been impossible. But like every opportunity it posses challenges that can only be overcome through having a proper business strategy.
Wednesday, September 1, 2010
Business Purchase Options
In its simplest terms a business can be purchased in two basic ways: asset purchase and stock purchase. Whatever form of purchase is used there are numerous way of financing the transaction.
Stock purchase refers to the purchase of the entire entity, which most often involves a corporation's stock or other means of ownership (e.g. LLC units for a limited liability company.) The buyer in effect steps into the shoes of the seller, and the operation of the business continues in an uninterrupted manner. Unless specifically agreed to, the seller has no continuing interest in, or obligation with respect to, the assets, liabilities or operations of the business.
A stock purchase basically means you are investing and buying everything the seller owns including stocks, assets, and liabilities, the right to sell products as well as the intangible assets (logo, patents or client list, domain names, copyrights, licenses, distribution agreements, secret processes and formulas, informational databases, software systems and core technology).
In an asset purchase on the other hand, the seller retains ownership of the shares of the business. Only assets and liabilities which are specifically identified in the purchase agreement are transferred to the buyer. All of the other assets and liabilities remain with the existing business. The buyer must either create a new entity or use another existing entity for the transaction.
The preferable method is a matter of the facts of the specific transaction. But some of the highlights for both parties are enumerated below.
The Seller
In a stock purchase, the seller has no continuing interest in, or obligation with respect to, the assets, liabilities or operations of the business. This may be preferred because it allows the seller to completely step away from the business.
Another benefit could come from taxes. The seller realizes a gain or loss on the transaction based on sales price and initial worth of stock. The gain is taxed at the lower capital gains tax rate and the loss may in certain circumstances (S.IRC Section 1244) be deductible against ordinary income.
The Buyer
A major attraction of the asset purchase is that buyer can pick and choose which liabilities they want purchase.
If the business has a significant number of actual or potential liabilities, which are difficult to value, then asset purchase is a great way to buy the business. A stock purchase though may prove beneficial where the business is doing well and owner is selling possibly due to retirement. The buyer assumes good performing assets and liabilities and the goodwill of the business. The opposite would be true if the business were poorly managed. Additionally in asset purchase tax benefits would usually accrue to buyer. These may take the form of larger tax depreciation due to write up of assets.
In conclusion, in order to reap the benefits of purchasing an existing business, due diligence in researching the venture is of utmost importance.
Sources
http://www.bizquest.com/resource/basic_deal_structures__stock_purchase_vs_asset_p-23.html
http://www.brighthub.com/office/entrepreneurs/articles/38681.aspx
Stock purchase refers to the purchase of the entire entity, which most often involves a corporation's stock or other means of ownership (e.g. LLC units for a limited liability company.) The buyer in effect steps into the shoes of the seller, and the operation of the business continues in an uninterrupted manner. Unless specifically agreed to, the seller has no continuing interest in, or obligation with respect to, the assets, liabilities or operations of the business.
A stock purchase basically means you are investing and buying everything the seller owns including stocks, assets, and liabilities, the right to sell products as well as the intangible assets (logo, patents or client list, domain names, copyrights, licenses, distribution agreements, secret processes and formulas, informational databases, software systems and core technology).
In an asset purchase on the other hand, the seller retains ownership of the shares of the business. Only assets and liabilities which are specifically identified in the purchase agreement are transferred to the buyer. All of the other assets and liabilities remain with the existing business. The buyer must either create a new entity or use another existing entity for the transaction.
The preferable method is a matter of the facts of the specific transaction. But some of the highlights for both parties are enumerated below.
The Seller
In a stock purchase, the seller has no continuing interest in, or obligation with respect to, the assets, liabilities or operations of the business. This may be preferred because it allows the seller to completely step away from the business.
Another benefit could come from taxes. The seller realizes a gain or loss on the transaction based on sales price and initial worth of stock. The gain is taxed at the lower capital gains tax rate and the loss may in certain circumstances (S.IRC Section 1244) be deductible against ordinary income.
The Buyer
A major attraction of the asset purchase is that buyer can pick and choose which liabilities they want purchase.
If the business has a significant number of actual or potential liabilities, which are difficult to value, then asset purchase is a great way to buy the business. A stock purchase though may prove beneficial where the business is doing well and owner is selling possibly due to retirement. The buyer assumes good performing assets and liabilities and the goodwill of the business. The opposite would be true if the business were poorly managed. Additionally in asset purchase tax benefits would usually accrue to buyer. These may take the form of larger tax depreciation due to write up of assets.
In conclusion, in order to reap the benefits of purchasing an existing business, due diligence in researching the venture is of utmost importance.
Sources
http://www.bizquest.com/resource/basic_deal_structures__stock_purchase_vs_asset_p-23.html
http://www.brighthub.com/office/entrepreneurs/articles/38681.aspx
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